Surviving the liquidity squeeze

Excess liquidity in the euro funding markets halved at the beginning of July, causing Eonia to leap higher. The extent of the move surprised traders and caused problems for some participants. Christopher Whittall reports

The week leading up to the expiry of the European Central Bank’s (ECB) one-year long-term refinancing operation (LTRO) on July 1 was watched with interest by the media and traders alike. Hot on the heels of the sovereign debt crisis, many pundits assumed a large number of eurozone banks would rely heavily on ECB funding, and expected a substantial drawdown on the ECB’s three-month LTRO on June 30 to compensate for the one-year operation’s expiry.

For these onlookers, the events leading up to