| NEW YORK
NEW YORK Aug 11 Traders pared bets that the
U.S. Federal Reserve would raise interest rates this year after
China devalued its currency in a bid to help its exports, adding
disinflation pressure on the global economy.
U.S. short-term interest rates futures rose, while the
expected policy rate in over-the-counter trading fell further
from its highest level since June 2010 set last week.
The surprise 1.9 percent devaluation of the yuan was the
latest measure the Chinese government has deployed to combat
weakening economic growth and stock market turbulence.
While the devaluation was considered small, the
move caused some traders to think what other efforts Beijing
might use to bolster the world's second largest economy.
"It's signaling intention. What the market fears most is the
unknown," said David Keeble, global head of interest rates
strategy at Credit Agricole Corporate & Investment Bank in New
Stock prices across major markets fell, while oil, copper
and other commodity prices declined on the yuan devaluation.
Futures on the federal funds rate <0#FF:> rose 1.0 to 7.5
basis points on bets a weaker yuan would lead Fed policy-makers
to abandon plans to end its near-zero rate policy this year.
A drop in the interest rates on overnight indexed swaps
implied traders reduced their expectations on the Fed hiking
interest rates in September to 43 percent
from 51 percent on Monday, according to Tullett Prebon data.
In the repurchase agreement sector, the cost for overnight
loans which bond dealers use to borrow overnight cash from money
market funds and other investors was quoted at 0.23 to 0.26
percent, compared with 0.30 percent on Monday, according to ICAP
In the Treasury bill market, interest rates on six-month
T-bills fell to 0.2250 percent after hitting 0.244
percent on Monday, their highest since December 2010.
Other U.S. short-term borrowing costs either held steady or
edged higher from Monday.
The London interbank offered rate for three-month dollars
was fixed higher for a fifth straight day to 0.31435 percent
, a level not seen since October 2012.
Libor is a global rate benchmark for about $350 trillion
worth of financial products worldwide.
(Reporting by Richard Leong; Editing by Jonathan Oatis)