Money Market Report for the week ended 26 June 2009
Record high participation in ECB’s first one-year LTRO auction
ECB Monetary Operations
On Monday, 22 June, the ECB announced its weekly Main Refinancing Operation (MRO). This attracted bids for €167.90 billion from euro area eligible counterparties, which amount was allotted in full at a fixed rate equivalent to the main refinancing rate of 1.00% in accordance with the current ECB policy.
On the same day, the Eurosystem and the Swiss National Bank (SNB) conducted a EUR/CHF foreign exchange swap, with a 7-day maturity, to provide Swiss franc liquidity against euro. This operation attracted bids for €21.32 billion, which amount was allotted in full at a fixed price of -2.3 swap points. On Thursday 25 June, the Governing Council of the ECB announced that it would continue to conduct one-week Swiss franc liquidity-providing swap operations until at least 31 October, 2009.
On Tuesday, 23 June, the ECB announced its first Longer-Term Refinancing Operation (LTRO) with a maturity of 371-days. This was in line with the announcement made by the Governing Council on 7 May. Participation in the operation was very strong, with the ECB receiving 1121 bids for €442.24 billion, the largest amount bid for in any ECB auction to date. This amount was allotted in full at a fixed rate equivalent to the ECB’s main refinancing rate of 1.00%. In the next two 12-month LTROS, those scheduled for 29 September and 15 December 2009, the fixed rate may include a spread in addition to the rate on the MRO, depending on circumstances at the time.
Also on Tuesday 23 June, the ECB announced a standard LTRO with a maturity of 98 days. In this LTRO the ECB received bids for €6.43 billion, which amount was allotted in full at a fixed rate equivalent to the ECB’s main refinancing rate of 1.00%.
On Wednesday, 24 June, the Eurosystem, in conjunction with the US Federal Reserve, conducted a 7-day US dollar funding operation through collateralised lending. This attracted bids for $40.61 billion, which amount was allotted in full at a fixed rate of 1.24%.
On Thursday, 25 June, the Governing Council of the ECB announced that it would be continuing US dollar liquidity providing operations with terms of 7 and 84 days until at least 30 September, 2009. These operations would continue to take the form of repurchase operations against ECB eligible collateral and would be carried out at fixed rate tenders with full allotment. But US dollar operations with 28-day tenors will be discontinued following the one scheduled for 28 July 2009, although they could subsequently be resumed if required by market circumstances.
Domestic Treasury Bill Market
In the domestic primary market for Treasury bills, the Treasury invited tenders for 273-day bills maturing on 26 March 2010. Bids for €42.34 million were submitted, with the Treasury allotting €26.64 million. Since €25.45 million worth of bills matured during the week, the outstanding balance of Treasury bills increased by €1.19 million to €644.26 million.
The yield resulting from the auction was 1.756%, i.e. 195.2 basis points lower than that on bills with a similar tenor issued on 28 November 2008. This substantial decrease in the 273-day Treasury bill yield partially reflected the impact of the 150 basis point cut in the ECB’s minimum bid rate since 10 December, 2008. The latest yield represented a bid price of 98.6859 per 100 nominal.
On Tuesday the Treasury invited tenders for 91-day bills maturing on 2 October 2009 and 272-day bills maturing on 1 April 2010.
Treasury bill trading on the Malta Stock Exchange amounted to €9.27 million during the week, with all trades being conducted by the Central Bank of Malta in its role as market maker. Off-exchange transactions amounted to €0.02 million.