NEW YORK: The ratio of bids to securities awarded in Tuesday's four-week Treasury bill auction was the highest since January after a cut in short-term Treasury supply and a flood of cash into short-term markets.
The Treasury Department sold $30 billion in four-week bills on Tuesday, its smallest four-week sale since Jan 25. The high yield at the auction was 3 basis points, the same yield at which four-week bills were trading in the open market.
"A reduction in supply would typically spark at least a small rally in bills, but yields are so close to zero that the market is little changed," wrote Tom Simons, money market economist at Jefferies & Co. in New York, in a note to clients following the auction.
Cash flooded into the short-term markets starting April 1, when the Federal Deposit Insurance Corp. implemented a change to the way it assessed deposit insurance fees for US banks. The new method made it less advantageous for banks to hold excess reserves at the Federal Reserve; they pulled their cash from the Fed and put it into the short term rates market.
Meanwhile, a scramble for short-term paper is underway as the US government nears a ceiling on its legal debt issuance. Congress must pass a law to raise the debt ceiling, but has not yet done so. The Treasury has adjusted its short-term issuance strategy to keep the debt ceiling at bay for longer, cutting its issuance of bills in the supplemental finance program.
By contrast, in Europe, short-term money market rates have climbed to their highest levels in two years and are set to climb higher as traders bet the ECB will raise official borrowing costs again in July after a rate hike earlier this month ended almost two years of record-low interest rates.
London interbank offered rates fixed up at 1.32125 percent
versus 1.31750 percent on Thursday while the equivalent Euribor rate fixed at rose to 1.361 percent, the highest since late April 2009, from 1.356 percent the previous day.
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