US short-term rates were steady at low levels on Tuesday, anchored by the Federal Reserve's accommodative monetary policy. The US Treasury's auction of $25 billion in four-week bills resulted in a high rate of 0.105 percent, with 14.64 percent of the bids accepted at the high. The bill auction had a high bid-to-cover ratio, with bids received overwhelming those accepted by a 5.08 ratio.
"Demand for bills remains extremely deep," said Thomas Simons, money market economist at Jefferies & Co in New York. Traders said the auction was aggressively bid, stopping a basis point short of the 11:30 am when-issued bid at 0.105 percent. The 5.08 bid cover was "an improvement over last week and a touch above the recent averages in spite of the modestly elevated supply this week," Simons said. The median bid for the four-week bill sale was 0.100 percent and the low bid was 0.080 percent. In Dutch auctions successful bidders pay only the price of the lowest accepted bid, rather than the actual price they bid as in a multiple-price auction.
In overnight rates, the US federal funds rate opened at 0.20 percent, within the Fed's zero to 0.25 percent target range for the rate, according to the Fed Bank of New York. The effective rate for the federal funds rate was 0.18 percent on Monday when fed funds traded between 0.10 percent and 0.38 percent, the New York Fed said.
Meanwhile, the British Bankers' Association said its three-month dollar London Interbank Offered Rate (Libor) fixed at 0.28563 percent. The three-month euro Libor rate fixed at 0.99500 percent. The spread of three-month Libor rates over three-month OIS rates, calculated from Reuters' data, expresses the three-month premium paid over anticipated central bank rates, or Overnight Index Swap rates.
In Asia, the Philippine short-dated swap rates struck record lows on Tuesday, with the central bank's sudden move to absorb dollars causing an interbank funding squeeze that has rippled across currency and interest rate markets. A dollar funding crunch has worsened since the country's central bank stopped supplying dollars through its $22 billion forward book used to sterilise FX intervention, traders said.
The funding shortage has prompted market players betting on a stronger peso to shift positions into the forwards market, sparking the move that has then spilled into the swaps market because the floating rates in the contracts are determined by currency forwards.