The rates banks charge each other to borrow euros in the London market over three months rose on Friday for the first time since a European debt rescue package was agreed and the European Central Bank boosted liquidity via bond buying. The Frankfurt-based three-month Euribor interbank lending rate also rose, chalking up a fresh four-month high as markets remained stressed.
While the ECB has remained vague on the terms and scale of the euro zone bond buying operations, it did reveal some data about the effects, and led to some analysts positing a likely figure of around 6-10 billion euros-worth of bonds bought in the first four days of the operation.
The three-month euro London Interbank Offered Rate was fixed in London at 0.62875 percent versus 0.62438 percent on Thursday, according to the British Bankers' Association. The euro Libor was also nearing the level of 0.63375 percent fixed on May 7, the last session before European policymakers and the International Monetary Fund offered a 750 billion euro European bailout package and the ECB announced its bond-buying initiative. Some analysts saw the rise in Libor as a setback, given the copious liquidity already in the market and the lure of yet more from the ECB this week.
"The sense emerging from interbank markets is that upward pressure on term fixings comes more from a lack of offers than from the urgency of bids," said Chris Clark, money market analyst at ICAP in London. Clark said that Euribor should fix steadily higher though next week, but "this is assuming no further game-changing interventions in the meantime." Lena Komileva, head of G7 market economics at Tullett Prebon said the euro financial system required 550 billion euros of liquidity to maintain it, yet there was 858 billion euros in circulation, resulting in a 308 billion euros surplus.
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