Posts by "macrosam"

realize you understand, just wanted to expound for other readers

The expiration of the 12-month repo drains the excess liquidity from the system, though this will still take some time are there is still the 3-mo LTRO and weekly MRO available.

Since the full-allocation repos were introduced, banks took more liquidity than needed, evidenced by the recycling of this excess at the ECB deposit facility. This drove EONIA down close to the Deposit Rate. When liquidity is equal to need (no excess), EONIA should trade close to the refi rate. Banks pay 75bps in negative carry when depositing at the ECB. Banks will only be willing to incur the 75bps of negative carry for so long.

This all assumes there is no looming catastrophe that reinforces the demand for excess liquidity. A big assumption to make.

One thing that may have gone unnoticed today but 3mo LIBOR ticked up for the first time in a few days, which is a bit odd if the liquidity concerns have been taken off the board.

I would have expected more of a rally/short squeeze from the LTRO results than what we've seen.

Aiding the bid in GBP today:


By Scott Hamilton
June 29 (Bloomberg) -- Bank of England Markets Director Paul Fisher said that the central banks mandate is clear on what to do if inflation pressures in the economy persist in the medium term.
While we need to be sensitive to the risk of tightening policy prematurely, Fisher said, should it appear likely that inflationary pressure is sustained at a higher level into the medium term, then it is clear what our mandate would require us to do. Fisher made the comments in a speech on June 14 in Liverpool, England. The remarks were released today by the bank.