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Money markets us rates futures rise on spain, greece worries

* Bets grow on more U.S. Fed stimulus to cut rates* Deferred Eurodollar futures hit contract highs* Front-month Eurodollar falls on SF Fed chief remarks* Bets reduced Fed will cut rate on bank excess reservesBy Richard LeongNEW YORK/LONDON, July 23 U.S. interest rate futures rose on Monday as worries that the fiscal woes of Spain and Greece could take a further toll on the already sluggish U.S. economy spurred expectations of further monetary stimulus from the Federal Reserve. Traders reckon the U.S. central bank will likely embark on a new program of bond purchases to reduce unemployment and stimulate lending."It's most about the problems in Europe, leading to possibly another round of quantitative easing," said Alex Manzara, vice president at TJM Futures in Chicago. More bond purchases from the Fed would be designed to reduce mortgage rates and other long-term borrowing costs. Spanish 10-year borrowing costs rose to a euro-era high above 7.5 percent on Monday as investors dumped Spain's sovereign debt on bets that the euro zone's fourth biggest economy would soon seek a full-blown bailout. Greece moved back into the forefront of investors' focus as the troika on international lenders -- the EU, European Central Bank and the International Monetary Fund -- will begin its review this week on the nation's progress on the tough fiscal measures it agreed to earlier this year in exchange for a 130 billion euro rescue package required to avert a chaotic default.

"There's a credit concern if there is an imminent shutdown, especially with Spain," said George Goncalves, head of U.S. interest rate strategy at Nomura Securities International in New York. "There is a genuine flight-to-quality."Eurodollar futures for delivery in mid-2014 and beyond were between 0.5 basis points to 7.5 basis points higher than Friday's close. Most posted contract highs. Federal funds futures were mostly steady to up 0.5 basis point. Bets on more action from the Fed led the two-year Treasury note yield to fall to 0.198 percent overnight, which is the lowest level since September 2011. It is within striking distance of the record low of 0.149 percent. A rise in risk premiums in the dollar funding market signaled investor concerns about financial contagion if the fiscal problems in Spain and Greece worsen. The spread between the two-year U.S. interest swap rate and two-year Treasuries widened as much as 25.75 basis points, a level not seen in nearly two weeks. It was last at 24.00 basis points, unchanged from late on Friday.

The gap between the London interbank offered rate and the overnight indexed swap rate for three-month dollars widened to 31 basis points on Monday. However, the benchmark three-month dollar Libor slipped to 0.45110 percent, down 0.1 basis point from Friday's fixing. TALK ON FED'S MOVE ON RESERVES COOLS

While most U.S. interest rates futures gained on the latest news from Europe's festering fiscal crisis, front-month Eurodollar contracts fell on Monday as traders reduced bets the Fed would lower the interest it pays banks on excess reserves they deposit with the Fed. Speculation that the Fed would make such a move emerged after the European Central Bank cut a similar rate earlier this month to zero in on an attempt to prop up the region's faltering economy. Fed Chairman Ben Bernanke acknowledged last week before U.S. lawmakers that cutting the interest on excess reserves (IOER) is a policy tool that the Fed has to stimulate the economy. But many analysts said cutting the IOER from the current 0.25 percent would disrupt the dollar funding market, especially money market funds that have been struggling to maintain their $1 per share value in the protracted near-zero rate climate. In addition, the stimulative effect from a IOER cut would be much less than other possible measures by the Fed, such as a third round of large-scale bond purchases."I don't think there's a force out there that could motivate a cut in the IOER," Nomura's Goncalves said. A top Fed official downplayed the likelihood of the central bank lowering the IOER. The Financial Times in an interview with San Francisco Fed President John Williams published in its Monday edition said Williams was "unenthusiastic" about cutting the IOER as a mean to stimulate a U.S. economy bogged down by high unemployment. Eurodollar futures for delivery from August to March 2013, which rose last week on hopes of an IOER cut, fell 0.25 basis point to 2.0 basis points. The interest rate on overnight repurchase agreements, a key funding source for Wall Street, rose to 0.18 percent, up from 0.14 percent on Friday.

Money markets us repo rate rises on treasuries settlement

* Investors gear up to pay for last week's Treasuries supply* Tuesday's U.S. tax deadline further cuts cash for repos* Strong demand for three-, six-month U.S. T-bills* No market impact after Moody's delayed bank review timelineBy Richard LeongNEW YORK, April 16 A key overnight borrowing cost for banks and Wall Street firms rose on Monday as investors sent payments to the U.S. Treasury Department for some of the $66 billion in government debt they bought last week. The Treasury sold $32 billion of three-year debt; $21 billion of 10-year notes and $13 billion of 30-year bonds last week. These securities are scheduled to settle on Monday. Anticipated cash outflows from bank accounts ahead of Tuesday's personal income tax deadline also reduced the amount of money available for overnight lending in the $1.6 trillion tri-party repurchase agreement (repo) market, analysts said. The interest rate on overnight repos rose to its highest in a week. The overnight repo rate was last bid at 0.28 percent , up from 0.24 percent late on Friday.

Repos are short-term loans whose proceeds banks and bond dealers use to fund their trades and operations. For investors, they are relatively safe investments because they are typically secured by Treasuries or other securities as collateral. Analysts expect repo rates and other short-term dollar funding costs to retreat in coming days after a huge amount of Treasury bills is scheduled to mature this week."People are running out of time. A lot of T-bills are maturing on Thursday," said Mike Lin, director of U.S. funding at TD Securities in New York. About $136 billion worth of T-bills will come due on Thursday, of which $48 billion are expected to be paid down by the Treasury, according to analysts. With less supply of T-bills available after Thursday, money market investors are expected to step up their bidding for T-bills. This could drive down the interest rates on T-bills, repos and other forms of short-term funding, analysts said.

Strong demand at Monday's auctions of new three-month and six-month T-bills signaled sharpened interest among investors to stash cash into T-bills. The Treasury sold $30 billion of three-month bills at an interest rate of 0.080 percent, a touch lower than last week's 0.085 percent. It sold $28 billion of six-month bills at 0.135 percent, the lowest interest rate at an auction in six weeks. In addition to less T-bill supply, investors said they are concerned about possible downgrades of European banks and global financial companies by Moody's Investors and about Spain's financial troubles causing another flare-up in the euro zone debt crisis.

MOODY'S DELAYS RATING DECISIONS On Friday, Moody's said its timeline for the conclusion of its ratings reviews on European banks and global investment banks will be in early May to the end of June. It had a timeline starting this week to mid-May. Fears about broad and steep downgrades of these banks' ratings have led investors to withdraw cash from money market funds which invest in these banks' short-term debt in recent weeks. They also reduced their exposure to them by doing less repo business with them, analysts said. Moody's move to postpone its decisions by a month has not had a market impact, albeit it might buy more time for banks and investors to prepare for possible downgrades, they said."It won't make a difference from an investor perspective," TD's Lin said of the timeline change. "For most investors, they have already been reducing their balances on those companies whose ratings might be downgraded."For the banks whose ratings are under review, they will have more time to shore up their funding, analysts said."On (the) margin, the delay in ratings action provides more time for banks to prepare for possible downgrades, whether it be finding alternative sources of funding or shoring up additional collateral to meet derivative contract requirements," J. P. Morgan Securities analysts wrote in a report on Monday.

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