Eurozone liquidity is getting tight Icap's Chris Clark alerts us on Friday to the fact that European liquidity markets are already preparing themselves for a potential liquidity squeeze come the end of the year. As he notes: Month-ends have become increasingly significant events for the Eurozone repo markets over the second half of this year as levels of excess liquidity have diminished and market rates have slowly edged higher. This Thanksgivings Day/November month-end liquidity hump has proved a tricky one for the market to manoeuvre, but already attention is focusing on the impending year-end as evidence stacks up to suggest funding might be problematic for some. The table below gives an indication of the shift in 1-month GC rates on Thursday morning as the end-date pushed over into the new year. The word "indication" is doing quite a bit of work in that last sentence - establishing mid-prices has been very difficult lately as there appears very little willingness in the market to show any bid into the year-turn, even against the high quality paper. There is some hope that this is all at least partly due to the Thanksgivings Day slowdown and some bid activity might creep in next week. We'll see. Italian GC seems most stressed, the 11bp shift in the 1-month rate says as much, but there is no sign yet of any particular stress in that market and the lack of bids into January are also seen across core GC curves. What's also interesting notes Clark, is that Thursday's ECB 1-week liquidity absorbing operation failed to attract enough bids to fully sterilise the bank's SMP (Securities Markets Programme) holdings. He notes, this is something we have typically only seen around the year end. As he writes: Not only is it unusual to see shortfalls in November, this week's shortfall was the largest seen since the draining operations began in May 2010. As the second chart below illustrates, the narrower interest rate corridor, which has lowered the maximum acceptable bid to 0.25% may have helped put pressure on the tender. The pressure certainly seems to be building. It would probably be too speculative to link Monte dei Paschi's recent troubles to this year's LTRO repayment frenzy - a.k.a the ECB's very own tapering equivalent - but we're going to put the idea out there anyway. Related links: Please sir, I want some more: Italy edition - FT Alphaville Monte dei Paschi di Siena suspended - FT Alphaville LTRO repayment bifurcation risk - FT Alphaville LTRO payback, Eonia tightening edition - FT Alphaville The ECB's very own tapering problem - FT Alphaville