Money market report

ECB decisions

On Wednesday, November 30, the Bank of Canada, the Bank of England, the Bank of Japan, the European Central Bank (ECB), the Federal Reserve and the Swiss National Bank announced coordinated actions to enhance their capacity to provide liquidity support to the global financial system to ease strains in financial markets and thus help foster economic activity.

These central banks agreed to lower pricing on the existing temporary US dollar liquidity swap arrangements by 50 basis points so that the new rate would be the US dollar Overnight Index Swap (OIS) rate plus 50 basis points. This pricing would be applied to all operations conducted from December 5, 2011.

On the same day the Governing Council of the ECB, in cooperation with other central banks, decided on the establishment of a temporary network of reciprocal swap lines. This action would enable the Eurosystem to provide euro to those central banks when required, as well as liquidity operations, should they also be required, in Japanese yen, sterling, Swiss francs and Canadian dollars (in addition to the existing operations in US dollars).

In addition, the initial margin for three-month US dollar operations would be reduced from the current 20% to 12%, and weekly updates of the EUR/USD exchange rate will be introduced in order to carry out margin calls. Those changes would be effective for operations to be conducted from December 7, 2011.

ECB Monetary Operations

On Monday, November 28, the ECB announced its weekly Main Refinancing Operation (MRO).  The auction was conducted on Tuesday, November 29, and attracted bids from euro area eligible counterparties of €265.46 billion, €18.28 billion higher than the amount bid for in the previous week. The amount bid for was allotted in full at a fixed rate equivalent to the prevailing main refinancing rate of 1.25%, in accordance with current ECB policy.

On Tuesday, November 29, the ECB conducted an auction for a seven-day fixed-term deposit intended to absorb €203.5 billion. This operation was designed to sterilise the effect of purchases made under the Securities Markets Programme that were settled but had not yet matured by the previous Friday, November 25.  The auction was carried out at a variable rate, with euro area eligible counterparties allowed to place up to four bids at a maximum rate of 1.25%. It attracted bids amounting to only €194.20 billion, with the ECB allotting the full amount bid for. The marginal rate on the auction was set at 1.25%, with the weighted average rate standing at 0.62%.

Also on Tuesday, November 29, the ECB announced a three-month Longer-Term Refinancing Operation to be settled as a fixed rate tender procedure with full allotment, with the rate fixed at the average rate of the MROs over the life of the operation. The auction attracted bids of €38.62 billion from euro area eligible counterparties, which amount was allotted in full, in accordance with current ECB policy.

On Wednesday, November 30, the ECB conducted a seven-day US dollar funding operation through collateralised lending in conjunction with the US Federal Reserve.  This operation attracted bids of $0.352 billion, which was allotted in full at a fixed rate of 1.08%.

Domestic Treasury Bill Market

In the domestic primary market for Treasury bills, the Treasury invited tenders for 28-day bills maturing on December 30, 2011.  Bids of €21.2 million were submitted for the bills, with the Treasury accepting only €1.5 million. Since €20.25 million worth of bills matured during the week, the outstanding balance of Treasury bills decreased by €18.75 million, to stand at €306.60 million.

The yield from the 28-day bill auction was 1.204%, i.e. 4.6 basis points lower than that on bills with a similar tenor issued on November 25, 2011, representing a bid price of 99.9064 per 100 nominal. 

During the week under review, Treasury bill trading on the Malta Stock Exchange amounted to €1 million and was conducted by the Central Bank of Malta in its role as market-maker.

On Tuesday, the Treasury invited tenders for 91-day bills and 182-day bills maturing on 9 March, 2012 and June 8, 2012, respectively.