Short-term U.S. debt still in demand
NEW YORK (Reuters) - Appetite for short-term paper remained strong in the U.S. and Europe on Monday as the U.S. Treasury sold three- and six-month bills and short-term debt of both peripheral and safe-haven European nations proved popular.
The U.S. Treasury sold $32 billion in three-month bills at a high rate of 0.10 percent, awarding 45.09 percent of the bids at the high. The value of bids received eclipsed those accepted by a 4.56 ratio.
A strong indirect bid, said to be fed by purchases by central banks or other monetary authorities, emerged for the Treasury's $28 billion of six-month bills.
The six-month bills sold at a high rate of 0.135 percent, with 83.9 percent of bids awarded at the high. The ratio of bids received over those accepted was 5.00.
In Europe, demand for Italian and Spanish Treasury bills has revived since European Central Bank President Mario Draghi said on July 26 he would do whatever was necessary to preserve the euro, Italian one-year bill yields have halved to 2.27 percent, while their Spanish equivalents have dropped some 200 basis points to 3.07 percent.
But while those assets tempted some investors, safe-haven German and French short-term debt markets still drew a crowd.
France and the Netherlands both sold bills on Monday at negative yields, meaning investors were willing to pay for the privilege of parking their cash in higher-ranked debt.
"Safe-haven European debt markets are relatively small compared to the Treasury market so you end up with eye-popping yield levels when a flight-to-quality happens," said Thomas Simons, vice president and money market economist at Jefferies & Co in New York.
Meanwhile, overnight collateral rates were expected to hold near their current levels in the upper teens, said Barclays Capital analyst Joseph Abate.
"Treasury bill settlements on Thursday are small, and the monthly mortgage-backed securities principal and interest payments will not start until next week," he said. "As a result, we expect overnight Treasury collateral to hold around 17 basis points this week."
Even when the Treasury's $72 billion refunding settles next week, it might not push up repo rates much because relatively little new cash is being raised, analysts said.
Treasuries totaling $54.2 billion are maturing, leaving a net new issuance figure of just $17.8 billion.
Meanwhile, bank-to-bank lending rates inched lower after the European Central Bank fueled expectations for another interest rate cut next month.
Comments by ECB President Mario Draghi heightened expectations the bank could cut its key rate below its record low of 0.75 percent.
Three-month Euribor rates, traditionally the main gauge of unsecured bank-to-bank lending, eased to 0.374 percent from 0.375 percent.