The last couple of days have seen a large increase in the overnight eurepo rate, which has grown from 0.145% on 26 June to 0.194% today.
On the other hand, the 1-week rate has not increased, rather dropped to 0.147% today from 0.151% on 27 June. Given that the ECB Governing Council meeting is on 5 July, it is quite possible that the market is anticipating a rate cut by then. Still, the large increase in just two days time might represent elevated stress and fear of no real solution in the Euro summit.
EONIA Swap rates seem to be pointing to an upcoming ECB rate cut, with short-term rates (up to 1 month) falling sharply (although longer tenors are increasing somewhat which is a bit puzzling, unless the market believes that conditions will stabilize within the next months):
Update 29/6: The overnight Eurepo rate dropped significantly after the Euro summit to 0.153% on Friday, as well as longer tenors. It looks like the spike was mainly due to a bearish view of the summit outcome. Eonia swap rates increased a bit on Friday which in my view points to a stabilization of the money market within the next month. Based on the current Eurepo rates, i think that a rate cut from the ECB on Thursday is a real possibility.
Update 2/7: Here’s a calculation of monthly standard deviations of the overnight rate during 2012. It is clear that the ECB liquidity injection (through 3Y-LTROs) lowered Euepo SD considerably down to 0.373 in the first half of June. Since 14 June, both the rate average and SD have increased significantly, above March levels. Such a behavior should reflect market stress.
Based on ECB data the following table combines daily repo rates with recource to the marginal lending facility. There’s a clear pattern of increased marginal lending during periods of higher repo rates:
Update 4/7: Euro MTS data is available for the Italian repo market and it can be used to examine actual, per security, repo rates/volume movements. I ‘ve created a pdf (EuroMTS-Italy) with data for 28 and 29 June. It is clear that rates for some instruments were more than double between the two trade dates, which point mainly to market problems.