MONEY MARKETS-Treasury bills to stay rangebound

NEW YORK, Sept 27 Thu Sep 27, 2012 4:50pm EDT

NEW YORK, Sept 27 (Reuters) - Yields on Treasury bills will likely stay rangebound for the foreseeable future as markets shift their focus to longer-dated U.S. debt.

Unless the Federal Reserve moves on interest in excess reserves, the government nears default as with last year's bruising debt ceiling talks or monetary policy expectations shift globally, bills will probably not budge much, said Ian Lyngen, senior government bond strategist at CRT Capital Group in Stamford, Connecticut.

"The short answer is I don't expect any of those things," he said. Bills "continue their rangebound trend as the bulk of the Treasury market's focus has been pushed out the curve."

The idea of lowering the rate that the U.S. central bank pays banks for parking their reserves received some attention this summer as a way to encourage banks to lend more to businesses and individuals, boosting the economy.

But the idea of cutting the interest on excess reserves has since faded.

In addition, last year's fight over raising the government's borrowing ceiling eventually brought the U.S. government to the brink of a debt default and cost the United States its top-tier, triple-A credit rating from Standard and Poor's.

U.S. Treasury Secretary Timothy Geithner has already warned Republicans against a repeat of last summer's theatrics.

Monetary policymakers around the world are expected to keep up an accommodative stance as global growth worries persist.

Yields on three-month bills traded at 0.091 percent on Thursday. Yields on six-month bills traded at 0.131 percent.

In other short-term lending, the amount of seasonally adjusted U.S. commercial paper contracted for a fourth consecutive week in the week ended Sept. 26, Federal Reserve data showed on Thursday.

Non-seasonally adjusted commercial paper outstanding - which some analysts consider a more reliable reading than the seasonally adjusted one since it has been distorted by the financial crisis - declined as well.

In unsecured lending, the London interbank offered rate, or Libor, on three-month dollars slid to 0.36025 percent, its lowest in about a year, from 0.36225 percent on Wednesday.

The rate has sunk almost steadily for about three months, and is well off the 0.58100 percent at the end of last year.

Britain is expected to propose on Friday that Libor, the interest rate at the center of a rigging scandal, be anchored to real transactions and that an industry body be stripped of its supervisory role, to restore trust in the benchmark.

Comments (0)
This discussion is now closed. We welcome comments on our articles for a limited period after their publication.