Euro-Zone Spare Cash Already in Trillions Eyes Another Milestone

(Bloomberg) -- The European Central Bank’s ultra-cheap liquidity injections next week may raise the amount of excess cash sloshing around the euro area above 3 trillion euros ($3.6 trillion) for the first time.

The ECB on Thursday will disburse its latest round of loans with interest rates as low as minus 1%. While the take up may pale in comparison to June’s whopping 1.3-trillion-euro allotment -- given that the duration of the loan sweetener is three months shorter -- funding costs have fallen in anticipation of more liquidity.

Three-month Euribor-- the rate that banks can theoretically borrow from each other -- fell to a record low of minus 0.504% Friday. Estimates for borrowings at the so-called Targeted Long-Term Refinancing Operations, or TLTROs, range from 10 billion euros at Barclays Plc to 200 billion euros at NatWest Markets Plc.

Read More: Cash Glut Sends Euro Funding Rate to Record Low

Earlier in the week, the focus will be on Italy, which holds regional elections and a constitutional referendum Sunday and Monday. While such events have stoked debt-market volatility in recent years, Citigroup Inc. strategists including Jamie Searle say that’s unlikely this time round.

They see the nation’s 10-year yield premium over Germany averaging 150 basis points -- near current levels -- through much of next year.

Week Ahead

• Debt sales:
  • On Tuesday, Germany will auction 5 billion euros of two-year debt, the Netherlands will sell up to 6 billion euros of 30-year securities, and Spain may also offer up to 4.5 billion euros of 10-year notes through banks, according to Mizuho International Plc
  • The U.K. may also choose to issue debt maturing in 2061 through banks the same day, if history is a guide. The prior sale of this bond raised 7 billion pounds ($9.1 billion) in May
    • In addition to the syndicated offering, the U.K. will offer a combined 4.2 billion pounds of conventional and inflation-linked debt across two sales next week. The BOE is set to buy back 4.4 billion pounds of debt across three operations.
  • Belgium and Italy will also tap the market in the coming week and euro-area issuance is set to total a combined 21.5 billion euros, according to Citigroup Inc. There are no bond redemptions or coupons to be paid during the period.
• Euro-area, German, U.K. and French preliminary manufacturing and services PMI data for September are due Wednesday
  • Germany’s Ifo survey for September will be published Thursday
  • Aside from the PMI figures, U.K. data is mostly second tier and backward looking with the exception of government borrowing numbers for August on Tuesday

• ECB policy maker speeches are headlined by President Christine Lagarde who speaks at the Franco-German Parliamentary Assembly on Monday. Robert Holzmann chairs a workshop on the same day. Chief economist Philip Lane, Francois Villeroy and Fabio Panetta speak on Tuesday. Pablo Hernandez de Cos who is the sole policy maker speaking on Wednesday speaks again on Friday, as does Francois Villeroy

  • BOE governor Andrew Bailey is scheduled to speak at British Chamber of Commerce events on Tuesday and Thursday, with investors seeking further insight in to the possibility of negative rates
• Fitch Ratings reviews the U.K. and DBRS Ltd. reviews the EU on Friday

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