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 eurozone states. The vast liquidity that has kept downward pressure on money markets has also compressed secured lending rates via the repo market.
GREEK REPO MARKET SPLIT The one-month Europe 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 eurozone 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. 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.
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