Giuseppe Maraffino at Barclays discusses....>

EURIBOR: Giuseppe Maraffino at Barclays discusses the ongoing collapse in the

3s6s and 3s12s bases "which reflects the gradual decline in the 6m and 12m

Euribor fixings, contrary to the 1m and 3m fixings which have crept up."

- The fixing changes are partly due to ample bank liquidity and capital

positions, which reduces the credit component in Euribor fixings. 

- Maraffino adds that "Yield hunting has pushed MMFs into the unsecured money

markets (commercial paper)" is combining with reduced issuance from banks. Thus,

MMFs are being pushed not only into the unsecured markets but also up the

maturity spectrum, helping the narrow the bases. Barclays "do not see any

structural factors that could trigger a reversion of the tightening trend of the

3s6s basis in the very near term".

- Further out in the medium term, ECB rate hikes could widen the basis. also

TRLTOs are a threat "borrowing is concentrated (E400bn) at the first TLTRO

operation maturing in June 2020. Therefore, after June 2019, when the residual

maturity of this operation is less than 1y, its value declines in terms of NSFR,

with some banks likely to repay early and start issuing bonds in the market"