US federal fund futures rose on Tuesday with growing expectations a struggling economy and a flagging jobs sector will put the Federal Reserve on course to hold interest rates near zero percent into the third quarter. Futures have been rising since Friday, when government data showed employers unexpectedly shed 85,000 jobs in December. Analysts polled by Reuters had expected the level of US jobs to be unchanged last month from the previous month.
-- Euro rates mark new low on abundant cash
Futures on Tuesday were showing an implied fed funds rate of about 43 percent in September, down from an implied rate of about 53 percent prior to the release of the December non-farm payrolls data. Investors also gave the US government a free $10 billion one-month loan on Tuesday as they continued to stock cash in the safest possible investment haven. The high rate in an auction of the four-week bills on Tuesday was zero percent.
The sale was the third time in the past six four-week auctions that the high rate came in at zero. The bid-to-cover ratio, a gauge of demand, was extremely robust at 6.63. "Part of this is just a conscious decision (by the Fed) to keep the system flooded with liquidity, they are not worrying about the excess reserves built up in the banking system because velocity has not picked up yet," said Josh Stiles, bond strategist at IDEAglobal in New York.
Elsewhere in money markets, benchmark eurozone interbank lending rates squeezed to new lows on Tuesday, supported by the recent jump in excess liquidity sloshing around the region's banking system. At Tuesday's regular European Central Bank tender of one-week funds, banks took 60 billion euros of funds compared with a maturing amount of 54 billion euros.
That will keep excess liquidity around its current 180 billion euros, meaning overnight rates are unlikely to stray far from their current level around 0.35 percent. Indeed, in the interbank market overnight lending rates were quoted as low as 0.24 percent. Three-quarters of the way through the central bank's current maintenance period, overnight deposits at the ECB remained close to their highest levels in five months at 212 billion euros. Three-month euro Libor rates edged down to a new low at 0.63500 percent. Equivalent three-month dollar Libor rates were unchanged at 0.25125 percent.