The FX market, which had seen the volatility grind to a halt earlier on the week, went through some stormy moves on Thursday, with the US Dollar disguised yet again as the strongest currency of the board, with the British Pound and Euro the main lagers; the latter sunk below 1.3000 to hit a fresh 11-month low at 1.2856.
It did not matter how promising the results of the first Italian debt auctions were. Even if initially the lowering of yields may have suggested that the ECB's LTRO program is effectively reducing the risk of contagion in the EU sovereign debt markets, the market eventually dismissed the bond sale-process as a tranquilizer and continued to focus on the prospects of a currency threatened by null prospects of rate hikes, recesion looming near and the enormous ECB balance sheet expansion.
The Italian Treasury auctioned 9 billion euros of 6-month bills, at an average yield of 3.251%. Italy also sold 1.733 billion of CTZ bonds at a 4.853% yield (in comparison with the previous 7.814%). Italy will hold another auction on Thursday at which it plans to sell 8.5 billion euros of debt due in 2014, 2018, 2021 and 2022.
Investors kicked-started the single currency selling for varies reasons, according to Adam Button, including: “The ECB’s expanding balance sheet 2) the rise in overnight ECB deposits pointing to interbank stress 3) apprehension about tomorrow’s Italian debt auctions 4) rumors of sovereign downgrades 5) last day to settle FX trades before the New Year 6) funds waiting until the last minute for redemptions.”
ECB Monday overnight deposits at all-time high
European banks deposited 411.813 billion euros at the ECB on Monday, treating the central bank as a safe-haven for excess funds. This amount represents an all-time euro area high and emphasizes the reluctance of European financial institutions towards inter-bank lending.
The Monday overnight deposits figure surpassed the June 2010 record of 384.3 billion euros and was much more substantial than the 346.994 billion deposited on Thursday, before the Christmas holiday.
In an effort to boost EU banks' finances the ECB conducted a liquidity operation last Wednesday during which the banks received almost half a trillion euros in long-term loans. The amount deposited on Monday suggests that the markets do not consider the action sufficient to strengthen the EU banking sector.
It did not matter how promising the results of the first Italian debt auctions were. Even if initially the lowering of yields may have suggested that the ECB's LTRO program is effectively reducing the risk of contagion in the EU sovereign debt markets, the market eventually dismissed the bond sale-process as a tranquilizer and continued to focus on the prospects of a currency threatened by null prospects of rate hikes, recesion looming near and the enormous ECB balance sheet expansion.
The Italian Treasury auctioned 9 billion euros of 6-month bills, at an average yield of 3.251%. Italy also sold 1.733 billion of CTZ bonds at a 4.853% yield (in comparison with the previous 7.814%). Italy will hold another auction on Thursday at which it plans to sell 8.5 billion euros of debt due in 2014, 2018, 2021 and 2022.
Investors kicked-started the single currency selling for varies reasons, according to Adam Button, including: “The ECB’s expanding balance sheet 2) the rise in overnight ECB deposits pointing to interbank stress 3) apprehension about tomorrow’s Italian debt auctions 4) rumors of sovereign downgrades 5) last day to settle FX trades before the New Year 6) funds waiting until the last minute for redemptions.”
ECB Monday overnight deposits at all-time high
European banks deposited 411.813 billion euros at the ECB on Monday, treating the central bank as a safe-haven for excess funds. This amount represents an all-time euro area high and emphasizes the reluctance of European financial institutions towards inter-bank lending.
The Monday overnight deposits figure surpassed the June 2010 record of 384.3 billion euros and was much more substantial than the 346.994 billion deposited on Thursday, before the Christmas holiday.
In an effort to boost EU banks' finances the ECB conducted a liquidity operation last Wednesday during which the banks received almost half a trillion euros in long-term loans. The amount deposited on Monday suggests that the markets do not consider the action sufficient to strengthen the EU banking sector.
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