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MONEY MARKETS-LIQUIDITY PICTURE INCOMPLETE | Reuters
Banks opted to reduce their borrowing from the ECB at the central bank's seven-day tender, draining 17.5 billion euros. But markets awaited the results of tomorrow's three-month loan offering before changing their outlook on liquidity conditions. The overnight interbank rate EONIA= -- which typically rises as excess liquidity dwindles -- was expected to continue its downward trend during the current maintenance period. "Even if (ECB borrowing) would have fallen further I think the liquidity situation is abundant," said Commerzbank rate strategist Christoph Rieger. "Given that tomorrow we will have another 3-month LTRO with only 38 billion expiring ... I don't think overnight rates will increase on the back of these results. Longer-term ECB loans worth 38 billion euros are due to expire this week, while banks have the opportunity to borrow as much as they need at a three-month tender on Wednesday. Analysts said that with recent money market conditions proving volatile, the ability to lock in funding for longer duration at a stable rate had become more attractive and increased demand should see liquidity pumped back in to the system.
The overnight interbank rate EONIA= -- which typically rises as excess liquidity dwindles -- was expected to continue its downward trend during the current maintenance period.
"Even if (ECB borrowing) would have fallen further I think the liquidity situation is abundant," said Commerzbank rate strategist Christoph Rieger. "Given that tomorrow we will have another 3-month LTRO with only 38 billion expiring ... I don't think overnight rates will increase on the back of these results.
Longer-term ECB loans worth 38 billion euros are due to expire this week, while banks have the opportunity to borrow as much as they need at a three-month tender on Wednesday.
Analysts said that with recent money market conditions proving volatile, the ability to lock in funding for longer duration at a stable rate had become more attractive and increased demand should see liquidity pumped back in to the system.
"tomorrow's three-month loan offering", which was yesterday, was fully taken up at 119.5bn.
"expected to continue its downward trend" - in fact EONIA went up again, from 0.497% on the 21st, to 0.531% on the 22nd, to 0.661% yesterday. Though that may only be an uptick.
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