Euro-priced interbank rates rose further on Thursday and the March-June Euribor futures strip hit a new record high as the market bet the European Central Bank will move to "normalise" bank funding by mid-year. The ECB will decide at its policy meeting next week whether to continue offering banks unlimited longer-term funds, having already delayed the normalisation of its liquidity provision when the eurozone debt crisis worsened late last year.
Hawkish talk from ECB policymakers ahead of the meeting has also spurred bets the central bank will raise interest rates earlier than anticipated, fuelling a rise in short-term money market rates. London interbank offered rates for three-month euros rose, fixing at 1.04500 percent from 1.04375 percent on Wednesday. Equivalent Euribor inched up to 1.088 percent from 1.087 percent.
The overnight Eonia rate, which is most sensitive to shifts in surplus liquidity in the banking system, rose to 0.661 percent but remained well below the ECB's main refinancing rate of 1 percent. Term Eonia rates have risen sharply, with one-year Eonia hovering close to its highest since January 2009 around 1.24 percent. Volumes traded in the Euribor futures contract expiring in June 2011 were close to a record high, reflecting hectic trading activity.
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