Money markets us repo rate rises on treasuries settlement

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* 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.