US Treasury bill rates held steady on Monday despite a safe-haven stampede into bonds from stocks, as investors preferred long-dated Treasuries over short-dated issues. Doubts over a rapid economic recovery intensified demand for low-risk assets, but investors scrambled for relatively stable investments that offered higher yields than T-bills, which are earning only slightly above zero.
"There's a flight-to-safety bid. There's less risk appetite," said Rudy Narvas, senior strategist with 4Cast Ltd in New York. "The front end of the curve seems fully priced." US T-bill rates barely budged on the day, ranging from 0.11 percent to 0.41 percent.
Other key dollar rates and short-term risk gauges were mixed. They suggest renewed investor jitters following last week's spate of data that pointed to a bumpy US recovery. Three-month dollar Libor was fixed at 0.43125 percent, rising for the first time in three weeks after posting a series of record lows during that span.
The interbank cost to borrow three-month sterling funds, however, hit a record low as markets continued to price in the effects of the Bank of England's recent decision to extend its bond-buying operations. The three-month Libor for sterling funds fell to 0.7575 percent on Monday. Libor is a rate benchmark for more than $350 trillion in financial products world-wide.
The spread between three-month Libor and the market's anticipated Federal Reserve policy rate in three months grew to 27 basis points from 25 basis points on Friday. In the derivatives market, the risk premium on two-year interest rate swaps over Treasuries expanded to 41.50 basis points from 39.00 late Friday.
The 2-year swap spread is a benchmark for corporate borrowing cost and grows with investor anxiety. A US government report on Monday suggested rising overseas appetite for longer-dated Treasuries over T-bills in June. Net foreign purchase of all Treasuries totalled $100.5 billion in June, compared with $22.55 billion of net sales in May.
The bulk of foreign Treasuries buying in June was long-dated securities. In fact, China, the biggest holder of US government debt, sold $14.5 billion in T-bills and bought $22.5 billion in coupon securities, analysts said. Growing demand for long-dated Treasuries should help hold down long-term US interest rates, they said.
Despite a seeming appetite shift in Treasury maturities, bidding for new T-bills was solid. The bid-to-cover ratios for $31 billion in three-month bills and $30 billion in six-month bills auctioned on Monday came in higher than last week's levels. The Treasury Department will sell $32 billion of 4-week bills on Tuesday and $30 billion of 70-day cash management bills on Wednesday.
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