Euribor rises as Greek deal keeps ECB exit intact

* Euribor rises across
 board
* 3-mth Euribor off low for first time in over a month
* Euro Libor holds record low but upside seen on Greek deal
* Greek repo market moribund until bond yields fall

A measure of the bank-to-bank cost of borrowing euros rose on Friday,
with Euribor edging higher across maturities in response to European initiatives to ease Greece's debt
crisis.
The three-month Euro Interbank Offered Rate (Euribor) rose from a record
low for the first time in more than a month. The rate has fallen steadily for
more than a year as the ECB has pumped copious liquidity into financial markets in an
effort to revive crisis-hit credit markets. 
"Greece was an
obstacle to the ECB's intention of exiting its liquidity programme and this is
reflected in the Euribor rising albeit marginally," said Don Smith,
economist at ICAP in London.

The European Central Bank's decision on Thursday to extend
its looser collateral rules into 2011 means Greek banks can borrow funds at
the ECB next year even if Moody's strips Greece of its A2 credit rating. 
This was followed by an agreement by euro zone politicians to provide a
safety net for debt-stricken Greece,
although uncertainty remained over the International Monetary Fund's role. 

The euro Libor rate, fixed by the British Bankers' Association in London, held to a record
low of 0.58063 percent earlier. 

Investors had worried the Greek debt crisis could threaten the stability
of the euro currency but it also helped to keep interest rates low. Analysts said that
as Greek risks abated euro Libor may also be set to follow the upward direction
of Euribor. The market was looking past the crisis towards next week's final
ECB six-month refinancing tender, said Peter Chatwell, a market analyst at
Credit Agricole in London. 
"Next week we might see a drop in 6 month refi usage – which would
point towards the market having no problems moving to shorter term refi
operations, and hence allow money market rates
to rise," he said.

GREEK REPO STILL SUBDUED
The Greek repo market was still showing light flows a day after the
ECB's move, according to BrokerTec, an electronic platform owned by broker
ICAP.
There
is little term trading across Europe in Greek
bonds, dealers said. 
Analysts said the Greek repo market would only recover once credit
restrictions placed on Greek domestic banks were eased and this would only follow
a recovery in the bond market. 



By George Matlock
Source: Reuters