MONEY MARKETS-U.S. repo rates rise, commercial paper grows
What banks charge each other for dollars slipped on Monday in the wake of remarks from U.S. Federal Reserve chief Ben Bernanke that the central bank has sufficient tools to support economic growth.
In bill trading, there was record bidding for $30 billion worth of three-month U.S. government debt as investors scrambled for low-risk investments to park their cash near month-end, analysts said.
Bernanke, who spoke at a central banker event in Jackson Hole, Wyoming on Friday, offered no hints when more policy easing would occur. For more, see [ID:nN27258237]
But his vague promise of support was enough to push down short-term dollar interest rates in light trading. Bernanke’s speech backed the notion the Fed could leave short-term rates near zero into 2012, longer than traders thought earlier this summer.
However, investors expect the federal government to provide more for the economy, either through tax cuts, targeted spending and/or reducing its long-term deficit, analysts said.
“There is a need for a fiscal component. The market is looking for a bit more,” said Lance Pan, director of investment research and strategy at Capital Advisors Group in Newton, Massachusetts.
U.S. President Barack Obama said on Monday he and his economic team discussed additional steps to support the economy, including looking at tax cuts for businesses. For more, see [ID:nWEN9187]
Moves like deficit reduction or tax cuts could push dollar rates lower. Higher spending could send them higher on the assumption it would lead to more government borrowing
ICAP’s index on the one-month interbank rate on dollars USNYFR1M= dipped to 0.2534 percent, its lowest level in almost four months, while its three-month rate index USNYFR3M= was flat at 0.3212 percent.
Earlier, the average cost of 3-month funds in Singapore SIUSD3MD=ABSG eased to 0.30444 percent from 0.30778 percent. The rate, a new four-month low, is down more than 17 basis points this month having fallen daily since July 16, the last time it rose.
There was no Libor interbank offered rate fixings on dollars and sterling due to a U.K. bank holiday. [ID:nLDE60Q0I7]
Libor is a rate benchmark for about $370 trillion in financial products worldwide.
In light of the Fed’s pledge to keep short-term rates near zero, the demand for low-yielding investments such as Treasury bills has remained intense. This is partly due to tighter regulations on money market funds to hold more safe, liquidity assets in response to the 2007-2009 global credit crisis.
The U.S. Treasury sold $30 billion of three-month bills at a record bid-to-cover ratio of 4.95. [ID:nTAR000737]
It also auctioned $30 billion of six-month bills to good demand. [ID:nTAR000287]
Moreover, jitters over sovereign debt problems in Europe have faded at least in the United States. However, analysts cautioned that there is a lot of European bank debt that is scheduled to be refinanced.
Standard & Poor’s downgrade of Ireland to AA-minus has had no impact on short-term rates markets, J.P. Morgan said.
Ireland and Irish banks have less than $3 billion worth of U.S. commercial paper outstanding at the end of July, which is equivalent to 1 percent of all CP issued by foreign entities, J.P. Morgan said.
But the euro zone’s collective bank debt is vastly higher. About $1.3 trillion of it needs to be refinanced in the next 3-1/2 years. Roughly $170 billion of that amount, including $62 billion in September, is expected to be refinanced by year-end, J.P. Morgan analysts wrote in a research report on Monday.
(Additional reporting by Umesh Desai in Hong Kong; Editing by Andrew Hay)
By Richard Leong