Here’s a whole heap of Libor fixings for you.
To begin with, the 3-month euro London Interbank Offered Rate, or the cost for banks to borrow money over three months in the eurozone currency, which fell to a record low of 0.58 per cent on Tuesday:
And 3-month dollar Libor, which made a rather different sort of record on Tuesday.
It reached a six-month high of 0.29 per cent:
Of course, the picture is very different if you extend it back to 2000:
We’re still very much in loose and liquid times, then, but they are evolving; discrepancies are appearing. And that’s very much down to the various monetary policy strategies being operated by central banks.
Note, for instance, that yen-denominated Libor fell below dollar Libor for the first time since August, earlier this month, when the Bank of Japan looked like it would enlarge its Quantitative Easing programme and after the Fed made baby steps towards tightening. It’s currently at 0.24 per cent.
The FT describes the diverging Libor rates in Wednesday’s paper:
In contrast, the cost to borrow three-month money in dollars hit a six-month high ahead of the end of the US Federal Reserve’s quantitative easing programme today [Wednesday]. The dollar rate rose to 0.29 per cent.
The [European Central Bank] has sought to stimulate the financial system with the offer of cheap loans to banks. This means the euro markets are likely to remain flush with cash until July when banks return nearly €500bn ($673bn) of one-year funds to the ECB, more than half the outstanding liquidity in the system.
There is one thing that’s happening in the eurozone today too; the ECB is holding its last six-month Long-Term Refinancing Operation (LTRO) — one of its liquidity ops.
The 12-month version ended with a whimper in December. For the last six-month operation, traders are expecting about €70bn of loans to be requested from banks. The amount that does end up being requested will wind up having an impact on European money markets.
As Reuters explains it:
“Whatever the demand at the six-month tender, excess liquidity will increase and so the Eonia (overnight rate) will remain at the lows,” said Patrick Jacq, strategist at BNP Paribas in Paris.
Excess liquidity will persist until the middle of the year when banks return nearly half a trillion euros of one-year funds to the ECB, more than half the current outstanding liquidity. This should then cause the Eonia overnight rate to rise towards the ECB’s benchmark 1 percent rate from around 0.3 percent currently.
The speed at which Eonia will climb depends on how much banks bid for the six-month funds, Jacq said. “The more demand at tomorrow’s six-month tender, the less pressure there will be at the end of June.”
Related links:
Euro and dollar Libor pushed to record levels - FT
Beware, repo rates are on the rise – FT Alphaville
Libor-gazing, counterparty-casing – FT Alphaville
So farewell, 12-month LTRO - FT Alphaville