Investors' expectations of 2011 Euribor rates rose on Tuesday after the European Central Bank's Juergen Stark said some non-standard policy measures expiring in December would not be renewed. The most actively traded March Euribor futures contract fell as much as 2.5 basis points to 98.900, implying a Euribor rate of 1.1 percent by the end of March next year.
Rate expectations rose after ECB Executive Board member Stark said a number of non-standard measures - which include the central banks' programme of supplying unlimited, fixed-rate liquidity to euro zone banks - would not be renewed. The ECB is attempting to reduce banks' dependence on ECB funding by phasing out full-allocation, longer-term loans. Although recent market tension caused the ECB to postpone its planned withdrawal, the last unlimited, fixed-rate three-month tender is currently scheduled for December.
Three-month Euro Libor fixed higher at 0.82875 percent, while equivalent dollar Libor was unchanged at 0.28938 percent. The ECB completed its regular seven-day tender, with banks opting to raise their borrowing to 166 billion euros, up by around 12.5 billion euros from the previous week. However, the expiry of 225 billion euros of ECB loans on Thursday meant it was difficult to interpret the increased take up, with a three-month tender scheduled for Wednesday and a six-day fine-tuning operation taking place on Thursday.
The overall liquidity picture would be clearer after all three operations were complete, with a Reuters poll suggesting 90 percent of the 225 billion euros of loans would be renewed.
Royal Bank of Scotland said they expected a lower rollover of around 180 billion euros, with a 25 billion euro take-up of three-month loans. When 442 billion euros of one-year loans expired in July, below-expectation demand for three-month loans caused markets to reprice rapidly on fear that a large portion of liquidity would be permanently drained from the system. The move reversed the following day when an above-forecast amount was borrowed at the fine-tuning operation.