MONEY MARKETS-US sells 4-week bills at lowest rate in 3 months

* US sells 4-week bill at lowest rate in over 3 months

* 3-month dollar Libor unchanged since last Wednesday

* ECB Stark comments push up 2011 rate expectations

By Chris Reese and William James

NEW YORK/LONDON, Sept 28 (BestGrowthStock) – The U.S. Treasury sold
four-week bills on Tuesday at the lowest rate in over three
months, indicating continued strong demand for the lower risk
of short-term government debt.

The Treasury Department said it sold $25 billion of
four-week bills at a high rate of 0.08 percent, the lowest
level since a similar auction of the bills in mid-June. The
lower rate indicates a higher price was paid for the bills.

The bid-to-cover ratio, an indication of demand, was 5.16
which was the highest since an auction in late April. For full
auction details click on [ID:nTAR000334].

Meanwhile, dollar-denominated interbank lending costs held
steady on Tuesday for a fourth consecutive day, solidifying a
groove that has held since late August.

Three-month dollar Libor rates (USD3MFSR=: ) were fixed at
0.28938 percent on Tuesday, unchanged since last Tuesday. The
dollar Libor rates have fixed just below 0.30 percent since
August 25. [ID:nEAP000033]

In Europe, investors’ expectations of 2011 Euribor rates
rose on Tuesday after the European Central Bank’s Juergen Stark
said some non-standard policy measures expiring in December
would not be renewed.

The most actively traded March Euribor futures contract
(FEIH1: ) fell as much as 2.5 basis points to 98.900, implying a
Euribor rate of 1.1 percent by the end of March next year.

Rate expectations rose after ECB Executive Board member
Stark said a number of non-standard measures — which include
the central banks’ program of supplying unlimited, fixed-rate
liquidity to euro zone banks — would not be renewed.

“There are not too many non-standard measures left except
for the full allotment… so that would fit the picture of the
2011 maturities really getting hit hardest,” said Christoph
Rieger, strategist at Commerzbank in Frankfurt.

The ECB is attempting to reduce banks’ dependence on ECB
funding by phasing out full-allocation, longer-term loans.
Although recent market tension caused the ECB to postpone its
planned withdrawal, the last unlimited, fixed-rate three-month
tender is currently scheduled for December.

Three-month Euro Libor (EUR3MFSR=: ) fixed higher at 0.82875

The ECB completed its regular seven-day tender, with banks
opting to raise their borrowing to 166 billion euros, up by
around 12.5 billion euros from the previous week.

However, the expiry of 225 billion euros of ECB loans on
Thursday meant it was difficult to interpret the increased take
up, with a three-month tender scheduled for Wednesday and a
six-day fine-tuning operation taking place on Thursday.

The overall liquidity picture would be clearer after all
three operations were complete, with a Reuters poll suggesting
90 percent of the 225 billion euros of loans would be renewed.

Royal Bank of Scotland said they expected a lower rollover
of around 180 billion euros, with a 25 billion euro take-up of
three-month loans.
(Editing by Chizu Nomiyama)

MONEY MARKETS-US sells 4-week bills at lowest rate in 3 months