European banks can begin repaying LTRO funds on January 30.
It’s not clear how much of the low-cost borrowing will be unwound and what it will mean.
ICAP explains that many banks used a carry trade to profit from the cheap funding scheme. As the trades unwind, there are risks to the credit, repo and Euribor markets.
I expect the risks are low because most loans are for three years so repayments now would be voluntary so they will/should be timed to limit distortions … but you never know.
