Finance, Financial industry and Commerse :: Money news

Money markets shrug off greek talks setback as cash buffer anchors rates

´╗┐Jan 24 Bank-to-bank borrowing rates marched lower on Tuesday and look unlikely to deviate from their downward path as a buffer of excess liquidity kept money market strains at bay even after Greece's debt-restructuring talks hit a fresh hurdle. The Greek talks ran into a snag after euro zone finance ministers rejected an offer by the country's private creditors to write down the nominal value of their debt by 50 percent in return for new longer-term bonds paying an interest rate of 4 percent. As negotiators headed back to the drawing board to secure a deal needed to avoid a messy default by Greece, there was no deterioration in key measures of money market strains, with recent liquidity measures by central banks continuing to anchor rates."The fact that there's a lot of liquidity in the system and refinancing risk for banks has disappeared for now is what the money market is focusing on rather than on the Greek PSI (private sector involvement)," said Barclays Capital strategist Giuseppe Maraffino."In the worst case scenario for Greece, I also expect tensions in money markets in terms of confidence but the fact that banks have no problem with liquidity for the next three years is very positive for money markets."Strong demand for short-term debt from the euro zone's lower-rated countries also continued, with Spanish borrowing costs for 3- and 6-month Treasury bills falling sharply, supported by cash-flush domestic banks. EGGS IN ONE BASKET?

Despite being awash with cash after the injection of nearly half a trillion euros in 3-year loans in December, there was no easing in banks' appetite for central bank funds. Banks took up 130.3 billion euros at the ECB's weekly tender, up from 126 billion euros last week and the same level of demand as before looser ECB reserve rules kicked in last month, freeing up more bank funds. Focus is now on how much of the 44 billion euros in 3-month loans maturing on Wednesday they will roll over, with a lower uptake likely to signal that banks are sticking to very short-term funding to keep collateral free for the ECB's next injection of 3-year loans on Feb. 29."It's very unlikely that banks put all their eggs in one basket and took their entire annual need in the three years, so some will still use the short end to supplement the longer tenders," ICAP senior broker Kevin Pearce said.

Although the high dependence on ECB loans shows the dislocations still plaguing the interbank market, analysts said the ECB had averted a cash crunch for banks and bought time for policymakers to work on a solution to the sovereign debt crisis, the root of the latest banking problems. London interbank offered rates for three-month euros fixed 1.3 basis points lower at 1.09886 percent, the lowest since early March. Its spread over overnight indexed swap rates, an indicator of financial stress, was two basis points narrower at 76 bps. It has fallen almost 20 bps from a peak of 93 bps hit in December, its highest since March 2009.^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^ ECB bank borrowing and deposits zone bank funding strains (package of graphics)^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^ Equivalent Euribor rates, traditionally the main gauge of unsecured interbank euro lending and a mix of interest rate expectations and banks' appetite for lending, fell to 1.158 percent from 1.168 percent, also the lowest in nearly 10 months. One-week rates, most heavily influenced by excess liquidity, fell to 0.422 percent from 0.429 percent on Monday while overnight rates dropped to 0.371 percent from 0.394 percent. Offers of unsecured interbank lending out to one month were also showing signs of returning, according to ICAP's Pearce."However, the market being flooded with cash, coupled with the fact that one-month does very little for regulatory liquidity requirements, means that some banks are reluctant to show bids in this period, hoping to encourage offers in longer maturities," he said.

Pressure grows for global climate cash to help hard hit poor

´╗┐BARCELONA (Thomson Reuters Foundation) - As finance ministers from 20 developing states agreed on Thursday to work on boosting funding for climate action, officials and experts called for more finance to protect the world's poor from the effects of global warming. Meeting for the first time in Lima, Peru, ministers from the Vulnerable Twenty (V20) group of countries - spanning Africa, Latin America and Asia-Pacific - said they expected rich governments to fulfill a pledge to mobilize $100 billion annually by 2020 from a range of sources, to help developing nations tackle global warming. A study issued on Wednesday by the Organisation for Economic Co-operation and Development (OECD) and the Climate Policy Initiative showed donors are almost two-thirds of the way towards that goal, fixed in 2009, having spurred $61.8 billion in public and private climate finance in 2014."The world needs stronger voices from developing countries to draw more attention to their great needs for investment in fighting the impacts from climate change," World Bank Group President Jim Yong Kim said in a statement on the V20 meeting. "This new group of 20 countries, led by the Philippines, will play an important role in pushing for greater investment in climate resiliency and low-carbon growth at home and internationally."Aid experts said this week's climate funding estimates highlighted a lack of money to help poor communities cope with worsening extreme weather and rising seas as the planet warms. Just 16 percent of $114 billion in climate finance for developing nations over 2013 and 2014 was allocated purely for adaptation measures, with 7 percent more going to projects that support both adaptation and mitigation efforts to cut emissions. An alliance of small island states and a group of 112 civil society organizations noted that only donor countries had been involved in deciding what should count towards the $100 billion. Other experts said some development aid that was not tightly targeted at climate change adaptation had been included.

On Thursday, the V20 ministers called for "a rapid acceleration of progress" towards an equal balance of resources spent on adaptation and mitigation. "In the absence of an effective global response, annual economic losses due to climate change are projected to exceed $400 billion by 2030 for the V20, with impacts far surpassing our local or regional capabilities," said Philippines Finance Minister Cesar Purisima. A senior U.S. administration official said this week that Washington recognized the importance of doing more to support adaptation and had been making policy changes to speed that up. The fledgling Green Climate Fund, a global financing vehicle set up under U. N. climate talks, was aiming to spend half its resources on adaptation as it ramps up, the official noted."That will help drive public and private sectors to more focus on adaptation. There is reason to believe that number will go up," the official said.

MILLIONS EXPOSED OECD officials emphasized that their new estimate of the amount of private money mobilized by public investment was partial and preliminary, and the level of private financing for adaptation could be higher than they had identified. But Tim Gore, head of climate change and food policy with Oxfam International, said although it was good business for companies to protect supply chains and staff from climate threats, they had little incentive to invest in helping the poorest cope, underlining the urgent need for more public money. Oxfam is calling for a new global deal to curb climate change - due to be agreed in Paris in December and take effect from 2020 - to include a firm commitment on financing for adaptation.

The text of a new, slimmed-down draft agreement released this week says only that countries should "strive to balance" support for adaptation and mitigation."We have to have a specific agreement in Paris that gets money to the poorest countries to adapt to climate change," Gore said. On Thursday, the V20 countries - representing close to 700 million people - also vowed to make their own efforts to increase resources for tackling climate change. They agreed to establish a sovereign climate risk pooling mechanism that would enable their economies to recover better from climate-linked disasters by increasing access to affordable insurance and encouraging adaptation measures. They also backed the creation of an international financial transaction tax to raise extra cash to fight climate change. "Financial constraints put up serious barriers for climate action and expose millions to disaster and hardship," said Helen Clark, administrator of the U. N. Development Programme. "We believe the V20's vision to deploy innovation in finance, based on shared experiences, has great potential to knock down such barriers."