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MONEY MARKETS-Jump in overnight euro bank lending rate baffles markets
December 1, 2017 / 1:48 PM / 15 days ago

MONEY MARKETS-Jump in overnight euro bank lending rate baffles markets

LONDON, Dec 1 (Reuters) - The overnight benchmark rate European banks use to lend money to each other has surged this week to its highest level since March 2016, raising concerns about possible funding stress and the validity of the benchmark.

The Euro Over Night Index Average (EONIA) has spiked 12 basis points over two fixings, leaving analysts puzzled by the sudden surge.

It was fixed at minus 24 basis points on Thursday, its highest since March 2016 and was set for its biggest weekly rise since November 2014, according to Reuters data.

Traders said they suspected the sharp rise in the rate was sparked by demand for funds by one bank but did not have any further details, while others added that month-end demand for funds may also have made a contribution to the rise.

“I haven’t heard anything systemic here and it seems to be related to one firm which is having some funding issues and we will come to know next week,” said Kit Juckes, head of FX strategy at Societe Generale. “There is no spillover effect to other markets for now.”

A spokeswoman for the European Central Bank confirmed that the readings of the fixing were accurate. They are published after the close of markets on each trading day.

Still, given this week’s sharp moves, traders and analysts said they would be watching Friday’s fixing with interest.

“EONIA is only built on real deals, the only weakness is that it is 28 contributors,” said one euro zone money market trader. “I don’t think we will see a normal fixing tonight.”

Reporting by Dhara Ranasinghe, Marc Jones, Sujata Rao and Saikat Chatterjee, Editing by xxxx

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