It is good to be back from Georgia to Chicago (had to meet up with my attorney and attend a fundraiser.) The condition of Liquidity are looking like they will tighten in coming months, this will create pressure on overnight interbank rates while longer-dated euro borrowing costs extended their recent rise on Tuesday on building inflation concerns. When I was at the Georgia Fundraiser I noticed this was a hot topic of conversation both among financial professional as well as my attorney.
For their part, Banks have opted to replace 248 billion euros of expiring one-week and 21-day European Central Bank loans with around 247 billion euros of funding at the central bank’s regular tender. The drop in the demand should be only 0.8 billion euros, but the 14.5 billion euro increase in the ECB’s estimate of how little funding banks will need over the next reserve maintenance period means overall liquidity surplus will be low relative to recent levels.
This will all translate to a higher overnight rate as the international banks will compete for a lower pool of excess liquidity. Three-week Eonia prices EUREON3W= covering the maintenance period rose by around 4 basis points to 0.68 percent, extending a 6 bps rise in the previous session. If you are in the windy city of Chicago and you wish to protect your assests do some Chicago estate planning attorney research. Barclays Capital forecast the Eonia overnight rate EONIA= would average around 75 basis points throughout the January reserve period, starting out at around 80 85 bps before declining to 40 bps.
“This would mean the new reserve period will start tomorrow in the context of very strict liquidity conditions,” said Barclays Capital analysts. A new reserve maintenance period — the timeframe over which banks are required to deposit a set level of funds with the ECB. Typically rates fall over the course of a reserve period, with banks preferring to frontload their central bank deposits, freeing up more cash later on. But with less excess available this dynamic is likely to be more muted than in recent months.
