Eurozone short-term interest rates were set to remain subdued over the turn of the year as banks barely reduced their reliance on central bank loans this week, reflecting the difficulties some face accessing funding. Euro zone banks borrowed 20.6 billion euros of 13-day funds, in a specially scheduled operation designed to smooth the expiry of the European Central Bank's last 12-month loan made a year ago.
The relatively modest take-up came a day after larger-than-expected borrowing at an offer of 3-month money. Altogether, just under 95 percent of this week's maturing loans have been rolled into new borrowing, much higher than when two other one-year loans matured in June and September, when RBS calculates 70-80 percent was renewed. The eurozone's more indebted countries, mostly on the currency bloc's periphery, remain under pressure on concerns about their creditworthiness ahead of the start of 2011's funding programmes.
Banks in the eurozone have been reluctant to lend to one another, worried about their exposure to shaky sovereign debt, leaving the ECB as the only source of cash for some. Irish banks in particular have increased their borrowing from the ECB.
Benchmark three-month euro Libor rates eased half a basis point at 0.94125 percent. Three-month overnight indexed swap rates fell around 7 basis points on Tuesday to 0.56 percent after the results of the three-month tender were released, widening the Libor/OIS spread to 35 bps.