Banks Offer Higher Rates On Deposits As BOE Drains Liquidity

Central Bank

Summary:

UK banks are offering unusually high interest rates to clients in order to attract cash, the latest sign of how the Bank of England’s balance-sheet reduction is shrinking liquidity in the system.

The rate offered by banks most keen to attract overnight deposits has aligned with the BOE’s key rate for the first time since May 2020, excluding a brief up-tick over year-end, according to Sterling Overnight Index Average (SONIA) data published Friday. The reading represents the amount banks pay to borrow sterling from other financial institutions.

It shows that banks are willing to offer more to attract clients’ cash as the BOE shrinks liquidity by trimming its bond holdings and ending loan programs. The data adds to other signs of increased demand for excess cash, including a record £70 billion ($94 billion) usage of a BOE repo facility on Thursday.

The developments underscore the delicate balancing act for officials as they look to wean markets off years of abundant liquidity. The central bank’s Executive Director of Markets Vicky Saporta has urged lenders to step up use of its routine facilities to avoid possible market stresses as the BOE runs down its balance sheet.

“It’s another indicator that liquidity conditions are tighter than the BOE thinks,” said Moyeen Islam, a strategist at Barclays.

The rates alignment is unusual because, with cash abundant after years of central bank bond purchases, banks would typically compensate deposits to clients at levels below Bank Rate. That reflected a lesser need to attract liquidity, and allowed them to profit from the spread between the rate they paid out to clients and the rate they secured by depositing cash at the BOE.

The central bank faces a crunch point as it reduces its balance sheet of gilts at a pace of £100 billion ($135 billion) a year through a mix of not reinvesting the proceeds of maturing bonds and active sales. Analysts have speculated officials may slow this so-called quantitative tightening from October as the BOE approaches the preferred minimum range of reserves, or PMRR.

“There is growing evidence that the market is closer to equilibrium reserve position, calling into question the need for a further renewal of active quantitative tightening,” said Islam.

The central bank’s aim is to wean markets off abundant liquidity fueled by years of gilt purchases, and instead provide cash via repo operations. That transition raises the risk of volatility, though, and officials are monitoring sterling money markets for signs of tension.

One metric the BOE has said it is watching is the spread between the main SONIA benchmark — which represents a trimmed mean of overnight deposit rates offered by banks — and the BOE’s key rate. SONIA has been converging with the Bank Rate since the beginning of this year though remains around three basis points below it.

Drilling down into the SONIA data, the 90th percentile of transactions — or those most willing to accept deposits — hit 4.25% Friday. That’s the same as the BOE’s key rate, or the amount lenders can obtain by depositing cash at the central bank.

Source: Bloomberg Europe

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Devin

Commodity

Oil prices fell more than 3% on Friday as President Donald Trump holds off for now on helping Israel to destroy OPEC member Iran's nuclear program.

Global benchmark Brent fell $2.78, or 3.53%, to $76.07 per barrel. U.S. crude oil gained 84 cents, or 1.12%, to $74.30 per barrel.

Trump said Thursday that he would make his decision on striking Iran within the next two weeks, but wanted to provide space for potential negotiations to take place over the Islamic Republic's nuclear program.

"Based on the fact that there's a substantial chance of negotiations that may or may not take place with Iran in the near future, I will make my decision whether or not to go within the next two weeks," Trump said in a statement read aloud by White House Press Secretary Karoline Leavitt on Thursday.

Though Trump is holding back, Israel is escalating its attacks on Iran after eight days of conflict. Prime Minister Benjamin Netanyahu has ordered Israel's military to intensify its strikes on strategic and government targets in Iran, after an Iranian missile hit a major hospital in southern Israel, Defense Minister Israel Katz said on Thursday.

Source: CNBC

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Thomas

Economic

Hotter weather in Europe this summer risks driving up demand while causing output from hydropower and nuclear plants to fall, according to research firm Energy Aspects.

Higher-than-usual temperatures across western Europe next month could add about 3 gigawatts of extra demand, it said, while generation from hydro and nuclear power is expected to take a hit of a similar dimension.

The region relies on those and other fuel sources during summer to balance output from renewables, and is likely to draw on natural gas to make up for any shortfalls. Traders are closely watching how heat waves develop across Europe as they could impact how much gas is put into storage ahead of next winter.

Longer-term forecasts show temperatures remaining above normal levels throughout July. That risks pushing gas generation up by more than 4 gigawatts and also bolstering coal and lignite activity in Germany, according to Energy Aspects.

European power contracts for delivery in July have edged up as a result, with the research firm seeing further upside for prices. French contracts are the most sensitive to heat, due to the potential for reduced generation from nuclear as rivers get too hot to cool reactors, and as air conditioning needs rise.

Electricite de France SA has already said that a heat wave that’s spreading across the country may force it to curb nuclear output later this month due to the rising temperature of the Rhone river.

Healthy hydro stocks in Spain are likely to limit the impact of heat on local prices, while in Germany demand does not typically respond as much to higher temperatures.

French power contracts for delivery in July have risen about 16% this week. The equivalent contract in Spain is up about 8%.

Source: Bloomberg Europe

To stay updated on all economic events of today, please check out our Economic calendar

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Damon

Cryptocurrency

As America’s national debt climbs past $37 trillion, concerns are growing about the country’s financial future. Just ten years ago, the debt stood at $18 trillion. Now, it has more than doubled, raising serious worries about inflation, currency devaluation, and the long-term stability of the economy.

Meanwhile, some experts believe Bitcoin and even stablecoins might offer some real solutions.

Let’s see how!

U.S. Double Down On Debt

The U.S debt is growing by about $4.27 billion every day, and it has reached $37 trillion so far. If nothing changes, experts warn that interest payments alone could swallow up the entire budget, leaving little for things like Social Security, defense, or public services.

Recently, Elon Musk on X said the U.S. is on the edge of “de facto bankruptcy,” with interest payments alone eating up 25% of government revenue.

Meanwhile, economist Peter Schiff went a step further, claiming the U.S. is already bankrupt—it’s just not obvious yet.

Why Bitcoin Is the Only Solution?

Analysts are now calling Bitcoin a protective asset, especially as each U.S. citizen indirectly holds over $106,000 in national debt. That number shoots up to $323,000 per taxpayer. With a federal deficit of $2 trillion and spending of $7.1 trillion.

However, over the past decade, when U.S debt doubled down, Bitcoin price has jumped from under $500 to more than $111,000. For many, this isn’t just a price chart; it’s proof that Bitcoin is becoming a financial lifeline.

Raoul Pal, founder of Real Vision, compared Bitcoin to a “life raft” in these uncertain times. As central banks print more money, Bitcoin’s fixed supply becomes even more attractive. Pal believes Bitcoin not only protects against inflation but also grows in value as more people adopt it.

Stablecoins: A Surprising New Ally?

While Bitcoin acts as a hedge, stablecoins may play a different role — one that could help reduce the debt itself.

U.S. Treasury Secretary Scott Bessent recently suggested that Stablecoins are backed by U.S. Treasury bonds. As the stablecoin market grows, so will the demand for these bonds, possibly lowering government borrowing costs.

The GENIUS Act, which aims to regulate stablecoins and mandate Treasury bond holdings, has passed the Senate and awaits a House vote.

However, America’s growing debt is forcing everyone governments, investors, and everyday people to look for new solutions.

Source: CryptoSlate

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Manuel

Commodity

Political

Canada’s House of Commons cleared a bill to accelerate the building of major projects such as pipelines, but Indigenous groups are threatening to force a legal battle over it.

The legislation drafted by Prime Minister Mark Carney’s government aims to fast-track construction by allowing projects that are deemed in the “national interest” to receive a quicker review for environmental and other impacts. The bill now heads to the Senate, where it faces a final vote before becoming law.

Carney’s goal is to see big projects approved within two years, creating more certainty for companies and investors. The legislation, which meets one of his election campaign promises, creates a new federal office to handle the work of approvals.

But some Indigenous groups say they’re concerned the law gives the government power to ram projects through their territories without proper consultation.

If the bill passes, “nothing’s off the table” when it comes to legal challenges, Cindy Woodhouse Nepinak, national chief of the Assembly of First Nations, told lawmakers on Tuesday. “You’re going to have legal wrangling right up the ying-yang if you don’t do the right thing and do this bill in a proper, respectful and good way. I think Canada can save itself years of litigation if it does that.”

The Chiefs of Ontario, which represents the province’s 133 First Nations, also pushed back against the bill. “Bill C-5 is a direct attack against the sovereignty and the jurisdiction of every First Nation in Ontario,” Ontario Regional Chief Abram Benedict told reporters this week.

The conflict evokes past controversies over large projects such as Northern Gateway, a proposed oil pipeline in western Canada that ran into significant opposition from Indigenous groups and was ultimately rejected in 2016 by the government of Justin Trudeau.

Carney’s aim in introducing the law is to signal that he’s taking a different approach from his Liberal predecessor. Some energy companies and other investors pulled back on infrastructure plans under Trudeau, citing long approval timelines and regulatory barriers. Carney has said he wants to makt it clear that large projects can still get done in Canada.

First Nations are “not against development” but want to be included in the planning, said Alvin Fiddler, grand chief of the Nishnawbe Aski Nation in northern Ontario. He added that the legislation “will not apply in our territories” if it passes.

Not all Indigenous associations oppose the bill. The First Nations Major Projects Coalition, which has more than 170 members across Canada, said the bill may be “a turning point if it is designed and administered in true partnership.”

Dominic LeBlanc, the minister who would be responsible for designating projects as in the “national interest” under the legislation, and Rebecca Alty, the minister of Crown-Indigenous relations, defended the bill earlier this week in the Senate.

The ministers pointed out that one of the five criteria for a designating a project to be in the “national interest” is that it advances the interests of Indigenous people, and the government is doubling an Indigenous loan guarantee program to allow more communities to invest in projects.

“I can appreciate where people are coming from, because to say, ‘Trust us, here’s the legislation’ — there’s been a lot of broken trust over the years,” Alty said. “We know that failing to uphold our legal responsibilities stopped projects, delayed projects, and we’re looking to advance projects.”

She also said the major projects office would include an Indigenous advisory council.

The bill received the support of the Conservative Party, but some opposition lawmakers raised concerns and environmental groups have criticized the bill.

The New Democratic Party successfully put forward a motion to split the bill, so that less contentious provisions that dismantle internal trade barriers could be voted on separately. That part of the legislation cleared the House as well.

Source: Bloomberg

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Manuel

Commodity

Middle East Situation

Iran said on Friday it would not discuss the future of its nuclear programme while under attack by Israel, as Europe tried to coax Tehran back into negotiations and the United States considers whether to get involved in the conflict.

A week into its campaign, Israel said it had struck dozens of military targets, including missile production sites, a research body it said was involved in nuclear weapons development in Tehran and military facilities in western and central Iran.

Iranian Foreign Minister Abbas Araqchi said there was no room for negotiations with the U.S. "until Israeli aggression stops". But he later arrived in Geneva for talks with European foreign ministers at which Europe hopes to establish a path back to diplomacy.

U.S. President Donald Trump said on Friday he was unlikely to press Israel to scale back its airstrikes to allow negotiations to continue.

"I think it's very hard to make that request right now. If somebody is winning, it's a little bit harder to do than if somebody is losing, but we're ready, willing and able, and we've been speaking to Iran, and we'll see what happens," he said.

Speaking to reporters after his plane landed in Morristown, New Jersey, Trump said he doubted European negotiators would be able to secure a ceasefire.

"Iran doesn't want to speak to Europe. They want to speak to us. Europe is not going to be able to help in this one," Trump said.

The president said he would not discuss the potential use of ground forces in Iran, and he again disagreed with his own national intelligence director, Tulsi Gabbard, by insisting that Iran does have the capability to build a nuclear weapon.

"She's wrong," Trump said.

Gabbard testified to Congress in March that the U.S. intelligence community continued to judge that Tehran was not working on a nuclear warhead.

Trump has said that he will decide whether the U.S. will join Israel in its efforts within the next two weeks. That will be enough time "to see whether or not people come to their senses," he said on Friday.

MISSILE STRIKES

Israel's military said on Friday that it had completed another wave of strikes on missile launch site in western Iran.

Earlier, it had said fighter jets had struck surface-to-air missile batteries in southwestern Iran as part of efforts to achieve air superiority over the country. Explosions were heard in Iran's southwestern Khuzestan province and at least four people there were killed, IRNA news agency reported.

At least five people were injured when Israel hit a five-storey building in Tehran housing a bakery and a hairdresser's, Fars news agency reported. Iranian air defences were activated on Friday evening, Fars news agency reported.

Iran fired missiles at Beersheba in southern Israel and Haifa in the north, causing damage to an Ottoman-era mosque, according to Foreign Minister Gideon Saar. A foreign ministry video also showed extensive damage to a nearby high-rise building that houses a branch of Israel's Interior Ministry.

Haifa is home to Israel's busiest seaport and a naval base.

Saar, speaking in Haifa, said he was very sceptical about Iran's intentions. "We know from the record of Iran they are not negotiating honestly," he said.

Fars news agency quoted an Iranian military spokesman as saying Tehran's missile and drone attacks on Friday had used long-range and ultra-heavy missiles against military sites, defence industries and command and control centres.

About 20 missiles were fired in those latest Iranian strikes, an Israeli military official said, and at least two people were hurt, according to the Israeli ambulance service.

Israel's envoy to the United Nations, Danny Danon, told the U.N. Security Council his country would not stop its attacks "until Iran's nuclear threat is dismantled". Iran's U.N. envoy Amir Saeid Iravani called for Security Council action and said Tehran was alarmed by reports that the U.S. may join the war.

NUCLEAR RISKS

The head of the U.N. nuclear watchdog warned against attacks on nuclear facilities and called for maximum restraint.

"Armed attack on nuclear facilities... could result in radioactive releases with great consequences within and beyond the boundaries of the state which has been attacked," Rafael Grossi, director general of the International Atomic Energy Agency, told the Security Council.

He spoke a day after an Israeli military official said it had been "a mistake" for a military spokesperson to have said Israel had struck Bushehr, Iran's only nuclear power plant. He said he could neither confirm nor deny that Russian-built Bushehr, located on the Gulf coast, had been hit.

Iran said on Friday its air defences had been activated in Bushehr, without elaborating.

Israel says it is determined to destroy Iran's nuclear capabilities but that it wants to avoid any nuclear disaster.

U.N. Secretary-General Antonio Guterres, also speaking at the world body's Security Council, said the Iran-Israel conflict could "ignite a fire no one can control" and called on all parties to "give peace a chance".

Russia and China demanded immediate de-escalation.

URANIUM ENRICHMENT

A senior Iranian official told Reuters Iran was ready to discuss limitations on uranium enrichment but that any proposal for zero enrichment - not being able to enrich uranium at all - would be rejected, "especially now under Israel's strikes".

Israel began attacking Iran last Friday, saying its longtime enemy was on the verge of developing nuclear weapons. Iran, which says its nuclear programme is only for peaceful purposes, retaliated with missile and drone strikes on Israel.

Israel is widely assumed to possess nuclear weapons. It neither confirms nor denies this.

Israeli air attacks have killed 639 people in Iran, according to the Human Rights Activists News Agency, a U.S.-based human rights organisation that tracks Iran. The dead include the military's top echelon and nuclear scientists.

In Israel, 24 civilians have been killed in Iranian missile attacks, according to authorities.

Source: Reuters

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Manuel

Commodity

Middle East Situation

Israel's surprise attack on Iran last week had oil prices spiking which sent U.S. producers scrambling to lock in the price gain, driving record hedging volumes that will help shield them from future price swings.

West Texas Intermediate crude futures rose further this week, closing on Friday at around $75 a barrel. This prompted U.S. producers to secure additional price gains through 2026, having already driven hedging activity on the Aegis Hedging platform to a record high last Friday.

Aegis Hedging, which handles hedging for roughly 25-30% of U.S. output, according to internal estimates, saw a record volume and greatest number of trades done on its trading platform on June 13. The U.S. produces some 13.56 million barrels per day of oil, according to the latest government figures.

U.S. crude futures jumped 7% on June 13 to around $73 a barrel, after Israel struck Iran, the largest single day rise since July 2022.

Prices had been hovering under where many producers would opt to hedge, hitting a four-year low of $57 a barrel in May as OPEC+ started hiking output while U.S. President Donald Trump waged a trade war. The jump on June 13 gave traders an opportunity to lock in prices for their barrels not seen in several weeks.

When prices react to risk-related events - such as Israel's attack on Iran - as opposed to supply-and-demand fundamentals, the front of the oil futures curve rises more than later contracts, influencing whether producers opt for short- or long-term hedging strategies, according to Aegis Hedging.

"In this case it was probably a six-month effect," said Matt Marshall, president of Aegis Hedging.

Oil producers need a price of $65 a barrel on average to profitably drill, according to the first quarter 2025 Dallas Federal Reserve Survey. U.S. crude futures closed below $65 every day from April 4 to June 9, according to LSEG.

"We stay disciplined and pay close attention to market volatility. We watch for accretive pricing to our existing hedges and layer in hedges to reduce risk to our asset revenue as well as meet our reserve-based lending covenants," said Rhett Bennett, chief executive at Black Mountain Energy, a producer with operations in the Permian Basin.

A reserve-based lending covenant refers to a type of loan producers can obtain, based on the value of the company's oil and gas reserves.

"Producers recognized that this could be a fleeting issue and so they saw a price that was above their budget for the first time in a few months, and instead of doing a structure that would give them a floor which is below market, they opted to be aggressive and lock in," said Aegis' Marshall.

Aegis' customers often have hedging policies in which a certain amount of production must be hedged by a certain time in the year.

"Producers had two months of hedges that they needed to catch up on," Aegis' Marshall said.

Traders on June 13 exchanged the most $80 West Texas Intermediate crude oil call options since January on the Chicago Mercantile Exchange, expecting more upside to prices.

A total of 33,411 contracts of August-2025 $80 call options for WTI crude oil were traded that day on a total trading volume of 681,000 contracts, marking the highest volume for these options this year, according to CME Group data.