A benchmark rate banks charge one other for dollars topped 0.3 percent for the first time since September as robust data fanned expectations the Federal Reserve could hike rates sooner than expected. The London interbank offered rate on three-month dollars climbed to 0.30041 percent on Monday, up from 0.29781 percent on Friday.
-- Strong bidding for latest US 3-month, 6-month T-bills
Other US money rates were steady to lower, signalling borrowing costs remained affordable despite chatter the US central bank could tighten monetary policy sooner rather than later to curb inflationary pressure. Across the Atlantic, interbank rates on euros rose again as investors braced for a drop in liquidity at the end of the second quarter when nearly half a trillion euros must be repaid to the European Central Bank.
Expectations of rising US rates were mitigated by a decline in Treasury bill supply. The US Treasury Department sold on Monday a combined $53 billion in three-month and six-month bills, $4 billion less than the amount auctioned last week. This first net drop in bill supply in some time will help limit the interest rates the Treasury pays investors, analysts said. "Investors will have to bid more aggressively for T-bills," said Thomas Simons, money market economist at Jefferies & Co in New York.
Fund managers will also have more cash to reinvest this week, as the Treasury will return $21 billion to them when a 10-day bill issue matures on Thursday, Simons said. Other T-bill sales this week include a $26 billion auction of a four-week issue on Tuesday and a $25 billion in 56-day cash management bill on Wednesday.
The European Central Bank, as part of its return to more "normal" funding conditions, said on Monday it will offer banks just 15 billion euros in three-month loans on April 28. It will be the first time the ECB will not provide banks with unlimited funding since late 2008 and the interest rate will be determined by demand for the cash.
Banks will still have access to as much money as they want on one-week and one-month bases until October. However, analysts said there could be a sharp drop in liquidity in the euro zone banking system in the second half as banks must repay the ECB 442 billion euros when their one-year loans with the ECB mature at the end of June. Three-month Euribor rates rose to 0.642 percent on Monday, while the equivalent euro Libor rate edged up to 0.58250 percent.
Commerzbank's Rieger calculated that there would need to be more than 200 billion euros of demand for ECB cash at 1 percent to maintain even neutral liquidity conditions. Currently there is around 215 billion euros of excess liquidity in the eurozone banking system. Elsewhere, despite eurozone ministers agreeing the terms of emergency aid to Greece, the country's repo market remained frozen after credit lines to domestic banks were withdrawn earlier this year. Athens needs to roll over 3.85 billion euros of maturing bills and an 8.2 billion euro five-year note this month.
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