MONEY MARKETS-Repo rates lower as banks pause for quarter-end

NEW YORK, March 30 Fri Mar 30, 2012 12:33pm EDT

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NEW YORK, March 30 (Reuters) - Preparations for both the end of the quarter and Japan's fiscal year dominated global money markets on Friday, as quiet trading in the Treasury market and a muted reaction to new developments in Europe kept repo and interbank lending rates mostly steady.

Rates on general collateral in the overnight repurchase market were in the teens. But Roseanne Briggen, an analyst at IFR, a unit of Thomson Reuters, said the most recently issued Treasury notes were all trading "special," meaning their collateral rates were lower than the general collateral rate.

"Quarter-end has created a dearth of securities available in the securities lending market as a variety of accounts are reluctant to lend paper over the turn," she said.

Briggen added that the settlement of $99 billion in new Treasury issuance on Monday after this week's auctions would push general collateral rates higher.

The three-month London interbank offered rate, or Libor, held steady on Friday after declining for six consecutive sessions, fixing again at 0.46815 percent, the lowest since November.

The Libor/OIS spread, an indicator of fear in the market, was also unchanged from Thursday at 33 basis points, despite new worries that Spain and the Netherlands might miss their fiscal targets. Euro zone finance ministers announced on Friday they were raising the size of their financial firewall to 700 billion euros.

"That sort of brought the issue of Europe from the back burner to the mid-range of the stove," said Chris Ahrens, interest-rate strategist at UBS Securities in Stamford, Connecticut.

Ahrens added, however, that the new worries about Europe had not affected the Libor/OIS spread.

"Libor OIS continues to narrow," he said. "To the extent that it has maybe stopped narrowing in recent days that's a function of quarter-end."

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