European banks increased their demand for three-month cash from the European Central Bank on Wednesday, with analysts saying they were starting to prepare for losses their counterparties may take as part of a looming Greek debt swap plan. Eurozone policymakers say Greece's second bailout deal will impose a 21 percent loss on private holders of the country's 240 billion euro debt pile, of which an estimated 50 billion euros is held by banks outside Greece.
The European Central Bank (ECB) allotted 85 billion euros in its three-month cash tender on Wednesday, compared to 63.4 billion euros expiring and a consensus expectation of about 65 billion euros in a Reuters poll. On Tuesday, the ECB offered 164.2 billion euros of one-week cash, in line with expectations in a Reuters poll, but less than the 197.1 billion euros that expired.
The spread between three-month euro Libor rates and overnight index swaps - a key gauge of counterparty risk - rose about 4 basis points on Wednesday, to top 30 bps for the first time since January 7. The two tenders leave plenty of excess liquidity cash to keep the EONIA euro overnight lending rate comfortably below the ECB's benchmark 1.50 percent interest rate.
Three-month spot Eonia fell to 1.235 percent after the tenders' results, compared to 1.26 percent earlier in the session. Lin said she expects the Eonia rate, which fixed at 0.991 percent on Tuesday, to reach 0.90 percent next week. Three-month dollar Libor/OIS spreads were unchanged on the day at 14 basis points, while one-year euro/dollar cross-currency basis swaps have traded in a 30-35 basis points for most of this month.
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