Eurozone interest rate futures fell on Thursday as traders raised bets of higher borrowing costs in the single currency bloc by year-end after hawkish comments by European Central Bank policymakers. Euro-priced interbank rates extended their two-week climb to hit 18-month peaks on a combination of dwindling surplus liquidity and markets bringing forward expectations of an interest rate rise.
Eurozone interest rate futures fell across the 2011/2012 curve, pushing their implied rates up, while two-year German bond yields, most sensitive to shifts in rate expectations, hit a 15-month high. London interbank offered rates for three-month euros fixed at 1.0000 percent for the first time since July 8, 2009.
The equivalent maturity Euribor rate - traditionally the main gauge of unsecured interbank euro lending and a mix of interest rate expectations and banks' appetite for lending - rose to 1.057 percent from 1.051 percent, an 18-month high. Benchmark euro-priced bank-to-bank rates have been rising over the past two weeks after hawkish comments on inflation pressures by the ECB spurred bets that the central bank would raise interest rates earlier than initially expected. Overnight rates rose to 1.172 percent on Wednesday, having topped 1 percent for the first time in 19 months the day before.
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