After yesterday's €132 billion euro 90 day LTRO seemed to indicate that all is well for European banks and that up to €310 billion of liquidity could be withdrawn, today's stunningly bad result in the follow up 6 Day liquidity providing fine tuning operation, in which another 78 banks bid for €111.2 billion worth of reverse repo cash, at the same rate as yesterday's 90 Day, or 1%, indicated that all is, after all, bad for European banks, who further more can't seem to realize that when given the opportunity to luck up funds for 90 days versus 6 days, you always go for the former. In other words, the liquidity crunch in Europe is just as bad as everyone had feared.
But don't take our word for it: as a result of this disappointing result, Euro LIBOR rates surged Thursday, with the 3-month LIBOR rate rising more than 1 basis point to hit its highest level since September 21 last year, Market News reports.
On Thursday, while sterling 3 month LIBOR held steady and dollar 3 month LIBOR declined by a negligible 0.06 bps, euro LIBOR rates surged.
With OIS, a proxy for market interest rate expectations falling markedly, the LIBOR/OIS three month spread widened just over 3.1 basis points on the day.
And just to make things even worse, use of the ECB's deposit facility, is once again climbing to record highs, hitting €309 billion last night, as banks once again have no interest in lending their money out either to each other, at LIBOR/Euribor rates, or to the general population at 29.95% APR.