Money markets euribor rates at lowest since march

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* Euribor rates hit lowest since March 2011* Trader recommends being long Euribor futures* Complete normalisation of inter-bank market seen unlikelyBy Ana Nicolaci da CostaLONDON, Jan 26 Euro zone bank-to-bank lending rates fell to their lowest in nearly 11 months on Thursday with the European Central Bank poised to offer more 3-year loans in February . The cost of borrowing dollars for three months in the unsecured interbank market eased after U.S. Federal Reserve Chairman Ben Bernanke said on Wednesday the central bank was ready to offer the economy additional stimulus after announcing it would likely keep rates near zero until at least late 2014. Ample central bank liquidity in global financial markets has improved sentiment towards riskier assets even as private creditors and Greece have struggled to reach a deal on debt swap talks, key for the country to avoid a messy default. But banks have remained reluctant to lend to each other."(The Fed verdict) underpins in general the theme that central banks are committed to low rates, are committed to providing the market with liquidity en masse," Norbert Aul, rate strategist at RBC Capital Markets said.

He said there could be further tightening in the spread between 3-month Euribor rates and overnight Eonia rates -- a measure of financial risk -- especially if the European Central Bank also sticks to a very low interest rate environment, with unlimited liquidity. But he added: "A complete normalisation of the interbank market is unlikely."Euro zone bank-to-bank lending rates fell to their lowest since March 2011 to 1.142 percent, and down from 1.149 percent in the previous session. The spread between the 3-month Euribor rate and Eonia overnight rates was 77 basis points, down from 79 basis points the day prior.

"The next major event (is) the 3-year LTRO, that's our focus," a trader said. "We are focusing on what the ECB are trying to achieve at the front-end."The European Central Bank is expected to allot 263 billion euros to banks at its second three-year tender in February, half what they borrowed last month, according to Reuters this month. . But the wide range of foerecast signaled high uncertainty among trader predictions."The Euribor fixings has continued to go lower and lower and I think this has given us a green light to stay very bullish at the front end of the European curve, Euribor futures, i.e. we think that yields are going to be lower for longer like the United States," the trader said. The three-month dollar Libor rate - a key interbank rate for borrowing dollars - fell to 0.5531 percent from 0.5566 percent.

CASH BUFFER The ample liquidity in the financial system and the prospect of more to come has improved appetite towards riskier assets, even as uncertainty over the outcome of Greek debt swap talks remained. Banks borrowed 3.47 billion euros from the ECB overnight, down from 3.62 billion the day prior. They deposited 484.13 billion euros at the deposit facility overnight, down from 485.79 billion euros the day prior."Heavy usage of the deposit facility does not tell us anything about whether banks borrow and lend this money to each other intra-day or over the long term, the only thing we can say is that this money does not get transmitted into the real economy," Alessandro Tentori, head of European fixed income strategy at BNP Paribas said. Greece's tortuous negotiations over a debt swap with private creditors entered a new phase on Thursday with focus on how much the ECB and other public creditors may need to contribute. If the ECB were to take losses on its Greek debt holdings, it would not affect the bank's 3-year liquidity provision, analysts said. But it could have an impact in money markets indirectly if the ECB scaled back its bond purchasing program. It could affect the market "to the extent that (the ECB) probably would have lower capability to buy government bonds in the market and hence the transition of liquidity through the SMP (bond-buying program) would be impaired," Tentori added.