Reuters logo
REFILE-MONEY MARKETS-Markets price out more imminent monetary easing
January 10, 2013 / 5:27 PM / 5 years ago

REFILE-MONEY MARKETS-Markets price out more imminent monetary easing

(Refiles to remove extraneous comma in headline)

By Ana Nicolaci da Costa

LONDON, Jan 10 (Reuters) - Euribor futures fell and Eonia forwards rose on Thursday as investors priced out the chance of an imminent rate cut after the European Central Bank sounded more optimistic on the euro zone’s prospects.

The ECB left interest rates on hold at 0.75 percent, which was expected. But President Mario Draghi said the decision was unanimous - a departure from last month when he said there was “a wide discussion” on reducing rates.

Draghi also made no mention of a deposit rate cut, in contrast to December when he said that had been discussed.

“People were still looking for some kind of split between core central bankers and periphery central bankers within the Council - similar to what we saw in December - so the unanimous rate-on-hold decision came as somewhat of a surprise,” said Benjamin Schroeder, strategist at Commerzbank.

“Draghi has pushed the market towards the belief that no rate cuts are coming.”

Euribor futures <0#FEI:> fell across the 2013 and 2014 strip, with the February and March 2013 contracts now down 2 basis points on the day and the June 2013 one 5 bps lower. All three stood flat at the beginning of the news conference.

Euribor futures were traditionally used as a gauge of interest rate expectations but excess liquidity in the market has made it a less reliable indicator.

The refinancing rate at which the central bank lends money is the main tool used to encourage bank lending and boost the economy. But banks are already flooded with cheap ECB loans, meaning the deposit rate charged on excess reserves has a more significant impact on short-term interbank borrowing costs.

Eonia forwards, used to bet on where the Eonia overnight borrowing rate will be in the future, rose across the 2013 strip. Eonia rates are particularly sensitive to expectations surrounding deposit rate moves, since the latter serve as a sort of floor to overnight rates.

The March 2013 contract was at 0.0797 percent, up from 0.059 percent when the news conference began, while the June 2013 contract stood at 0.0823 percent compared to 0.0421 percent when Draghi began speaking.

Forward rate agreements fell sharply last month after Draghi revealed a deposit rate cut had been discussed, but they have recovered as other ECB members subsequently played down the likelihood of it taking place.

“For me, what was important was that Draghi was continuing to stress the positives and really trying to take the focus away from any underlying weakness in the economy. There was more discussion on the things that have picked up and the net signal was that there is no imminent easing ahead,” said Simon Peck, rate strategist at RBS.

Draghi said that the euro zone economy should recover later in 2013 and that there are already some signs of stabilisation, although he also said the risks to the economic outlook remained to the downside.

“Today has really just cemented what had become apparent in the ECB rhetoric subsequent to the December meeting, which is that they are unlikely to cut the deposit rate in the next couple of months,” Peck added.

Alessandro Giansanti, senior rates strategist, at ING pointed to the fact that the December 2013 Eonia forward was at 0.1363 percent - double the level of the current Eonia rate at 0.069 percent - as further evidence that the deposit rate cut bets had been unwound.

“Now I think the probability of a cut in the deposit facility is close to zero,” he said.

0 : 0
  • narrow-browser-and-phone
  • medium-browser-and-portrait-tablet
  • landscape-tablet
  • medium-wide-browser
  • wide-browser-and-larger
  • medium-browser-and-landscape-tablet
  • medium-wide-browser-and-larger
  • above-phone
  • portrait-tablet-and-above
  • above-portrait-tablet
  • landscape-tablet-and-above
  • landscape-tablet-and-medium-wide-browser
  • portrait-tablet-and-below
  • landscape-tablet-and-below