Money markets us sells 4 week bills at lowest rate since july

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sold $40 billion in four-week bills o n T uesday at the lowest interest rate since late July, less than a week after the Federal Reserve extended its commitment to keep short-term interest rates near zero to mid-2015. The Fed had previously said it would keep short-term rates between zero and 0.25 percent until late 2014. The lower one-month T-bill rate resulted even though the ratio of bids received over those accepted was 4.13, at the lower end of the recent range, said Thomas Simons, vice president and money market economist at Jefferies & Co in New York. The high rate of 0.08 percent on the latest one-month bill supply was the lowest since 0.075 percent at an auction held on July 31.

"With (general collateral) repo rates in the high 20s, it's difficult to see more investor interest at these auctions," Simons said. Overnight repo rates drifted higher on Monday, closing at 30 basis points. They opened a little softer on Tuesday as the Street worked through pressures related to settlement of last week's Treasury coupon auctions."There should be a bit of a reprieve later in the week as the settlements get absorbed," said Roseanne Briggen, market analyst at IFR, a Thomson Reuters unit.

But that relief could be fleeting as monthly payments from government-sponsored enterprises "sap cash from the system beginning next week," she said. The Treasury also sold 52-week bills in an auction that drew a bid-cover ratio of 4.92, the highest since May 30 and the third-highest since the issue was reintroduced in June 2008.

Dealers got 60.6 percent of the issue, at the bottom end of the range over the past year, Simons said."Loading up on shorter-term securities is a very safe trade because the Fed isn't going to tighten for two or three years," said Jim Steinkirchner, senior vice president and capital markets derivatives manager at Bank of the West in Los Angeles. Overseas, Libor continued its downward trend, fixing 0.2 basis point lower to 0.37875 percent."Libor reflects the marketplace's increasing comfort with the European financial situation," said Steinkirchner said. "The market has accepted that what (European Central Bank President Mario) Draghi put forth is coming through.""That's also (evident) in European bank credit default swaps, which are near the lows of the year," he said.