MONEY MARKETS-Euro overnight Libor rise as ECB drains liquidity

* Overnight euro Libor jumps at end of maintenance period

* Greek T-Bill sale offers charge for rising euro rates

* Sterling Libor moribund before UK polls

By George Matlock

LONDON, April 13 (BestGrowthStock) – The interbank cost of borrowing
three-month euro funds held close to record lows on Tuesday but
the overnight rate jumped as the European Central Bank drained
excess liquidity.

Relatively successful Greek Treasury Bill auctions were
interpreted by some market analysts as evidence of economic
recovery which would help push Libor money market rates higher
in coming months. [ID:nLDE63C0XB]

The T-Bill sale saw strong demand, especially from domestic
investors, despite money market yields falling since Friday.

Euro zone finance ministers agreed at the weekend the
mechanism of a 30 billion euro aid package for Greece, with more
cash coming from the International Monetary Fund.

“Greece was a focus today. The Greek T-Bills were
well-received and it bodes well for improving euro zone economic
growth,” said Christoph Rieger, interest rate strategist at
Commerzbank in Frankfurt.

European rates were seen trending higher, Rieger said.

“We have seen two weeks ago in the (Frankfurt-run)
three-month Euribor the all-time low and we now expect this to
continue to rise,” he added.

Three-month Euribor fixed at 0.644 percent on Tuesday.
[ID:nEAP000417]

Tuesday is the last day of the ECB’s current maintenance
period ahead of which the overnight London Interbank Offered
Rate fixed by the British Bankers’ Association is prone to jump.
[ID:nEAP000020]

Following more than a year of heavy liquidity injections by
the euro zone’s central bank,

The ECB drained 292 billion euros of excessive liquidity, a
normal end of period operation. [ID:nFAE005681]

Morgan Stanley said in a research note total ECB liquidity
in the financial system at 783 billion euros.

“This is the normal end of reserve maintenance period spike
in the overnight rate we are seeing,” said Peter Chatwell, a
market analyst at Credit Agricole in London.

DRAINING

The overnight rate goes up because overnight cash becomes
scarcer, before the ECB draining operation. But Tuesday’s spike
to 0.64 percent from 0.28 percent was expected to return to
normal levels on Wednesday, below 0.30 percent.

Other markets were quieter still. Sterling Libor was
unchanged across the curve.

“It’s all quiet on the sterling front. The Bank of England
is clearly leaving things well alone ahead of the UK general
election, and there has been no major UK data today,” Chatwell
said.

National elections have been called for May 6.

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MONEY MARKETS-Euro overnight Libor rise as ECB drains liquidity