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Rabobank expects structural ECB LTROs to ease EUR term funding
The bank said 12 month LTROs would likely be auctioned once main refinancing operations demand reaches about €100 to €125 billion, potentially flattening EUR money market term rates.
Rabobank’s Bas van Geffen said the European Central Bank’s planned structural longer term refinancing operations could complement its standard refinancing as excess liquidity declines.
The analysis points to 12 month LTROs as a plausible maturity, with the ECB potentially holding auctions using variable rate tenders once main refinancing operations demand reaches roughly €100 billion to €125 billion.
Rabobank added that while LTROs may slightly flatten EUR money market term rates, they likely would not fully offset the effect of quantitative tightening.
The report also said the ECB could begin discussions about the LTRO design toward the end of this year, with the timing dependent on banks’ reserve demand, and that any LTRO program could be allocated to banks with higher funding costs in term markets.