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LI(E)BOR Friendo'd; European Liquidity Corzined

Tyler Durden's picture




 

Three things are occurring in European liquidity markets that should send shivers down the spines of the most ardent bulls or believers in the status quo muddle-through scenario. First, 3-month LIBOR is waking from the dead having risen today after weeks of flat-lining in its irrelevant manner. Second, Deutsche Bank was the main driver of today's uptick in 3-month LIBOR (joining UBS as the only other bank in the LIBOR family post LTRO2 that has raised its willing offer rate for short-term liquidity). And third, most importantly, 3-month EUR-USD basis swaps (that expensive but anonymous market-based investment vehicle to find USD funding) have exploded with their biggest deterioration in five months pushing the premium that banks are willing to pay to receive USD over EUR to its highest in almost 4 months. So while Draghi suggests that we wait to see the effects of LTRO filter through to the rest of the real economy, once again he is clearly incorrect as banks are now desperately seeking liquidity (USD-based in this case) with short-term swaps only having been worse in the middle of the crisis last Fall and UBS and Deutsche Bank willing (or forced) to pay up for short-term money.

UBS and now Deutsche Bank are seeing higher offer rates in the LIBOR estimates...(reflective of both their willingness to pay up for liquidity and other bank's uncertainty with regard their credit worthiness)...

And 3 month EUR-USD basis-swaps just snapped. The largest deterioration in five-months to the worst level in 4 months implies European banks willingness to pay up significantly for USD funding as we revert back into funding crisis mode...

and this time - there can be no LTRO to save the day (especially in Spain) as there is simply no collateral left to pledge - so either its a reach-around direct ECB monetization or someone is about to get friendo'ed.

 

Charts: Bloomberg

 

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Wed, 05/09/2012 - 09:34 | 2409655 Rastadamus
Rastadamus's picture

MAMA!!!!

Wed, 05/09/2012 - 09:38 | 2409664 GetZeeGold
GetZeeGold's picture

 

 

Here's Jonny!!!!

 

Wed, 05/09/2012 - 09:46 | 2409693 ACP
ACP's picture

You know...you don't have to do this (in Southern accent).

Wed, 05/09/2012 - 10:10 | 2409775 kridkrid
kridkrid's picture

People always say the same thing.

Wed, 05/09/2012 - 10:47 | 2409922 Max Hunter
Max Hunter's picture

Second best movie.. after Unforgiven..

Wed, 05/09/2012 - 09:35 | 2409656 Money 4 Nothing
Money 4 Nothing's picture

VIX Vaporizer. Not just for colds anymore..

Wed, 05/09/2012 - 09:36 | 2409658 SheepDog-One
SheepDog-One's picture

Good morning Friendo's! CALL IT!

Wed, 05/09/2012 - 09:38 | 2409668 lynnybee
lynnybee's picture

'vaporized'  ... new economic terminology.    on a side note, thanks for all the great reading this morning.   i've been glued to this website & reading it all, super stuff & thank you.

Wed, 05/09/2012 - 10:20 | 2409788 BLACK_DOG
BLACK_DOG's picture

I agree! Great stuff from the peps on ZH!

p.s. the new facebook?

 

Wed, 05/09/2012 - 09:39 | 2409669 jus_lite_reading
jus_lite_reading's picture

Whoopsie!! Gonna get expensive to get yo' money fool!!

LMAO

The LIBOR is like a barometer to liquidity... the pressure is dropping rapidly to 800mB and dropping!!

I am hearing all sorts of things coming out from China that Iran is now accepting Yuan and gold for oil and have rejected exports shipment in Euros... very interesting if true!! No wonder Israel is so eager to start a war!!! LMAO!!

Wed, 05/09/2012 - 09:43 | 2409682 SheepDog-One
SheepDog-One's picture

Yea their 'trade embargo' against Iran blew up in their face....these fancy know-it-all wingtipper people forget the Persians invented chess.

Wed, 05/09/2012 - 12:35 | 2410284 11b40
11b40's picture

Yep.  It was doomed from the start.  All anyone has to do is:

1.) Look at a map and note just how much of Iran's borders surround the Gulf, how narrow the Straits of Hormuz are, and how many other oil exporting countries border the Gulf and must ship through that narrow passageway.

2.) Understand Irans capabilities to mine the entire gulf with some very sophisticated (but relatively cheap) hardware....think I.E.D.s on steroids.

3.) Check Russia's committment to their major base in Syria.  Hint.  It means A LOT to them.

4.) Have some clue about China & India's need and desire for Iranian oil.

5.) Know anything at all about insurance rates for tankers.  One loud bang, and all tanker traffic will stop.

Too bad American leadership is, and has been for a long time, just a bunch of dumb, arrogant chest-thumpers.  Iraq is falling apart, we are still bogged down in Afghanistan, and now we think we can dictate to the Iranians with no consequences.  Ha!

Wed, 05/09/2012 - 09:44 | 2409688 the not so migh...
the not so mighty maximiza's picture

More loss of confidence inbound.

Wed, 05/09/2012 - 10:12 | 2409783 BLACK_DOG
BLACK_DOG's picture

they are not "civilized"

Wed, 05/09/2012 - 09:46 | 2409695 Dr. Engali
Dr. Engali's picture

Well I guess there's only one think to do....Ben fire up the printers.

Wed, 05/09/2012 - 10:05 | 2409766 Sauk Leader
Sauk Leader's picture

Can someone please check his excel spreadsheet to see if we got any of his Hot liquidity injection back from the last intervention? I hope he didnt delete the file by mistake.

Wed, 05/09/2012 - 11:32 | 2410114 Money 4 Nothing
Money 4 Nothing's picture

Bullish on HP?

Wed, 05/09/2012 - 09:47 | 2409699 Winston Churchill
Winston Churchill's picture

I thought they could keep the SHF off until after the Obumney

coronation in November.Not now.

I used to be indecisive,but now I am not so sure.

Wed, 05/09/2012 - 09:49 | 2409712 SheepDog-One
SheepDog-One's picture

I thought differently, I believed they wanted a summer of chaos and mayhem. 

Wed, 05/09/2012 - 09:53 | 2409737 Dr. Engali
Dr. Engali's picture

I agree. I think it gets worse as we get closer.

Wed, 05/09/2012 - 11:27 | 2410086 donsluck
donsluck's picture

I don't know who the "they" you refer to, but the Dems would surely like things to calm down. These events are under no-one's control. This is uncontrollable financial nature. The storm has to pass before things can be mopped up.

Wed, 05/09/2012 - 09:50 | 2409721 vote_libertaria...
vote_libertarian_party's picture

woop dee doo...2 people got eliminated on a dancing show last night

Wed, 05/09/2012 - 09:53 | 2409735 GetZeeGold
GetZeeGold's picture

 

 

I don't follow that....I only watch American idle.

 

Wed, 05/09/2012 - 10:04 | 2409760 justinius1969
justinius1969's picture

Well..not quite exploded yet gentlemen.. currently trading -48 from -41 two days ago.. Although I concur this will explode pretty soon.. lets not tempt fate..

Wed, 05/09/2012 - 10:10 | 2409777 Arnold Ziffel
Arnold Ziffel's picture

"Signs the Economy is Improving"

 

More wealthy families seeking financial aid for private school

 

http://finance.yahoo.com/news/more-wealthy-families-seeking-financial-10...

Wed, 05/09/2012 - 10:12 | 2409782 Catullus
Catullus's picture

This is only other thing that destroys the muddle-through scenario right now: the inability for commercial banks to issue new fiduciary media. Which means the target date for LSAP should be pulled forward if the Fed doesn't want this getting out of hand.

Waiting for announcement of "greater coordination of swap arrangements with the ECB and BoJ."

That CHF/EUR target needs to get tested again.

Wed, 05/09/2012 - 10:36 | 2409880 gallaghd5099
gallaghd5099's picture

Could someone please explain why the Euro banks need USD funding versus Euro funding. Also is this funding problem connected to Hollande's desire to move to  BRIC basket as a reserve currency?

Wed, 05/09/2012 - 11:07 | 2410019 theTribster
theTribster's picture

One word Rehypothication, collateral problem now solved Spain - just transfer the payment to my account (in USD please).

Wed, 05/09/2012 - 11:52 | 2410164 YesWeKahn
YesWeKahn's picture

When criminals' last name become a verb, we all get bernanked.

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