Euro funding costs hit record low as banks hunt for collateral

Bloomberg

A gauge of short-term funding costs in the euro area tumbled to a record low amid a cash glut that has exacerbated the hunt for collateral before the
year-end.
Three-month Euribor — a benchmark based on the average rate that large banks in the region can theoretically borrow from one another — falls by 1.1 basis points, the most since July 2020, to minus 0.583%.
It comes as lenders adjust their balance sheets before the end of December, when their holdings are audited, and pile cash into liquid instruments like German bills.
The extra demand for short-dated notes is dragging down borrowing costs, which have collapsed amid a surplus of liquidity that is chasing a limited supply of debt banks can get their hands on.
Spare cash in the economy rises to 4.5 trillion euros ($5.04 trillion) earlier this month thanks to the European Central Bank’s bond-buying program and ultra-cheap loans.
The yield on three-month German bills slid below minus 1% for the first time last week, outpacing the decline in unsecured funding rates such as Euribor, which banks rely on for setting rates.
The move in Eurbor is likely temporary though, with futures expiring in March showing the three-month rate increasing back to minus 0.52%.