The size of the US commercial paper market dipped to $1.0984 trillion on a seasonally adjusted basis in the week ended April 20 from $1.0992 trillion outstanding a week earlier, Federal Reserve data showed on Thursday.
The size of the market without seasonal adjustments fell to $1.1372 trillion from $1.1491 trillion.
"It would stand to reason that a decline in commercial paper would put some kind of pressure on general collateral rates," said Tom Simons, money-market economist at Jefferies & Co in New York.
General collateral has already been squeezed by a flood of cash into short-term rates markets, as well as a dwindling supply of US Treasury bills as the Treasury Department tries to cut issuance and avoid hitting a looming debt ceiling before Congress raises it.
The cash flood started April 1 after the Federal Deposit Insurance Corp changed its method for assessing deposit insurance fees from US banks. The change prompted banks to remove cash they were holding at the Federal Reserve as excess reserves and feed it into the financial system.
Simons said the shrinkage in the size of the commercial paper market wasn't large enough to signal a meaningful change
in issuance patterns.
In Europe the rate at which banks borrow euros overnight was expected to settle at its highest since March 2009 on Thursday as banks rushed to meet reserve needs with the European Central Bank before Easter, but it should fall after next week's cash tenders.
Traders said banks were paying 1.5 to 1.6 percent to borrow overnight, compared with Wednesday's settlement at 1.215 percent and -- for the first time since early February -- above the ECB's refi rate, now at 1.25 percent.
Euribor futures rose by up to 5 basis points across the 2011-2012 strip, pushing their implied rates slightly lower. Renewed tensions in the euro zone's lower-rated states due to talk of Greek debt restructuring may have caused the blip.
London interbank offered rates for three-month euros rose further to 1.31750 percent from 1.30313 percent on Wednesday. Markets are almost fully pricing in three more rate hikes by the end of the year.