“Speculation that banks will start repaying European Central Bank loans early prompted futures traders to step up bets that borrowing costs will rise as liquidity is drained from the system.
The implied rate on Euribor futures expiring in December rose as much as 18 basis points over the past two days to 0.54 percent, the highest since July 10, according to data compiled by Bloomberg. That’s the biggest jump since the yield started climbing in December, after a 29 basis-point drop in the preceding three months.
Banks can soon start repaying about 1 trillion euros ($1.3 trillion) of cheap loans that the ECB provided under its longer- term refinancing operations to avert a credit crunch. Concern the Frankfurt-based central bank will tighten its collateral rules also helped push indicators of future interbank borrowing costs higher.
“The repayment of the LTRO money has the potential to throw key market trends into reverse,”Christoph Rieger, head of fixed-rate strategy at Commerzbank AG in Frankfurt, wrote in a note. “Reportedly the ECB is mulling plans to restrict loan collateral. This would add to the pressure on peripheral banks to reduce ECB funding,” though only marginally, he wrote.
The implied rate on three-month euro interbank offered rate futures due in December rose 0.5 basis point today to 0.46 percent at 11:38 a.m. in London. That’s after paring its earlier increase.
