Overnight eurozone borrowing rates may stay elevated until later in the ECB's maintenance period, despite excess liquidity, as banks hoard cash on concerns Greece's debt will be restructured. The Eonia overnight rate has pushed higher this week - reaching 1.16 percent - after banks took 5 billion euros less of one-week funds at Tuesday's tender operation and built up their reserve requirements at the European Central Bank.
"As a function of liquidity, Eonia should be around 1 percent," said Barclays Capital rate strategist Giuseppe Maraffino. The ECB on Thursday threatened to stop accepting Greek bonds as collateral - a major source of funding for Greek banks - if Athens restructures its debt.
The ECB will offer one-week funds on Tuesday and three-month funds on Wednesday as 119.4 billion euros and 39.75 billion euros respectively mature. Analysts expect at least the full amount to be rolled over. The one-week Eonia rate has risen around 4 basis points to 1.115 percent this week.
Traders said term lending was very thin and there were few offers of overnight money with some banks bidding aggressively for cash after the decline in take-up of ECB one-week funds on Tuesday. But overnight Eonia was still expected to decline towards the end of the maintenance period, with RBS expecting an average rate of 0.98-1.0 percent, compared with 1.12 percent in April's period where fixings were pushed up by lower excess liquidity and demand for funds over the Easter break.
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