Monthly Bulletin July 2009 - Banque de France

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ECONOMIC AND MONETARY DEVELOPMENTS Monetary and financial developments The EONIA was very volatile during the maintenance period which ended on 9 June, occasionally rising above the rate on the main refinancing operations (MROs) in the period between 22 and 27 May, before falling to levels significantly below that rate in the final days of the period (standing 50 basis points below that rate on 8 June; see Chart 10). While the decision to leave key ECB interest rates unchanged on 4 June was generally expected, volatility in the overnight segment remained somewhat elevated in the following reserve maintenance period, owing to a relatively high level of uncertainty regarding developments in liquidity conditions, particularly ahead of the first one-year longer-term refinancing operation (LTRO) with a fixed rate and full allotment, which was conducted on 24 June. As a result of the sharp reduction in liquidity on 24 June following the weekly MRO conducted the previous day, in which banks scaled down their bids, the EONIA spiked to stand 39 basis points above the rate on the MROs. A sizeable amount of liquidity was then allotted in that one-year LTRO, which largely resulted in very considerable recourse to the deposit facility. This caused the EONIA to fall sharply, reaching levels close to the interest rate on the ECB’s deposit facility. On 1 July the EONIA stood at 0.34% – i.e. 66 basis points below the rate on the main refinancing operations and only 9 basis points above the interest rate on the deposit facility. Owing to the Eurosystem’s current liquidity management, the volume of liquidity provided to the market was determined solely by the bidding behaviour of counterparties. Moreover, there was a significant shift in the liquidity term structure as a result of the one-year LTRO conducted on 24 June, as indicated by the fact that the share of total outstanding liquidity accounted for by liquidity with a one-week maturity fell to less than 15% after 24 June, having stood at around 50% prior to that date. In the main refinancing operations conducted on 2, 9, 16, 23 and 30 June, the ECB allotted €227.6 billion, €302.1 billion, €309.6 billion, €167.9 billion and €105.9 billion respectively. Counterparties generally obtained liquidity in excess of what would have been required in order to fulfil reserve requirements and take account of autonomous factors. This was partially absorbed by recourse to the deposit facility, which was generally more limited than it had been in recent reserve maintenance periods – at least prior to the one-year LTRO. Between 10 and 24 June daily recourse to the deposit facility averaged €11.0 billion, whereas the daily average had been €22.3 billion in the maintenance period ending on 9 June. However, this picture changed completely after 24 June, with daily recourse to the deposit facility rising markedly and reaching €257.1 billion on 1 July. As regards longer-term operations, the Eurosystem conducted a liquidity-absorbing fine-tuning operation on 9 June (i.e. the last day of the reserve maintenance period), in which it absorbed €57.9 billion in a variable rate tender operation with a maximum rate of 1.00%, a marginal rate of 0.80% and a weighted average rate of 0.77%. In the longer-term refinancing operation on 24 June (which was conducted with full allotment at the fixed rate of 1.00% and a maturity of three months), the allotted amount was €6.4 billion. In other longer-term refinancing operations with various maturities conducted on 10 and 11 June with a fixed rate of 1.00%, the ECB allotted a total of €90 billion. Finally, on 24 June the ECB allotted €442.2 billion in the first of the three one-year LTROs announced in May. Furthermore, using its reciprocal currency arrangements (swap lines) with the Federal Reserve, the Eurosystem continued to provide US dollar funding against collateral eligible in the Eurosystem, conducting operations on 4, 18 and 25 June with various maturities. The ECB also continued to provide Eurosystem counterparties with US dollar and Swiss franc funding against euro cash via foreign exchange swap operations. ECB Monthly Bulletin July 2009 25
2.4 BOND MARKETS In June 2009 long-term government bond yields declined in the euro area, while in the United States an initial strong increase was partly reversed in the second half of the month. Renewed downward pressure on yields was associated with some dampening of market sentiment globally. Long-term real yields and long-term break-even infl ation rates in the euro area also declined. Implied bond market volatility remained broadly unchanged on both sides of the Atlantic. Between end-May and 1 July government bond yields decreased by around 20 basis points in the euro area, while they increased overall by around 10 basis points in the United States. On 1 July ten-year government bond yields stood at around 3.8% in the euro area and at around 3.6% in the United States (see Chart 11). Accordingly, the ten-year nominal interest rate differential between US and euro area government bonds narrowed to around -25 basis points. In Japan, ten-year government bond yields declined by 15 basis points to around 1.3% at the end of the review period. In June bond market volatility on both sides of the Atlantic remained broadly unchanged at levels below those observed at the end of 2008 and beginning of 2009, but still above pre-crisis averages. In the United States, long-term government bond yields first continued to increase at the beginning of June, by about 50 basis points compared with the end of May, to a seven-month high of 4% on 10 June. In the second half of June this increase was partly reversed, with bond yields falling to 3.6% by the end of the review period. The strong surge in yields at the beginning of June seemed to reflect a combination of factors, including a continued reversal of previous flight-to-safety flows and somewhat strengthened optimism about the economic outlook, but also the strong increase in longer-term Treasury issuance and concerns about the sustainability of the rising public debt. The subsequent decline of US government bond yields in the second half of June seems to be related to the release of some mixed and partly worse than expected economic data affecting the US and global economic outlook. This triggered some renewed portfolio shifts to safe haven assets, which is also reflected in the recent swings in equity prices. Long-term bond yields in the euro area declined over the period under review, but also exhibited some significant intra-period swings. Ten-year government bond yields first increased to 4.1% in early June before declining by around 30 basis points by the end of the review period. For most euro area countries, the spread of their government bonds vis-à-vis their German counterpart remained broadly stable at still relatively elevated levels, but significantly below the high levels observed during the first 26 ECB Monthly Bulletin July 2009 Chart 11 Long-term government bond yields (percentages per annum; daily data) 5.00 4.50 4.00 3.50 3.00 2.50 2.00 July euro area (left-hand scale) United States (left-hand scale) Japan (right-hand scale) Sep. Nov. Jan. Mar. May 2008 2009 4.00 3.50 3.00 2.50 2.00 1.50 1.00 July Sources: Bloomberg and Reuters. Note: Long-term government bond yields refer to ten-year bonds or to the closest available bond maturity.
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THE IMPLEMENTATION OF MONETARY POLI
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to loans with shorter maturities to
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Chart 2 Average daily reserve surpl
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In pre-turmoil times, such allotmen
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Chart 5 US dollars provided by the
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in Chart 7, which shows that lendin
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Chart A The EONIA, the euro interba
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euro-denominated covered bonds issu
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Table 1 Two-group rotation system (
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for each governor; (ii) transparenc
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Chart C The three-group rotation sy
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7. The share of each national centr
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EURO AREA STATISTICS ECB Monthly Bu
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6.3 Change in debt S57 6.4 Quarterl
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1 MONETARY POLICY STATISTICS 1.1 Co
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1), 2) 1.3 Eurosystem monetary poli
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2 MONEY, BANKING AND INVESTMENT FUN
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2.3 Monetary statistics 1) (EUR bil
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1), 2) 2.4 MFI loans, breakdown (EU
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1), 2) 2.4 MFI loans, breakdown (EU
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1), 2) 2.5 Deposits held with MFIs,
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2.9 Aggregated balance sheet of eur
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3 EURO AREA ACCOUNTS 3.1 Integrated
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3.1 Integrated economic and financi
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3.2 Euro area non-financial account
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3.3 Households (EUR billions; four-
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5.1 HICP, other prices and costs (a
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6.2 Debt 1) (as a percentage of GDP
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6.4 Quarterly revenue, expenditure
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7 EXTERNAL 7.1 Summary balance of p
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7.5 Trade in goods 1. Values and vo
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8 EXCHANGE 8.1 Effective exchange r
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9 DEVELOPMENTS 9.1 In other EU Memb
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LIST OF CHARTS C1 Monetary aggregat
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Growth rates for intra-annual perio
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k) l) a t = ⎛ ⎜ −1⎟×100
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GENERAL NOTES The “Euro area stat
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EURO AREA STATISTICS General notes
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oth the marginal lending facility a
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DOCUMENTS PUBLISHED BY THE EUROPEAN
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DOCUMENTS PUBLISHED 89 “An analys
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DOCUMENTS PUBLISHED “Euro area ba
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GLOSSARY This glossary contains sel
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GLOSSARY ERM II (exchange rate mech
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GLOSSARY Investment funds (except m
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GLOSSARY is determined on the basis
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Monthly Bulletin July 2009 - Banque de France

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