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Euribor Declines in Longest Run Since 2009 on Draghi Lending

The Euribor has fallen every day since the European Central Bank allotted a record 489 billion euros of three-year loans to 523 banks on Dec. 21 to keep credit flowing amid the region’s sovereign debt crisis. Photographer: Simon Dawson/Bloomberg
The Euribor has fallen every day since the European Central Bank allotted a record 489 billion euros of three-year loans to 523 banks on Dec. 21 to keep credit flowing amid the region’s sovereign debt crisis. Photographer: Simon Dawson/Bloomberg

Feb. 9 (Bloomberg) -- The rate at which European banks say they see each other lending in euros for three months dropped for a 36th day, the longest run of declines in 2 1/2 years, as record funding from the central bank eased borrowing costs.

The euro interbank offered rate, or Euribor, for such loans dropped 0.7 basis point, or 0.007 percentage point, to 1.07 percent, according to data from the European Banking Federation. That’s the longest run of losses since August 2009, and is the lowest rate since January 2011, data compiled by Bloomberg show.

The rate has fallen every day since the European Central Bank allotted a record 489 billion euros ($650 billion) of three-year loans to 523 banks on Dec. 21 to keep credit flowing amid the region’s sovereign debt crisis. ECB President Mario Draghi said today the central bank’s primary interest is boosting lending to the “real economy,” and that a well-functioning banking system relies on the interbank market. The ECB plans a second longer-term refinancing operation, or LTRO, on Feb. 28.

“The decline in three-month Euribor is being driven by the massive amount of liquidity in the system,” said Eric Wand, a fixed-income strategist at Lloyds Bank Corporate Markets in London. “The LTRO at the end of the month should keep the pressure on.”

Private Sector Loans

Three-month Euribor may continue to slide, according to futures contracts. The implied rate on the contract expiring in March was little changed at 0.9 percent at 3:56 p.m. London time. It fell to 0.845 percent on Feb. 1, the least for the front Euribor futures contract since June 2010.

“Forward rates are indicating Euribor may fall further,” Wand said.

Loans to euro-area households and companies contracted the most on record in December as the debt crisis damped demand for credit and banks tightened lending. Private-sector borrowing declined 0.7 percent from November, the most since records began in 1991, the ECB said on Jan. 27.

Draghi’s comments were made today at a press conference in Frankfurt after the central bank said it would keep the main refinancing rate at a record-low 1 percent today, in line with the median estimate of economists surveyed by Bloomberg.

A measure of European banks’ reluctance to lend to one another reached the lowest level in almost four months. A lower reading signals a greater willingness to lend.

The Euribor-OIS spread, the difference between the borrowing benchmark and overnight indexed swaps was at 72.7 basis points, the lowest since Oct. 11. The spread has narrowed since reaching 100.6 basis points on Dec. 1, the most since February 2009.

To contact the reporter on this story: Keith Jenkins in London at kjenkins3@bloomberg.net

To contact the editor responsible for this story: Daniel Tilles at dtilles@bloomberg.net

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