Euribor Futures Rate Rises to Seven-Month High on LTRO Repayment

Euribor futures traders stepped up bets that borrowing costs will rise after the European Central Bank said lenders will repay more of its initial three-year loans than economists forecast.

The implied yield on the euro interbank offered rate futures contract due December 2013 climbed as much as 17 basis points to 0.59 percent, the highest since June 29, according to data compiled by Bloomberg. The rate was 0.56 percent at 1:20 p.m. in London.

The ECB said today 278 firms will hand back 137.2 billion euros ($184.4 billion) of emergency loans at the first opportunity on Jan. 30, compared with the median forecast of 84 billion euros in a Bloomberg News survey of economists. The Frankfurt-based central bank’s first round of loans totaled 489 billion euros and borrowers can continue to make early repayments in coming weeks.

“This is more than we had expected and underlines the material improvement in funding conditions for most European banks in the past twelve months,” Michael Symonds, a credit analyst at Daiwa Capital Markets in London, wrote in a note to clients.

The ECB flooded financial markets with two portions of so- called Longer Term Refinancing Operations totaling more than 1 trillion euros a year ago in an effort to spur lending between banks. The prospect of banks repaying early and draining money from the financial system has driven up interest rates in the futures markets.

To contact the reporter on this story: Katie Linsell in London at klinsell@bloomberg.net

To contact the editor responsible for this story: Paul Armstrong at parmstrong10@bloomberg.net

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