MONEY MARKETS-Euro interbank rates seen rising; ECB refis eyed

* Interbank euro rates steady to easier on excess liquidity

* Focus on banks’ demand for ECB loans this week

* Spanish repo market improves; Greek repo still frozen

By Emelia Sithole-Matarise

LONDON, Nov 8 (BestGrowthStock) – Benchmark euro bank-to-bank
borrowing costs mostly edged lower on Monday but some analysts
see them moving higher as banks hold onto excess cash as the
European Central Bank’s new reserve maintenance period starts.

The money market was also cautious ahead of the repayment of
about 35 billion euros in 6-month funds to the ECB with some
analysts expecting some of the loans to be rolled off into
seven-day and one-month refinancing operations being held to
smooth over the repayment.

The ECB will likely allot 178 billion euros ($248 billion)
at its seven-day refinancing operation on Tuesday, almost the
same as last week’s 178.35 billion euros, a Reuters poll showed
on Monday.

At the one-month operation this week, euro money-market
dealers expect the ECB to allot a median 50 billion euros with
forecasts ranging from 20 billion to 100 billion.
[ID:nLDE6A71B3]

“I wouldn’t be surprised to see demand for liquidity
increasing slightly for banks not to be too short at the start
of the reserve maintenance period,” said Patrick Jacq, a rate
strategist at BNP Paribas.

“The 35 billion expiring this week on the 6-month was a
tender which was mainly asked for by Greek and other
(peripheral) banks who had difficulty accessing liquidity. It
would be a surprise to see demand being lower than the expiring
amount,” he said.

Ahead of the refinancing operations, overnight rates
(EONIA=: ) dropped to 0.365 percent on the still significant
oversupply of ECB liquidity washing around money markets. Excess
euro zone liquidity is just over 57 billion euros, according to
Reuters calculations.

London offered rates for three-month euros fixed slightly
lower at 0.99250 percent (EUR3MFSR=: ) from 0.99375 percent on
Friday. For latest Libor fixings see [ID:nEAP000035]

Equivalent Euribor rates (EURIBOR3MD=: ) — traditionally the
main gauge of unsecured interbank euro lending and a mix of
interest rate expectations and banks’ appetite for lending —
remained at 1.050 percent, the highest level since July 2009.

REPO MARKETS

Interbank rates have been surging since banks slashed their
consumption of ECB funding in a string of key lending operations
at the end of September. However, fresh worries about the
banking system in Ireland and the ability of countries such as
Portugal to fund themselves have renewed concerns that those
banks could increase their reliance on ECB loans.
Data from the Bank of Portugal showed Portuguese banks
remained highly reliant on the European Central Bank for
funding. [ID:nLDE6A71AY]

Banks from the euro zone’s higher-yielding countries found
themselves locked out of interbank markets earlier this year
when fears grew that peripheral sovereigns could default.

While the situation has improved for some top-tier Spanish
banks, others have to pay a higher premium for term funding in
the money market.

Strategists said Spanish banks’ use of cheaper funding via
LCH.Clearnet’s repo clearing service using the country’s
government debt as collateral had improved their situation but
smaller banks were still waiting to access the service.

The Greek repo market, meanwhile, remained frozen.

“For Greece we’ve seen the market look for a tiny ray of
sunshine. It’s not there … It’s not actually traded. People
don’t hold positions in that stuff any more,” said Chris Clark,
an analyst at ICAP.
(Editing by Giles Elgood)

MONEY MARKETS-Euro interbank rates seen rising; ECB refis eyed