Wednesday June 24, 2009
NEW YORK: The three-month rate banks charge each other for dollars fell to a record low on Tuesday as the Federal Reserve's rate-setting group prepared to begin its scheduled meeting. Expectations of a rate-friendly outlook from the Fed's Open Market Committee, and less anxiety over the record $104 billion in US government debt supply for sale this week, lowered the short-term costs and risk premiums on dollars.
"The Fed trumps supply concerns for now unless the demand is really awful," said Eric Lascelles, chief economics and rates strategist with TD Securities in Toronto. The FOMC will begin to meet on Tuesday and conclude on Wednesday afternoon when it is expected to release a policy statement immediately after. Adding to the downward pressure on dollar rates was the European Central Bank's launch of its one-year funding operation aimed to increase liquidity in the Euro zone banking system, analysts said.
The London interbank offered rates on three-month dollars fell to a record low of 0.6075 percent, surpassing the prior low of 0.60875 percent set last week. At the same time, the three-month Libor on euros slipped to 1.21063 percent, the lowest since the common currency was launched in 1999. Traders are betting the FOMC will leave its target rate range alone at zero to 0.25 percentage point as an economic recovery will likely be sluggish.
They are also speculating whether the FOMC will signal it could expand its $300 billion Treasury purchase program to counter the recent rise in mortgage rates and other longer-term borrowing costs. "People are scaling back their expectations of a rapid recovery," TD's Lascelles said. The European Central Bank's one-year funding operation could exert downward pressure on US rates going out to 12 months, analysts said.
The results of the ECB 12-month refinancing operations are due at 0920 GMT on Wednesday. A poll conducted by Reuters on Tuesday showed money market traders expect the ECB will allot a median 300 billion euros at the refi auction, which will be effective in bringing down short-term rates. Strong demand for this new type of ECB quarterly funding will likely curb the rates Euro zone banks would pay to borrow longer-term dollars in US money markets.
This could mean lower euro and dollar Libor, and lower yields on 6-month to 12-month US commercial paper, as money market investors bid on fewer of these securities issued by Euro zone banks, said Alex Roever, short-term interest rate strategist at J.P. Morgan Securities.
(Reuters)
NEW YORK: The three-month rate banks charge each other for dollars fell to a record low on Tuesday as the Federal Reserve's rate-setting group prepared to begin its scheduled meeting. Expectations of a rate-friendly outlook from the Fed's Open Market Committee, and less anxiety over the record $104 billion in US government debt supply for sale this week, lowered the short-term costs and risk premiums on dollars.
"The Fed trumps supply concerns for now unless the demand is really awful," said Eric Lascelles, chief economics and rates strategist with TD Securities in Toronto. The FOMC will begin to meet on Tuesday and conclude on Wednesday afternoon when it is expected to release a policy statement immediately after. Adding to the downward pressure on dollar rates was the European Central Bank's launch of its one-year funding operation aimed to increase liquidity in the Euro zone banking system, analysts said.
The London interbank offered rates on three-month dollars fell to a record low of 0.6075 percent, surpassing the prior low of 0.60875 percent set last week. At the same time, the three-month Libor on euros slipped to 1.21063 percent, the lowest since the common currency was launched in 1999. Traders are betting the FOMC will leave its target rate range alone at zero to 0.25 percentage point as an economic recovery will likely be sluggish.
They are also speculating whether the FOMC will signal it could expand its $300 billion Treasury purchase program to counter the recent rise in mortgage rates and other longer-term borrowing costs. "People are scaling back their expectations of a rapid recovery," TD's Lascelles said. The European Central Bank's one-year funding operation could exert downward pressure on US rates going out to 12 months, analysts said.
The results of the ECB 12-month refinancing operations are due at 0920 GMT on Wednesday. A poll conducted by Reuters on Tuesday showed money market traders expect the ECB will allot a median 300 billion euros at the refi auction, which will be effective in bringing down short-term rates. Strong demand for this new type of ECB quarterly funding will likely curb the rates Euro zone banks would pay to borrow longer-term dollars in US money markets.
This could mean lower euro and dollar Libor, and lower yields on 6-month to 12-month US commercial paper, as money market investors bid on fewer of these securities issued by Euro zone banks, said Alex Roever, short-term interest rate strategist at J.P. Morgan Securities.
(Reuters)
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