By Richard Leong
NEW YORK, Feb 8 (Reuters) - U.S. Treasury bill rates nudged
up on Monday in line with a broad rise in bond yields, as
investors braced for a wave of government debt supply and on a
reduced safety bid stemming from worries over sovereign risks.
The U.S. Treasury Department pledged higher interests on
three-month and six-month bills than those it sold a week ago.
This week's $81 billion refunding and the Congressional
approval to raise the government's debt ceiling had fueled
expectations of more bill supply and higher rates.
The backup in T-bill rates has been muted, however, as a
rise in supply will likely be small, if at all, analysts said.
'This muted response probably fits with Treasury's desire
to keep coupon auction sizes static, which in turn implies bill
supply for the balance of 2010 is unlikely to increase,' said
Alex Roever, short-term fixed income strategist with J.P.
Morgan Securities in New York.
Total T-bills outstanding declined to roughly $1.69
trillion at the end of January from a peak of about $2.07
trillion at the end of August, he said.
While supply has been the main factor in exerting upward
pressure on T-rates, a persistent bid for ultra short-dated,
low-risk investments has kept a lid on rates.
On Monday, the Treasury sold $24 billion of three-month
bills at a high rate of 0.11 percent, the highest in six weeks,
while it auctioned $27 billion of six-month bills at a high
rate of 0.17 percent, the highest since early January.
TOUGHER FUND RULES
Moreover, expectations of stricter rules on money market
funds should stoke T-bill demand in the coming months.
Regulators have sought more safeguards for short-term funds
after the demise of Lehman Brothers during the credit crisis
resulted in the collapse of a huge money market fund.
Under the new rules, regulators would require money market
funds to hold more T-bills and other liquid investments.
On a daily basis, a taxable money fund must keep at least
10 percent of its assets in Treasuries or securities that
mature within one day. On a weekly basis, all money funds must
keep at least 30 percent of their assets in T-bills, certain
agency securities with maturities of up 60 days, or assets that
convert to cash within a week.
Wrightson ICAP estimated taxable money funds would need to
own $300 billion each day in liquid assets and $900 billion
each week at all times.
The research firm said in a note on Monday that the rule
changes, which could become effective this spring, will have
only a limited impact on yields they pay to investors. Many of
the biggest fund operators have been operating under these
stricter guidelines since last summer after the Securities and
Exchange Commission recommended voluntary compliance.
GREEK REPO MARKET
Across the Atlantic, the Greek repo market remained gummed
up on widening sovereign risk fears about some euro zone
states.
While the one-week general collateral rates for core euro
zone issuers such as Germany and Belgium are below Eonia -- a
reference rate for overnight interbank loans in the euro zone,
worries over Greece's fiscal health have pushed up secured
lending rates against Greek collateral for Greek domestic
banks.
'Prices quoted in the Greek repo market are entirely split
between transactions that involve domestic banks and those
which involve only international banks. It's completely
separated,' said Chris Clark, swaps analyst at ICAP in London.
Despite lingering worries over Greece and other European
countries, three-month euro London interbank offered rates
(Libor) fell to 0.60063 percent, the latest in a
series of all-time lows set since the start of the year. For
latest Libor fixings see
(Additional reporting by Emelia Sithole-Matarise in London,
Editing by Chizu Nomiyama)
Keywords: MARKETS MONEY
(richard.leong@thomsonreuters.com ; +1 646 223 6313; Reuters Messaging: richard.leong.reuters.com@reuters.net )
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