Need vs Want

At the rate of 1% vs the 3 mo Euribor interbank rate of .76%, European banks borrowed 132b euros for 3 mo’s ahead of 442b euros of 1 yr loans that have to be repaid back to the ECB Thurs. The amount was half expectations and many are breathing a sigh of relief with European bank stocks leading the rally. The big demand 1 yr ago at 1% was below the 1 yr Euribor rate, thus creating a profitable arb which is in contrast to today’s facility. Those banks borrowing today were thus likely those who don’t have access to the interbank lending market. Euro financial iTraxx 5 yr CDS is narrower by 8 bps to 164 and sovereign CDS are also lower. June German unemployment fell for a 12th straight month although the decline was not as much as expected. With a flat tax of 13% and plans to eliminate the capital gains tax on LT investment next yr, Russia’s Putin said their stimulus must be withdrawn to avoid “bubbles.” Bizarro world compared to the US.

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