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Money markets spanish bill sale points to collateral gathering

* Spanish T-bill demand points to large 3-yr tender* Extra liquidity set to compress spreads* S&P sees higher cost of bank funding here to stayBy Kirsten DonovanLONDON, Feb 21 Extremely strong demand at a sale of six-month Spanish treasury bills on Tuesday suggested banks may take a sizeable amount of three-year funds from the European Central Bank next week. Demand at Tuesday's auction for the bills, which can be used as collateral at the longer-term tender, was more than 10 times the amount on offer, up from 7 times a month ago ."The looming three-year tender is clearly the key motive why demand was so strong at this sale," said Michael Leister, rate strategist at DZ Bank. "Banks are trying to get collateral and everyone is still trying to get through the open door."Spanish debt sales this year have been strongly supported by domestic banks, as have Italian auctions to a lesser degree, enabling the former to complete around a third of its 2012 borrowing target already.

Shifts in demand at the ECB's one-week and one-month tenders last week also reinforced expectations of a large take-up. Banks cut their intake of one-month funds to 14 billion euros from 39 billion euros in the previous tender, but raised their demand for one-week loans to 143 billion euros from 109 billion. That figure rose again on Tuesday with banks taking 166.5 billion euros in seven-day funding to increase gross liquidity in the banking sector to more than 875 billion euros, according to Morgan Stanley."It's difficult to interpret with the three-year tender coming up," said DZ's Leister. "But it remains very interesting to see what the outcome of that will be and also what expectations will be as these have been very fluid."The latest Reuters poll, released on Monday, pointed to a take up of almost half a trillion euros of three-year money, around the same amount as in December.

Around 100 billion euros of that will be rolled out of existing shorter-dated operations, Morgan Stanley calculates. Much of the funding from the December tender was earmarked for repaying maturing debt but the picture is less clear this time with February's operation the last announced chance to bolster reserves with the cheap longer-term cash. Even with the likely jump in excess liquidity, analysts see a limit on how far the Eonia overnight rate can fall, given it is unlikely to drop below the ECB's 0.25 percent deposit facility rates. As a result the spread between three-month interbank borrowing rates and anticipated central bank rates (overnight indexed swaps) looked set to narrow.

Forward spreads indicate it will fall from a current 56 basis points to 46 bps in June and 40 bps by the end of the year , driven by a further fall in interbank rates."A larger-than-expected take-up should be positive for risk and further support the tightening trend of Euribor-EONIA basis," said Morgan Stanley strategist Elaine Lin."However, a lower-than-expected take-up may prompt the ECB to more aggressively ease monetary policy."Even with so much liquidity in the banking sector, credit rating agency Standard & Poor's said on Tuesday that funding remained tight. Reflecting recent comments by money market traders, the rating agency said the gap between large banking groups with market access and those with little or no ability to tap wholesale funding remained firmly in place."The links between sovereign and bank credit risk are numerous, and the transmission from one to the other in the debt market is rapid, in both directions," S&P said."The higher cost of wholesale funding seems a permanent fixture of the brave new world of banking in the euro zone."

Rpt fitch assigns nqaba finance 1s notes expected ratings

(Repeat for additional subscribers)May 13 (The following statement was released by the rating agency)Fitch Ratings has assigned Nqaba Finance 1 (RF) Limited's (Nqaba Finance 1) additional floating-rate notes (FRN) National Long-term expected ratings, as this site Class A18 FRN: 'AAA(zaf)(EXP)'; Outlook StableZAR32m Class B16 FRN: 'AA(zaf)(EXP)'; Outlook StableZAR32m Class C16 FRN: 'A+(zaf)(EXP)'; Outlook StableThe final ratings are contingent on the receipt of final documents conforming to information already received. Fitch expects to affirm Nqaba Finance 1's existing tranches of when final ratings are assigned. The new notes will be issued to refinance the existing class A12, B11 and C11 notes, which have a scheduled maturity of 22 May 2014. All other existing notes will remain after the refinance date of 22 May 2014. Credit enhancement is provided by overcollateralisation and totals 26.00% for the class A notes, 21.33% for the class B notes, 17.90% for the class C notes and 14.87% for the class D notes. In addition, the transaction features significant overcollateralisation of interest, resulting from the junior position of the interest payable under the subordinated loan in the priority of payments. KEY RATING DRIVERS Asset PerformanceThe transaction is a refinancing of a portion of a securitisation of residential mortgage loans advanced by Eskom Finance Company SOC Limited (EFC, unrated) to employees of Eskom Holdings SOC Limited (Eskom, AAA(zaf)/Stable/F1+(zaf)) and its subsidiaries. The historical performance of these assets is strong relative to the rest of the South African mortgage market, with 90 days delinquency rates of 0.7% as of February 2013. This strong performance is due to borrowers' stable employment background and the collection of mortgage payments through payroll deduction. As of February 2014, 93.9% of loans in the cut-off portfolio are to employees of Eskom and subsidiaries and serviced by payroll deduction. Revolving PeriodThe transaction features "evergreen" revolving, as the purchase of new loans is allowed until the breach of certain performance triggers. It is also subject to certain covenants on the portfolio features. In addition, many borrowers also have the ability to further draw their loans. Fitch has accounted for the potentially detrimental impact of these features on the portfolio's credit quality.

Eskom DependencyThe transaction's performance is strongly dependent on that of Eskom as (i) the majority of borrowers are employed by Eskom and pay the instalments by salary deduction; (ii) Eskom provides support to borrowers in the form of subsidies; and (iii) as there is some operational dependency on Eskom and its subsidiary EFC. This dependency does currently not impact Nqaba's notes' ratings given Eskom's 'AAA(zaf)' rating and the nature and status of its business. As it is a monopolistic state-owned utility provider, Fitch believes that the company is likely to continue operating even under severe stress. Overcollateralisation of InterestThe interest due on the subordinated loan, which funds part of the mortgage portfolio purchase price, is paid junior to the principal note allocations. This provides significant net income after note interest payment, which supports the senior notes credit.

Planned Sale of EFCThe South African government has requested the sale of EFC but the process has been unsuccessfully ongoing for several years. However, based on the letter of undertaking provided by Eskom, the company is committed to maintaining payroll deductions and subsidy payments to the borrowers after a sale of EFC. Moreover, monthly payments are made by Eskom from payroll deductions and deposited directly into the SPVs accounts. However, ABSA has the right to terminate the back-up servicing agreement in case of a sale of EFC. This could further increase the transaction's operational reliance on EFC to perform as servicer. Depending on the evolution of EFC's business and credit profile in the longer term, this could adversely affect the ratings of the notes. RATING SENSITIVITIES Rating sensitivity to increased weighted average foreclosure frequency (class A/classB/class C/class D)Original rating: 'AAA(zaf)'/'AA(zaf)'/'A+(zaf)'/'A-(zaf)'

Increase base case by 15%: 'AAA(zaf)'/'AA(zaf)'/'A+(zaf)'/'BBB+(zaf)'Increase base case by 30%: 'AAA(zaf)'/'AA(zaf)'/'A(zaf)'/'BBB(zaf)'Rating sensitivity to decreases in Recovery Rates (class A/class B/class C/class D)Original rating: 'AAA(zaf)'/'AA(zaf)'/'A+(zaf)/'A-(zaf)'Decrease base case by 15%: 'AAA(zaf)'/'AA(zaf)'/'A+(zaf)'/'BBB(zaf)'Decrease base case by 30%: 'AAA(zaf)'/'AA(zaf)'/'A-(zaf)'/'BBB-(zaf)'Rating sensitivity to shifts in multiple factors (class A/class B/class C/class D)Original rating: 'AAA(zaf)'/'AA(zaf)'/'A+(zaf)'/'A-(zaf)'WAFF increase by 15%, WARR decreases by 15%:'AAA(zaf)'/'AA(zaf)'/'A-(zaf)'/'BBB-(zaf)'WAFF increase by 30% and WARR decreases by 30%:'AAA(zaf)'/'A(zaf)'/'BBB(zaf)'/'BB(zaf)'Key Rating Drivers and Rating Sensitivities are further described in the accompanying pre-sale report. Link to Fitch Ratings' Report: Nqaba Finance 1 (RF) Limitedhere var $relatedItems = $('lia "/article/global-markets-idUSL5N1EU2HP"GLOBAL MARKETS-Accelerating economic activity, inflation sustain investors\' festive fizz/a/lilia "/article/eurozone-bonds-idUSL5N1EU1X1"UPDATE 1-Euro zone yields fall as investors look beyond headline inflation/a/li'), $relatedItems = $relatedItems.slice(0,10), relatedBlockLimit = Number('6'), relatedItemsTotal = $relatedItems.length, $paragraphTags = $('#article-text p'), contentParagraphs = 0, minParagraphs = Number("8"); for (i=0; i $paragraphTags.length; i++) { if ($paragraphTags[i].innerText.trim().length 0) { contentParagraphs = contentParagraphs + 1; } } if (contentParagraphs minParagraphs) { setTimeout(function(){ if (relatedItemsTotal relatedBlockLimit) { $('.first-article-divide').append('div class="related-content group-one"h3 class="related-content-title"Also In Bonds News/h3ul/ul/div'); $('.second-article-divide').append($('.slider.slider-module')); $('.third-article-divide').append('div class="related-content group-two"h3 class="related-content-title"Also In Bonds News/h3ul/ul/div'); var median = (relatedItemsTotal / 2); var $relatedContentGroupOne = $(' ul'); var $relatedContentGroupTwo = $(' ul'); $.each($relatedItems, function(k,v) { if (k + 1 = median) { $relatedContentGroupOne.append($relatedItems[k]); } else { $relatedContentGroupTwo.append($relatedItems[k]); } }); } else { $('.third-article-divide').append($('div class="related-content group-one"h3 class="related-content-title"Also In Bonds News/h3ul/ul/div')); $('.related-content ul').append($relatedItems); } },500); } Next In Bonds News UPDATE 1-British consumers borrow at fastest rate in 11 years as inflation threat rises LONDON, Jan 4 British consumer borrowing increased by the biggest amount in more than 11 years in November, boosting the unexpectedly robust post-Brexit vote economy in what could prove to be a big spending spree ahead of an expected rise in prices. BRIEF-US Concrete says its proposed offering of $200 mln aggregate principal amount of its 6.375 pct senior notes due 2024 * US Concrete Inc says its proposed offering of $200 million aggregate principal amount of its 6.375% senior notes due 2024 Source text: [this site] Further company coverage: Kazakhstan 2016 inflation slows to 8.5 pct year-on-year MOSCOW, Jan 4 Inflation in Kazakhstan slowed to 8.5 percent in 2016 from 13.6 percent in 2015, the Statistics Committee said on Wednesday. MORE FROM REUTERS window._taboola = window._taboola || []; _taboola.push({ mode: 'organic-thumbnails-a', container: 'taboola-recirc', placement: 'Below Article Thumbnails - Organic', target_type: 'mix' }); Sponsored Content @media(max-this site) { #mod-bizdev-dianomi{ height: 320px; } } From Around the Web Promoted by Taboola window._taboola = window._taboola || []; _taboola.push( { mode: 'thumbnails-3X2', container: 'taboola-below-article-thumbnails', placement: 'Below Article Thumbnails', target_type: 'mix' } ); window._taboola = window._taboola || []; _taboola.push