NEW YORK: A key cost for banks and Wall Street to borrow dollars fell again on Friday, as investors hoped for easing strains in lending if Spain receives the funds needed for its struggling banking system.
European officials told Reuters on Friday that Spain is expected to ask the euro zone for financial assistance to help its banks this weekend. No amount of aid has not been set, while there are market estimates on the order of 100 billion euros ($124.67 billion).
"The banking system is a large part of Spain's economy. It's important for them to save these banks," said Perry Piazza, director of investment strategies at Contango Capital Advisors in San Francisco, which manages about $1.2 billion.
Even if the euro zone's fourth biggest economy manages to recapitalize its banks with help from other members of the bloc, there has been little progress on a comprehensive plan for tighter integration in the region, which analysts consider critical for its long-term viability.
As contagion concerns about the euro zone persist, most investors have clung to their cash and parked some of it in the $1.6 trillion triparty repurchase agreement market, rather than investing in stocks and other higher-risk assets.
"There hasn't been a massive move in liquidity in the front end," said Bret Barker, portfolio manager at TCW in Los Angeles, which manages $128 billion.
The overnight repos in which banks and bond dealers pledge US government debt as collateral in exchange for cash traded in 0.16 percent to 0.17 percent, down from 0.19 percent quoted late on Thursday, traders said.
The overnight repo rate fell for a fourth consecutive day. A week ago, the overnight rate was in the area of 0.24 percent.
The futures market suggested an uptick on bets that dollar funding costs will ease if Spanish banks get a jolt of cash.
Most Eurodollar futures ended up 0.5 basis point to 2.0 basis points on the day.
In offshore dollar trading, the benchmark London interbank offered rate on three-month dollars was again at 0.46785 percent, unchanged since last Friday.
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