Loan Market Lightens Eurozone’s Black Thursday
The imminent refinancing of over half a billion dollars borrowed by European banks has loomed over the financial markets in recent days, and potential difficulties in rolling over the leviathan debt spooked investors in a wide variety in asset classes.
Here at midnight before the Thursday refinancing, it’s too soon to tell how the process will work out, but MarketWatch reports that demand for three month loans from the European Central Bank was limited.
While this situation is separate from Thursday’s $500 billion refinancing, the fact that banks weren’t stampeding comforted some market observers.
“I think it’s helped to calm nerves,” IG Index chief strategist David Jones told MarketWatch.
Another source, Evolution Strategies fixed income and research head Gary Jenkins, said that the enervated demand could mean institutions are balking at the purchase of bank debt.
“A year ago, the opportunity to borrow significant sums of money from the ECB at 1% was probably seen by many institutions as an opportunity to put a ‘risk-free’ trade on where they used the ECB cash to purchase longer-dated government bonds and then took the turn–a nice little earner on the face of it,” Jenkins said, in a note to clients.
However, “that has not turned out to be the case and in reality the banks have probably been preparing for the expiry of the €442 billion [in 12-month loans] by selling some of the assets that they purchased with it in the first place,” he said.
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