By Emelia Sithole-Matarise
LONDON, Feb 8 (Reuters) - Bank-to-bank euro lending rates
set an all-time low on Monday, underpinned by a glut of central
bank liquidity but the Greek repo market remained gummed up on
widening sovereign risk fears in fringe euro zone states.
The vast liquidity that has kept downward pressure on money
markets has also compressed secured lending rates via the repo
market. The one-month Eurepo rate has fallen to
around 0.34 percent from peaks above 4.0 percent at the height
of the financial crisis in 2008.
However, while one-week general collateral rates for core
euro zone issuers such as Germany and Belgium are below Eonia,
worries over Greece's fiscal health have pushed up secured
lending rates against Greek collateral for Greek domestic banks.
'Prices quoted in the Greek repo market are entirely split
between transactions that involve domestic banks and those which
involve only international banks. It's completely separated,'
said Chris Clark, a swaps analyst at ICAP in London.
'Despite continuing pressure also being brought to bear on
the Spanish and Portuguese government bond markets, their
respective repo markets continue to function well. Neither has
encountered the sort of difficulties of their Greek counterpart.'
Meanwhile, three-month euro London interbank offered rates
(Libor) fell to 0.60063 percent, the latest in a
series of all-time lows set since the start of the year.
For latest Libor fixings see
The European Central Bank has pledged to continue providing
banks with unlimited funds until at least the end of the first
quarter, keeping downward pressure on money markets with the
Eonia overnight rate pinned down around 0.33 percent.
The central bank will announce on March 4 the next phase of
its withdrawal from emergency lending measures but some in the
market say the bond market turmoil meant the central bank needed
to be even more careful about withdrawing liquidity.
Commerzbank analyts said that while short-end money market
rates have been resilient to the escalating concerns over the
euro zone's weaker members, 'subliminal' tensions could surface
and eventually put a damper on the decline in Libor fixings.
This would weigh on forward valuations further out.
'Hopes could be that any fallout is/will be contained within
Greece and, true, no Greek bank is a member of the Euro Libor
panel,' they said in a note.
'But the Greek problems have the potential to spark a
broader bank funding crisis as credit lines are being reviewed,
repo correlation risks are being adjusted and liquidity dries up
-- and a premature ECB exit would aggregate those woes.'
Keywords: MARKETS MONEY
(Reuters Messaging: emelia.sithole.reuters.com@reuters.net, Email: emelia.sithole@thomsonreuters.com; +44 20 7542 6752)
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