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13% and plans to eliminate the capital gains tax on LT investment next yr, Russia’s Putin said their stimulus must be withdrawn to avoid “bubbles.”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.

Category: MacroNotes

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