EURIBOR

Mortgages to review the data in January achieved the second highest cut since the Euribor was used as an indicator mortgage in January 1999.

This reference recorded in January, the second drop in its history interannual, about 188 basis points (one hundred basis points equals 1%). This is their biggest fall since November 2001 record, then dropped 199 basis points.

The bearish trend in the Euribor, which began last autumn, has accelerated with the start of the year in an environment marked by the sharp economic decline, falling interest rates, the ECB will cut in half this month, up to 2 % - and prospects for further lowering of the official price of money in the euro zone.

The Euribor mortgage as an indicator, the monthly average of the daily trading Euribor a year, will be this month at 2.62%. It is their lowest level since October 2005, then in a 2414% - according to provisional data which could vary in the three hundredth sessions remaining. The Bank of Spain official figure published next week.

Loans to review this information with a notice of the biggest cuts of this decade. The holder of a mortgage-half the amount of 135,202 euros, a 25-year term that pays a spread of 0.5%, according to the National Statistics Institute (INE), will see their monthly fee is reduced by 140, 61 euros. Go to pay 790.22 euros to pay 649.61 euros. This is a decrease of 17.7%. This will mean that the holder of the loan would save each year, 1687.32 euros, an amount equivalent to just over two existing shares.

Given the sharp fall in the Euribor premiere this year, banks are expected to be forced to revise its forecasts for the year-end. More than a dozen national and international banks and savings expected that this indicator fell later this year to levels of 2.5%.

Low tension

Euribor falls not only have been produced by the drop in official interest rates in the euro, from 4.25% in October to 2% at present, and future expectations of decline in the price of money, but are shrinking because of the interbank market tensions. Historically, the spread between the twelve-month Euribor and EONIA swap one year, which measures expectations for rates in this period was less than 0.1 percentage points. This means that if the expectations are now at 1.2%, the EURIBOR twelve months should be 1.3%.

But since the start of the crisis, the spread between Euribor and EONIA swap has soared. Currently is still at 1.05 points, but has come to be at 2.39 points.

This reduction of the spread is certainly a sign of normalization of the market. So is that financial institutions and businesses have been able to return to the capital market to issue debt and raise funds. And while the prices they are paying for such financing are much more expensive than a year and half ago, the mere fact of being able to deliver is a clear improvement compared with the second half of 2008.

But there is still an important unresolved: banks still lend on the interbank market. According to the latest data, the entities of the euro kept almost 200,000 million euros in the ECB's deposit facility, paid a special account that banks should only be used on time.

And with the lowered expectations of rate stabilized at slightly more than 1%, the Euribor future crashes must reach the standards of the interbank market.

(Reuters) - European Central Bank President Jean-Claude Trichet said on Wednesday the recent widening of government bond premia in the euro zone posed no threat to the future of the single currency. Speaking on Reuters Television at the annual meeting of the World Economic Forum, Trichet said it was important that governments took responsibility for restoring confidence in their fiscal policies, noting there was no provision for fiscal bailouts.

AIB has given details of changes to its interest rates following the European Central Bank's half-point cut earlier this month.

It confirmed that tracker mortgage rates and the standard variable mortgage rate for owner occupiers would fall by 0.5 points, in line with the ECB cut.

But the rate for residential buy-to-let mortgages falls by only a quarter of a percentage point.
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Loan and overdraft interest rates for personal customers will not be changed, while rates for business loans and overdrafts come down by 0.25 points.

AIB online deposit interest rates remain unchanged, but its high interest current account rate is being cut by 0.75 points. The regular saver rate comes down by 0.5 points.

The changes come into effect from close of business on Tuesday.

The Euribor, the kind that granted most of the mortgages in Spain, the daily rate stands at 2347%, the lowest since October 6, 2005, when it reached 2337% e1.

The peak month was placed in 2696%, the lowest since November 2005 when it stood at 2684%.

The indicator continues to advance in their tendency to lie close to the official interest rates, currently at 2%, followed by cuts applied by the European Central Bank.

This continued cut rebates Euribor has allowed in more than 100 euros a month in fees that users pay for their mortgages, however, some experts say that banks should compensate this loss by raising the income differentials in new mortgages, which until now stood at around 0.75%.

However, the Spanish Mortgage Association (AHE) said that the fall of the Euribor ease this year more than 20% of the financial burden of monthly premiums that families face.

The cost of borrowing in dollars in London rose to the highest level in almost two weeks on concern policy makers have run out of room to lower interest rates after cutting them to near zero.

The London interbank offered rate, or Libor, for three- month loans climbed three basis points to 1.16 percent today, the highest level since Jan. 12 and its second consecutive increase, the British Bankers’ Association said. The overnight rate advanced two basis points to 0.21 percent.

“We’re getting to a crossroads,” said Sean Maloney, a fixed-income strategist at Nomura International Plc in London. “There’s not much further the Federal Reserve can go. It’s unclear whether the progress we’ve made so far is mostly due to improvements in the private sector or central bank efforts to bring in liquidity. We may have reached saturation point.”

After seven weeks of declines, Libor, the benchmark rate for $360 trillion of financial products worldwide, is rising as financial companies remain plagued by losses and central banks reach the lower limits for setting interest rates. The Fed reduced its target rate to between zero and 0.25 percent last month. Japan left its benchmark rate at 0.10 percent today.

Concern governments will nationalize financial institutions amid losses and writedowns that have surpassed $1 trillion since the start of 2007 is spurring lenders to hoard cash. Royal Bank of Scotland Group Plc, the biggest bank controlled by the U.K. government, said Jan. 19 it may post an annual loss of as much as 28 billion pounds ($39 billion), a record for a U.K. company.

‘Discernable Decline’

“Since the news of the RBS loss, there has been a discernable decline in money-market liquidity,” Calyon analysts led by David Keeble, the London-based global head of interest- rate strategy, wrote in a note today.

Bank of England Governor Mervyn King said this week officials may start buying government assets to bolster lending and Prime Minister Gordon Brown announced his second rescue plan in three months.

Central banks cut interest rates and offered unlimited amounts of cash to unlock a collapse in lending that’s squeezing companies and consumers worldwide, driving the world into its worst economic slump since the Great Depression. The Organization for Economic Cooperation and Development said Nov. 25 the economy of its 30 members will contract 0.4 percent in 2009 after expanding 1.4 percent last year.

Companies in Europe pay an average 408 basis points more than government debt to sell bonds, Merrill Lynch & Co.’s EMU Corporate Index showed today, compared with 119 basis points at the end of 2007.

Libor-OIS Spread

Measures of money-market stress including the TED spread and the Libor-OIS spread, snapped declines. The TED spread, the difference between what the government and companies pay for loans, rose four basis points to 105 basis points today. The Libor-OIS spread, a gauge favored by former Fed Chairman Alan Greenspan, increased one basis point to 94 basis points.

The difference between the three-month dollar Libor and the upper end of the Fed’s interest-rate target climbed three basis points to 91 basis points today. It was as high as 332 basis points on Oct. 10 after Lehman Brothers Holdings Inc. filed for bankruptcy. It averaged 12 basis points in the year before the credit crisis began in August 2007.

The Libor is set through a survey of banks typically before noon each day in London by the BBA. Euribor is set by an EBF panel earlier in the day.

New Benchmarks

The credit crisis threw the spotlight on Libor last year because the BBA publishes the names of contributors and their rates, giving lenders an incentive to underestimate borrowing costs to keep from appearing like they are in financial straits. The Basel, Switzerland-based Bank for International Settlements said in March some lenders may have “manipulated” rates.

Some borrowers responded by tying the rates they pay on loans to other gauges, including credit-default swaps. Switzerland’s Nestle SA, the biggest food producer, Espoo, Finland-based Nokia Oyj, the largest mobile-phone maker, and FirstEnergy Corp., the Ohio-based owner of electric utilities, last year arranged credit facilities linked to the derivatives, which are used to bet on borrowers’ likelihood of default.

The three-month Libor for pounds fell to 2.20 percent, or the lowest in the rate’s 23-year history, the BBA said today. The euro interbank offered rate, or Euribor, for three-month loans dropped six basis points to a more than three-year low of 2.25 percent, the European Banking Federation said.

The odds of a 25-basis-point rate cut at the European Central Bank’s next meeting on Feb. 5 rose to 80 percent, according to a Credit Suisse Group AG gauge of probability.

ECB President Jean-Claude Trichet signaled on Jan. 15 policy makers will avoid a cut at the February meeting. On Jan. 16, he ruled out the prospect of rates falling to zero.