NEW YORK: Investors charged banks and bond dealers less to borrow dollars on Tuesday as they showed more willingness to part with cash on hopes the world's top economies make progress in containing the euro zone's debt crisis.
Finance ministers from the Group of Seven major economies talked about steps towards a financial and fiscal union in Europe, the US Treasury Department said on Tuesday after G7 finance chiefs held an emergency call on the region's debt problem.
The urgency for a solution to the crisis has intensified as cash-strapped Spain said its access to credit markets was drying up.
Hopes for a comprehensive plan to the euro zone debt crisis led some investors to release more cash to lend in the $1.6 tri-party repurchase agreement market, traders and analysts said.
"We have seen a bit more cash coming into the market," said Raymond Gilmartin, head of repo trading at Bank of Nova Scotia in New York.
The overnight rate on repos secured by US government debt was traded as low as 0.18 percent with most trades cleared at 0.23 percent earlier, traders said.
On Monday, overnight repo rates ended about 0.25 percent , according to Reuters data.
In the derivatives market, the rates on short-term dollar interest swaps fell, while Eurodollar futures rose, implying traders expect interbank costs for dollar will fall.
The two-year swap rate, a gauge of short-term private credit costs in dollars, fell about 1.5 basis points at about 61 basis points, while its premium over comparable US Treasuries fell for a second day to 36.25 basis points.
The December 2014 Eurodollar contract rose 2 basis points to 99.120. It hit a contract high of 99.195 on Friday.
Still risk aversion remains elevated on lingering nervousness about Europe and pending downgrades from Moody's Investors Service on global investment banks which rely on the repo market and other wholesale channels to finance their trades and operations, analysts said.
This climate fed demand for Treasury bills and other cash-equivalent assets.
The US Treasury Department on Tuesday sold $30 billion worth of one-month or four-week bills at an interest rate of 0.04 percent.
This was the lowest rate on new one-month T-bills since an auction held on Jan. 24 when one-month supply was sold at 0.02 percent.
There were no fixings of London interbank offered rates on sterling or dollar on Tuesday because of a holiday in the United Kingdom.
On Friday, the three-month dollar Libor was fixed at 0.46785 percent, rising for the first time since May 16.
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