Overnight Eonia seen higher

Eurozone overnight borrowing costs are likely to stay higher than previously expected next week with less liquidity in the system and many banks remaining reluctant to lend due to uncertainty over the Greek debt crisis.
Banks borrowed 102.4 billion euros of seven-day funds from the European Central Bank, while 110.8 billion euros matured, pushing the one-week Eonia rate up by almost 10 basis points to 87 basis points in anticipation of less interbank liquidity over the coming week keeping overnight rates high.
"We expect Eonia (overnight rates) to stay roughly in the range where they are currently, perhaps a few basis points lower, but not dropping to the 60 basis point area like we've seen previously," said Commerzbank rate strategist Benjamin Schroeder. The Eonia overnight rate fixed at 88 basis points on Monday, after pushing higher at the end of last week with a long holiday weekend in parts of Europe boosting demand for liquidity.
Traders said they had seen few signs of banks' freeing up balance sheet to lend in the interbank market since the start of the new financial year in April, in part reflecting anxiety as Greece discusses a second rescue package with Euroepan Union, ECB and IMF officials.
The average rate so far this maintenance period - which began on May 11 - is 1.03 percent, compared with an average in March's maintenance period, before the ECB hiked interest rates, of around 0.67 percent. Money markets are pricing in a 80-90 percent chance of such a move, buoyed by the increasing likelihood that Greece will receive a second bailout to cover its funding shortfall next year and avert a debt default. Three-month euro Libor rates were half a basis point higher at 1.39000 percent, with equivalent dollar rates flat at 0.25175.