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MONEY MARKETS-Euribor rates rise as Fed ready to reduce stimulus
June 20, 2013 / 12:17 PM / 4 years ago

MONEY MARKETS-Euribor rates rise as Fed ready to reduce stimulus

* Euribor rates hit multi-month highs on Fed comments

* Euribor futures slump as part of broader sell-off

* Rise in money market rates may make ECB more dovish-analyst

By Ana Nicolaci da Costa

LONDON, June 20 (Reuters) - Euribor futures slumped on Thursday after the U.S. Federal Reserve signalled it was ready to reduce bond purchases if its economic forecasts are met, pushing bank-to-bank lending rates to multi-month highs.

Fed Chairman Ben Bernanke said on Wednesday the U.S. economy is expanding strongly enough for the monetary authority to begin slowing the pace of its bond-buying stimulus later this year, confirming investor fears that central bank liquidity would not remain abundant in future.

“It’s a spill-over effect from the Fed decision, increasing the notion that central banks are slowly pulling back liquidity from markets,” Benjamin Schroeder, strategist at Commerzbank said.

Euribor rates, traditionally the main gauge of unsecured bank-to-bank lending, rose across maturities.

The one-month Euribor rate hit its highest since August 2012 at 0.125 percent, up from 0.123 percent the day prior.

The three-month Euribor rate rose to 0.214 percent - its highest level since late March - from 0.212 percent.

This rise in money market rates could make things more tricky for officials in the euro zone, where many economies are still struggling with recession and high unemployment rates, analysts said.

“Seeing that rates are on the rise and seeing that they have some tightening through rising money market rates, I think (the ECB) will have to steer against this by perhaps employing more dovish tones,” Schroeder added.

The European Central Bank left interest rates unchanged earlier this month and said at the time that while it had discussed a raft of other policy options, including negative deposit rates, they would remain “on the shelf” for now.

But the ECB has also maintained it is ready to act to aid the euro zone economy if needed, and this will leave markets particularly sensitive to data releases. Business surveys on Thursday showed the euro zone’s private sector slump eased more than expected this month.

Euribor futures dipped across the 2013-2018 strip, falling by double-digits further out the curve. While the March 2014 contract was 6.5 basis points lower at 99.585, Euribor futures were down by more than 20 basis points from the September 2015 contract onwards.

“Everything is selling off in this generalized... liquidity risk-off move,” Richard McGuire, senior fixed income strategist at Rabobank said.

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