* Overnight repo rates jump to highest in five months
* Speculation some players refusing to accept some
By Richard Leong
NEW YORK, Oct 9 Growing worries about a possible
U.S. default are spreading to a key part of the short-term
credit market, sending overnight interest rates to their highest
in five months on Wednesday.
Following the recent jump in interest rates on U.S. Treasury
bills, banks and Wall Street firms are paying more to borrow in
the repurchase agreement market, where they often pledge
Treasuries as collateral in exchange for short-term cash to
finance trades and loans.
Traders said some money funds and banks are starting to
refuse to accept Treasury securities maturing in the next
several weeks as repo collateral.
"Investors are worried about holding Treasury bills and
coupon securities in late October through the middle of
November, which may face delayed payments," said Boris
Rjavinski, rates and rate derivatives strategist at UBS in
Optimism is fading the White House and Congress can agree on
a deal before Oct. 17 when the government is expected to exhaust
its $16.7 trillion statutory debt limit, but traders are
clinging to hopes of a last-minute pact to avert a default,
which traders fear would be catastrophic for the global economy.
In the $5 trillion repo market, the overnight rate to obtain
cash was last quoted at 0.14 percent after rising as high as
0.17 percent earlier, which was a level not seen since early
May. This compared with 0.09 percent on Tuesday and 0.07 percent
a week earlier.
Treasury bill rates continue their dramatic increase.
The interest rate on the T-bill issue due Oct 17
rose 17.5 basis points to near 0.46 percent, which
was a level not seen since the height of 2008 global financial
T-bill rates on T-bills that mature after Nov. 14, however,
have remained in the single basis-point range, suggesting
traders anticipate any disruption in debt payments will likely
"Those (default) fears are overblown, but clearly some
people are concerned," Rjavinski said.