Euribor rates tick down as excess liquidity rises

Excess liquidity in the money markets rose to 167 billion euros, its highest level since July 2010, Reuters calculations showed. Worried by the debt crisis, banks are hoarding cash and funds are not circulating in a regular fashion in the euro zone.

Banks took 148 billion euros in the ECB's handout of 7-day funding on Tuesday, in line with expectations. But overnight borrowing from the ECB jumped to 1.259 billion euros from 6 million a day earlier.

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 -- eased to 1.536 percent from 1.538 percent the previous day.

Six-month Euribor rates edged up to 1.741 percent from 1.740 percent, while longer-term 12-month rates rose slightly to 2.080 percent from 2.078 percent.

Shorter-term one-week Euribor rates -- most heavily influenced by excess liquidity -- fell to 1.140 percent from 1.149 percent, further below the ECB's main rate, which is at 1.5 percent. EONIA overnight interest rates fixed lower at 0.874 percent on Monday.

The fact that banks are awash with cash after the European Central Bank's six-month tender last week is helping offset market tensions over the reliance of French banks on short-term funding markets.

The ECB has also been buying sovereign bonds to tackle the euro zone debt crisis and spent a record 22 billion euros on government debt last week.

Copyright Reuters, 2011