The cost of bank-to-bank lending, a key gauge of credit availability, rose across the board on Thursday ahead of the quarter-end, as optimism over the US bank asset plan faded slightly and short-term interest rate swap spreads widened.
Interbank lending rates for euros fell and closely-watched spreads, a measure of market stress, tightened a bit ahead of next weeks European Central Bank policy meeting which some analysts say could yield further liquidity-boosting measures. The yield on US 1-month Treasury bills briefly slipped below zero on Thursday, as investors looked for places to park cash near quarter-end.
One-month T-bills, considered a cash equivalent, yielded minus 0.015 percent in early trading, down from Wednesdays close of plus 0.046 percent, TradeWeb said. The one-month bill yield last turned negative in mid-December ahead of year-end.
"Its just a reflection of a lot of cash out there. A lot of cash is hanging out in these Treasury only money market funds," said Derrick Wulf, portfolio manager at Dwight Asset Management Co in Burlington, Vermont. The three-month Libor/OIS spread for euros was at its lowest since September and nominal Libor rates fell to a fresh all-time low.
The premium of London interbank offered rates, the global benchmark cost banks charge to lend to each other, over Overnight Index Swap rates, anticipated policy rates, is a broad measure of money market stress and banks willingness to lend.
The benchmark three-month dollar London interbank offered rate edged up to 1.23188 percent on Thursday, the latest fixing from the British Bankers Association showed, the third straight rise after nine sessions of decline. Euro three-month Libor fell to a fresh record low, as dealers bet the ECB could take more steps to keep liquidity flowing along with a widely anticipated cut in official interest rates next Thursday.
The euro Libor/OISD spread nudged below 85 basis points. The two-year US swap spread widened out to 60 basis points from as low as 55 basis points on Wednesday. US commercial paper outstanding rose in the latest week, reversing the previous weeks decrease and hinting at some stability in that part of the credit market, according to Federal Reserve data released on Thursday. Total commercial paper outstanding rose $14.8 billion to $1.491 trillion in the week ended March 25.
The weeks rise included a $2.2 billion increase in asset-backed commercial paper outstanding, bringing that sector to a total of $702.0 billion on the week. Three-month borrowing rates for US banks rose to 1.2587 from 1.2467 percent on Wednesday, ICAP said. ICAPs one-month NYFR rose to 0.5412 percent versus the previous sessions 0.5100 percent.