Some commentators have said that if the rise in one week Euribor — which closed at 0.097% on Thursday after rising from 0.08% at the start of the year — continues, it could limit some banks ability to borrow in the short term market.
But a head of ECP in London described the claims as “spurious.”
“Even if one week Euribor goes up by 10bp it won’t be a problem,” the banker said. “It’s panic mongering to suggest that a bank might be so reliant on the short term funding market that it’s hanging on one week Euribor.”
Banks’ cost of short term funding might rise with Euribor but it will not affect the likelihood of execution, said other bankers.
Researchers at Commerzbank agreed: “We caution against an overly bearish interpretation for the euro short end,” they said.
An increase of just 2bp-3bp could be enough to cause banks problems, although such an increase is unlikely, some dealers reckoned.
Bank ECP volumes remained unaffected by the rising Euribor rate, according to Dealogic figures.
Bank euro commercial paper outstandings rose for the third quarter in a row at the end of September, growing from $171.5bn at the end of 2012 to reach $187.8bn at the end of the third quarter of 2013. Outstandings dipped slightly to $185.9bn at close on Thursday.
Dealers predict further growth in the market, although outstandings are unlikely to grow to historic high levels. Banks had $275bn outstanding at the end of the third quarter of 2011, before an intensification in the eurozone debt crisis helped cause a sharp fall in demand for European banks’ paper.
By far the largest issuer of ECP until 2011, banks were overtaken by the sovereign, supranational and agency sector.
“The market is only a pale reflection to what it once was,” said one banker.
Banks printed $12.3bn of ECP from Monday to Thursday, while SSAs sold $15.9bn.
Some of the biggest bank deals this week included Belfius with a €150m December 2013 clip on Thursday, while Mizuho, Société Européenne de Banque and Nordea Bank raised €170m, €100m and €110m respectively earlier in the week.
US money funds on board
While bank issuance is still well below its highs, there are signs that US prime money market funds — which greatly reduced their holdings of European bank debt when the eurozone debt crisis intensified in 2011 — are returning to the credits.
“US money market funds have shown a much stronger appetite for investments in Europe in recent months,” said Yaron Ernst, managing director of Moody’s global managed investments group. “This reflects the subsiding concerns about Europe’s financial system.”
US funds increased their exposure to European financial institutions by 16% over July and August, equating to a rise of $27bn, according to the latest Moody’s figures.
Swedish and French banks accounted for the largest increases, with exposures up 40% and 22% respectively.
US funds have steadily increased their exposure to the eurozone banking sector since July 2012, when the European Central Bank president Mario Draghi said he would do “whatever it takes” to save the currency bloc.
But the US government shutdown has threatened this increase, according to one ECP banker.
“US investors can gain higher yields in the repo market since the shutdown,” the dealer said. “I have heard stories of investors getting yields of above 20bp instead of about 8bp/9bp from ECPs. Money market funds and asset managers have stepped into the market for eurozone banks. But if they can get better deals elsewhere they will be quick to leave.”
However, the dealer was confident that growth would return once the US political situation reached resolution.