Opinion is that the market is discounting an initial repayment of the second 3Y LTRO close to EUR125bn. This will lower excess liquidity to EUR380bn given no change in autonomous factors.
The current EONIA curve implies a decline in excess liquidity to below EUR100bn by year-end. This is broadly consistent with an initial repayment of EUR125bn, and then a weekly repayment of EUR7bn towards the end of the year. On the other hand, the market is not pricing a full drain of excess liquidity by the expiration of the 3Y LTROs in February 2015.
For 2013 we believe a more gradual repayment profile is more likely. Euro area banks will primarily use the initial option to repay emergency loans. Hence, in our view, the market is pricing in too rapid an increase in EONIA O/N fixings during 2013. Meanwhile, we believe there is room to price in faster normalization of liquidity during 2014.
To recap, the market is pricing to steep an EONIA curve in 2013, and too flat an EONIA curve in 2014.
To Read the Entire Report Please Click on the pdf File Below.
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EUR: Preview On LTRO Repayment
Published 02/21/2013, 06:25 AM
Updated 05/14/2017, 06:45 AM
EUR: Preview On LTRO Repayment
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