MONEY MARKETS-US repo rates dip ahead of auction announcement

By Chris Reese and Marius Zaharia
NEW YORK/LONDON, Aug 17 (Reuters) - Overnight general
collateral repo rates eased on Friday as investors looked ahead
to the announcement next week of U.S. government debt auctions
to be held in late August.
The U.S. Treasury is scheduled to auction two-year notes,
five-year notes and seven-year notes on Aug. 28, 29 and 30
respectively. The announcement of the size of the auctions is
scheduled for Aug. 23.
Settlements for such auctions can put upward pressure on
general collateral rates in the days following the sales.
The rate on repos secured by Treasuries dipped to
22 basis points on Friday from 24 basis points on Thursday. The
repo rates have generally been trending higher since touching a
recent low of 0.03 percent over a year ago.
Meanwhile in Europe, chartists saw no immediate threat to
this year's rally in Euribor futures and expect the contracts to
grind gradually to new highs.
For market participants looking at the fundamental picture
rather than chart patterns, this corresponds to expectations the
three-month euro zone interbank Euribor rate will
settle lower.
The higher the price of Euribor futures, the lower Euribor
is expected to settle. Euribor is a gauge of unsecured
bank-to-bank lending and European Central Bank rate
expectations.
Falling Euribor rates would imply expectations of ECB
monetary policy easing.
The Dec. 2012 Euribor contract on Friday traded 2
ticks higher at 99.76, implying expectations that the
three-month Euribor rate will settle at 0.24 percent in
December, compared with a record low of 0.334 percent hit on
Friday.
The contract could rally to levels implying single-digit
rates, according to Alan Collins, a partner at 3CAnalysis in
London.
"There is no clear signal that the trend would reverse,"
Collins said. "We've had a higher number of higher highs and
higher lows than otherwise."
He said the 99.795 percent record high hit on July 27 -- the
day after European Central Bank President Mario Draghi said he
would do whatever it takes to preserve the euro -- was the
immediate target.
Above that, the contract was likely to attempt to rise to
99.84 and then to 99.93 -- the first two Fibonacci projection
levels of the rise from June's lows to July's record high.
The December 2013 contract is likely to follow a
similar pattern, Collins said, although the 10-12 tick spread
between the two is likely to remain intact, so the next target
on its rising trend would be 99.74.
"The trend (for the Dec. 13 contract) is exceptionally
strong at the moment," said Cilline Bain, technical analyst at
Credit Suisse in London. "There is really no risk of that
turning sour."
The "game changer", Bain said, was the contract's bounce on
Thursday from 99.595, which was bang on the trend line set by
the lows going back to April 2012. A fall below that line would
have been a first warning signal for the rising trend.