Money markets us rate futures fall after fomc minutes

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* US rate futures fall as Fed backs off from more stimulus* Repo rates rise on worries about sterilized Fed program* Three-month dollar Libor edges up but Euribor dips* Strong bids for 1-mo T-bills, cool demand for 1-yr billsBy Richard LeongNEW YORK, April 3 Short-term U.S. interest-rate futures fell on Tuesday after the minutes from the Federal Reserve's last policy meeting suggested policymakers are not ready to embark on more bond purchases to tweak rates lower in a bid to stimulate the economy. While the high unemployment rate and Europe's debt troubles could hamper U.S. growth, fewer members of the Federal Open Market Committee seem keen to engage in a third large bout of quantitative easing, also known as QE3."I believe there might be no QE3 immediately. They are more on the fence now about keeping rates exceptionally low through at least late 2014. This is not what the market is looking for," said Robbert Van Batenburg, head of global research at Louis Capital Markets in New York. Indeed, the perceived hawkish tone of the minutes of the FOMC's March 13th meeting fueled speculation whether policymakers might begin to discuss raising the Fed's policy rate target when the U.S. economy gains more traction. The Fed has held its target for the federal funds rate in a range of zero to 0.25 percent since December 2008.

Nearby Eurodollar and federal funds futures turned negative in reaction to the FOMC minutes, while deferred contracts added to earlier losses. The December 2014 Eurodollar contract was down 8.5 basis points - on track for its biggest one-day drop in two weeks - at 98.605. Still, rate futures implied traders are not fully pricing in a Fed rate increase to happen until early 2014.

DOLLAR CASH RATES RISE Before the release of the FOMC minutes, the overnight interest rates on fed funds and repurchase agreements hovered at their highest levels since last summer on worries that the FOMC minutes show discussions on "sterilized" bond programs as an option to hold down long-term borrowing costs, analysts said. Moreover, they reckoned the loans to fund the purchases of the U.S. Treasury Department's combined $99 billion in coupon bond supply have not been fully unwound. The Wall Street Journal reported, citing people familiar with the matter, on March 7 that should the Fed decide to buy more bonds to boost growth, it could borrow back the money it used to buy those bonds for short periods of time at low interest rates. Doing so would take that money out of circulation, or "sterilize" it, exerting upward pressure on short-term interest rates. In repo trading, what banks and bond dealers charge each other for overnight loans secured by Treasuries was last quoted at 0.23 percent mid-market, down from 0.26 percent on Monday, but up from about 0.05 percent at the end of 2011.

In the fed funds market, whose rates the Fed monitors closely, the cost for banks to borrow excess reserves from each other overnight was last bid at 0.25 percent, up from 0.09 percent late on Monday. In the unsecured dollar sector, the benchmark London interbank offered rate for three-month dollars edged up to 0.46915 percent from Monday's fixing of 0.46815 percent. But for the dollar Euribor, which made its debut on Monday , the three-month rate in that index series increased to 0.95643 percent from 0.95714 percent. At Tuesday's Treasury bill auctions, data showed strong demand for the latest one-month supply, but reduced appetite for this month's one-year offering. The bid-to-cover ratio at the $30 billion sale of one-month bills came in at 4.75, which was the highest since the auction held on Jan. 24. The Treasury sold the latest one-month bills at an interest rate of 0.055 percent, the lowest level since the ones sold on Jan. 31. On the other hand, the bid-to-cover at the $26 billion auction of one-year bills was 4.31, the lowest since August 2011. The drop-off in appetite for one-year bills resulted in a rise in the clearing rate on them. They were sold at 0.185 percent, up from 0.170 percent at the March auction and the highest since July 2011.