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Money markets money markets position for wait and see ecb


* ECB seen holding firm on rates, loan offers until March* Three-year cash still seen easing interbank stress* Some hedging against surprises, rate cuts seen eventuallyBy William JamesLONDON, Feb 6 Interbank markets show little expectation that the European Central Bank will commit to new injections of long-term banking loans or signal a cut in interest rates at its February policy meeting later this week. Prices showed the predicted path of overnight bank to bank lending rates - which are typically closely correlated with the ECB refinancing rate - was broadly flat over the first half of the year. Analysts expect ECB President Mario Draghi to praise the impact of steps taken in December which have boosted banks' cash buffers with half a trillion euros of three-year loans, unfrozen bank funding markets and pushed interbank borrowing rates lower."Currently there is not the need for the ECB to come up with more ideas," said Kornelius Purps, strategist at Unicredit."The risk that banks will face serious difficulties in getting their business funding has been trimmed extremely successfully."

Reflecting this view, measures of counterparty stress in the bank-to-bank lending market eased further. The Libor/OIS spread narrowed to stand at 68 basis points, down from more than 90 bps in December, and forward markets pointed to a spread of around 40 bps by year-end. The central bank will hold on Feb. 29 a second offer of three-month loans, which is expected to add to the large surplus of long-term cash in the euro system. A Reuters poll of money market traders showed banks were expected to borrow 400 billion euros at the operation. Speculation last month had been of a take-up as high as a trillion euros though money market players generally expect a lower figure. Analysts said the ECB was unlikely to announce more loan tenders at Thursday's policy meeting, preferring instead to take a wait-and-see approach on whether December's strong demand would be matched at the Feb. 29 long-term refinancing operation (LTRO).

"They could well say that we are riding the LTRO wave and sentiment in the market has improved a bit, so why spend the last ammunition they have at their disposal?," said Elwin de Groot, senior market economist at Rabobank in Utrecht. RATE EXPECTATIONS Prices showed markets were not expecting a change in the ECB's main refinancing rate, although there were tentative signs that some investors were looking to hedge against a surprise cut.

March Euribor futures rallied last week, suggesting some were positioning for a drop in interbank rates as a result of an interest rate cut. The contract was last trading at 99.1, implying an expected three-month Euribor rate of 0.9 percent by March - well below the current fixing of 1.094 percent. The ECB's refinancing rate currently stands at a record-low 1 percent."Basically that suggests the market thinks that three-month Euribor rates will fall below 1 percent and part of that could be driven by expectation of another rate cut," de Groot said. Nevertheless, he cautioned that the Euribor contract contained a risk premium and the rally did not imply a strong conviction for a rate cut. Economists at RBC Capital Markets expected rate cuts in the coming months, but said more evidence was needed on how the ECB's policy easing was impacting the euro zone economy."If the ECB succeeds in easing funding conditions for banks in the periphery and if that translates into stronger credit supply, then that in itself should spur activity and inflation," the bank said in a note."In those circumstance, there would be less need for further rate cuts."

Rpt fitch affirms carismi finance at aa+sf; outlook stable


(Repeat for additional subscribers)May 30 (The following statement was released by the rating agency)Fitch Ratings has affirmed Carismi Finance, a prime Italian RMBS backed by mortgage loans originated by Cassa di Risparmio di San Miniato, as this site Finance S.r.l. Class A2 (ISIN IT0004768294): affirmed at 'AA+sf'; Outlook StableKEY RATING DRIVERS Weakening Asset Performance

Asset performance has weakened over the last 12 months as late-stage arrears, defined as mortgages with at least three installments overdue, have increased to 3.7% from 1.6% of the current pool. Also, the pipeline of cumulative defaults has risen by 1.6 percentage points to 2.2% of the initial pool balance. This was mainly driven by the underperformance of foreign and self-employed borrowers, currently representing 10.9% and 30.7% of the pool respectively, although they account for 16.9% and 37.8% of total delinquencies, respectively. For this reason, Fitch believes that performance will remain volatile. Nonetheless, credit enhancement available to the rated notes provides sufficient comfort to support the current ratings, resulting in today's affirmation of the notes.

Ineligible Hedging GuarantorIn November 2013 Banca Popolare di Milano (BPM), the hedging guarantor, was downgraded to 'BB+'/Negative/'B', thus becoming an ineligible counterparty to support the current ratings of the notes, according to Fitch's counterparty criteria. Although the hedging is still in place and BPM is collateralising the exposure, this is no longer an eligible remedial action. Hence, Fitch has analysed the transaction without giving credit to the hedging arrangement. Under rising interest rates, this may expose the notes to a mismatch between the interest cash flows received on the pool, composed of mortgages paying fixed rates (2.8%), floating rates (29.8%) and modular mortgages (loans with the option to switch to fixed or floating rate every five years on predetermined dates; 67.4%), and the interest payable on the floating-rate notes.

In its analysis, Fitch factored in potential losses due to interest and reset risk under a stressed Euribor scenario, commensurate with the class A2 current rating, in which all modular loans are assumed to switch to fixed rate at the first available date, and found that the available credit enhancement sufficiently absorbs such losses. This has led to the affirmation of the notes. RATING SENSITIVITIES The rating of the notes is at the 'AA+sf' cap for Italian structured finance transactions, which is six notches above the sovereign's Long term Issuer Default Rating of 'BBB+'. A change to Italy's sovereign rating could result to a change in the notes' rating. An increase in the proportion of mortgage loans with adverse characteristics - especially loans granted to self-employed and foreign borrowers - due to different amortisation profiles, defaults and buybacks - could result in a weaker asset performance. Should this lead to a deterioration of the portfolio's credit quality beyond Fitch's expectations, negative rating actions may be taken. An abrupt increase in reference interest rates would jeopardise the affordability of borrowers with fixed instalment/variable maturity mortgages and loans originated after 2009, in a low interest rate environment. Furthermore, due to rising interest rates, the majority of modular loans may switch to fixed-rate, heightening the interest rate mismatch between the portfolio yield and the floating-rate notes. var $relatedItems = $('lia "/article/europe-stocks-idUSL5N1EU112"European retail stocks in the spotlight in quiet European open/a/lilia "/article/vocalink-ma-mastercard-competition-idUSL5N1EU0UD"UPDATE 1-Competition watchdog sees concerns with MasterCard\'s VocaLink deal/a/li'), $relatedItems = $relatedItems.slice(0,10), relatedBlockLimit = Number('6'), relatedItemsTotal = $relatedItems.length, $paragraphTags = $('#article-text p'), contentParagraphs = 0, minParagraphs = Number("8"); for (i=0; i $paragraphTags.length; i++) { if ($paragraphTags[i].innerText.trim().length 0) { contentParagraphs = contentParagraphs + 1; } } if (contentParagraphs minParagraphs) { setTimeout(function(){ if (relatedItemsTotal relatedBlockLimit) { $('.first-article-divide').append('div class="related-content group-one"h3 class="related-content-title"Also In Financials/h3ul/ul/div'); $('.second-article-divide').append($('.slider.slider-module')); $('.third-article-divide').append('div class="related-content group-two"h3 class="related-content-title"Also In Financials/h3ul/ul/div'); var median = (relatedItemsTotal / 2); var $relatedContentGroupOne = $('.related-content.group-one ul'); var $relatedContentGroupTwo = $('.related-content.group-two ul'); $.each($relatedItems, function(k,v) { if (k + 1 = median) { $relatedContentGroupOne.append($relatedItems[k]); } else { $relatedContentGroupTwo.append($relatedItems[k]); } }); } else { $('.third-article-divide').append($('div class="related-content group-one"h3 class="related-content-title"Also In Financials/h3ul/ul/div')); $('.related-content ul').append($relatedItems); } },500); } Next In Financials Hong Kong stocks snap 4-day winning streak on outflow worries Jan 4 Hong Kong stocks ended slightly lower on Wednesday, snapping a four-session winning streak, as a stronger U.S. dollar added to worries about capital outflows from emerging markets. MIDEAST STOCKS-Profit-taking weighs on Gulf but Qatar resilient in early trade DUBAI, Jan 4 Profit-taking weighed on Gulf stock markets in early trade on Wednesday while Qatar's index remained relatively resilient. BRIEF-Italgas readies debut bond issuance * Mandates Banca IMI, BNP Paribas, JPMorgan, Mediobanca, Societe Generale and UniCredit for debut bond issuance MORE FROM REUTERS window._taboola = window._taboola || []; _taboola.push({ mode: 'organic-thumbnails-a', container: 'taboola-recirc', placement: 'Below Article Thumbnails - Organic', target_type: 'mix' }); Sponsored Content @media(max-this site) { #mod-bizdev-dianomi{ height: 320px; } } From Around the Web Promoted by Taboola window._taboola = window._taboola || []; _taboola.push( { mode: 'thumbnails-3X2', container: 'taboola-below-article-thumbnails', placement: 'Below Article Thumbnails', target_type: 'mix' } ); window._taboola = window._taboola || []; _taboola.push