Euribor rates fall after ECB enters bond markets

FRANKFURT: Key euro-priced bank-to-bank lending rates fell on Monday, after the European Central Bank said it would buy more government bonds and also announced plans to push more cash into financial markets.

The ECB said last week it would conduct a six-month liquidity operation where banks are guaranteed to get all the funds they request. Additionally, it said on Sunday it would "actively implement" its bond-buying programme.

The three-month Euribor rate -- traditionally the main gauge of unsecured interbank euro lending and a mix of interest rate expectations and banks' appetite for lending -- inched down to 1.56 percent from 1.564 percent a day earlier, the lowest level in a month.

Six-month Euribor rates also fell a touch to 1.76 percent from 1.764 percent, while the longer-term 12-month rates fell to 2.102 percent from 2.106 percent.

Shorter-term one-week Euribor rates bucked the trend and rose, climbing to 1.289 percent from 1.275 percent, but remained still well below the ECB's main rate. EONIA overnight interest rates fixed down at 0.846 percent on Friday.

According to Reuters calculations, excess euro money market liquidity stands at a sizable 86 billion euros.

Cash is not circulating in a regular fashion in the euro zone as jitters about the debt crisis grow. Banks deposited 135 billion euros at the ECB overnight, a six month high, figures showed on Monday.

Evidence of money market tensions -- one of the key elements of the 2008 financial crisis -- has been widespread. Last week, banks took a larger-than-expected 172 billion euros in the ECB's handout of 7-day funding, having taken 20 billion euros more than they were paying back at its latest three-month operation a week before.

With the debt crisis continuing to roil the bloc, the central bank continues to offer limit-free funding to banks, a promise that currently runs to mid-January.

It also announced it would conduct a six-month liquidity operation this week.

Copyright Reuters, 2011