Borrowing rates

Euro interbank lending rates see biggest daily rise in over 10 years

A worker grabs a bundle of 20 euro notes at the fortified Bank of Portugal complex in Carregado, Alenquer, Portugal, May 17, 2022. REUTERS/Pedro Nunes

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June 14 (Reuters) – Euro zone interbank borrowing rates saw their biggest daily increases in more than a decade on Tuesday, reflecting huge increases in market expectations for rate hikes from the European Central Bank.

Euribor is a crucial benchmark as all sorts of financial products, from interest rate swaps, savings accounts to mortgages, are priced. This means that the increases will reflect tighter financial conditions.

The six-month Euribor peg rose 6.7 basis points from Monday in its biggest daily jump since 2011. Pegged at 0.175% on Tuesday, it was at its highest since 2014.

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The 12-month fixing rose 16.5 basis points in its biggest daily jump since 2008. Set at 0.957%, it was the highest since 2012.

The commonly used three-month Euribor fixing rose 3.8 basis points from Monday in its biggest jump since April 2020 and was pegged at -0.243%, the highest since then.

Euribor 3 and 6 months

DZ Bank strategist at Rene Albrecht said it was “not surprising” to see bindings rise due to sharp increases in market prices of ECB rate hike expectations.

Investors now price nearly 90 basis points of ECB rate hikes by September, up from around 75 basis points after last week’s monetary policy meeting, while terminal rate bets have also slumped sharply. increase. Read more

German two-year bond yields, sensitive to interest rate expectations, rose 19 basis points on Monday in their biggest daily rise since 2011.

“I don’t think it’s a credit issue because the money market is still flooded with liquidity due to TLTROs,” Albrecht said, referring to cheap, long-term ECB loans.

“I think there’s still some capacity for rates to rise in the money markets before they really become a problem and restrict broader economic activity. We’ve just moved out of negative territory,” he said. -he adds.

Along with bond yields, Euribor rates have risen sharply this year. The 3 and 6 month Euribor was below -0.50% at the start of the year.

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Reporting by Yoruk Bahceli; edited by Sujata Rao and Dhara Ranasinghe

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