Reuters: US Dollar Report: MARKETS-U.S. rates futures rise on low-rate bets

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MARKETS-U.S. rates futures rise on low-rate bets Jul 24th 2012, 19:18 Tue Jul 24, 2012 3:18pm EDT * Most Eurodollar futures hit contract highs again * Overnight repo rate holds steady on ample dollars * Three-month dollar Libor lowest since early November By Richard Leong NEW YORK, July 24 (Reuters) - U.S. interest rate futures climbed on Tuesday as unsettling news on Greece and Spain and disappointing U.S. economic data raised bets the Federal Reserve would leave short-term rates near zero beyond late 2014. Discouraging reports on Greece and Spain's fiscal troubles spurred more selling of Wall Street stocks, sending investors into less risky government bonds and related investments, analysts and traders said. Eurodollar futures from 2014 and beyond rose to contract highs for a second straight day, erasing earlier losses in the wake of a strong $35 billion two-year Treasuries auction. The December 2015 Eurodollar contract was three basis points higher at 99.01, its contract high. Moreover, data released on Tuesday signaling slowing growth in the U.S. manufacturing sector further stoked expectations the Fed would stick to a near-zero interest rate policy beyond its late 2014 guidance. "All these developments suggest we are going to see near-zero rates from the Fed for a longer period," said Todd Colvin, senior vice president of global institutional sales at R.J. O'Brien and Associates in Chicago. Moody's warned late Monday that Germany, the Netherlands and Luxembourg could lose their top-notch AAA-rating due to possible extension of more financial aid to Greece, Spain, Italy and other wobbly euro zone neighbors. This underscored how precarious the festering crisis is for Europe and its common currency. "The downgraded outlooks on Germany and the Netherlands are not helping," Colvin said. "People are watching whether there will be a further breakdown of the euro." In late Tuesday trading, the euro fell to a fresh two-year low against the U.S. dollar partly on comments by some European officials suggesting Greece could miss its debt-cutting targets required in a 130-billion-euro rescue package agreed on earlier this year. Colvin said it is unlikely U.S. short-term rates will fall into negative territory like those seen in Germany and Switzerland because of the amount of short-dated supply coming from the Fed's Operation Twist and the remote chance the central bank would lower the interest it pays banks on their excess reserves with the Fed. AMPLE DOLLARS As rates futures gained on anxiety about Europe and the economy, interest rates in the dollar funding market held steady due to willingness among large investors and mortgage finance agencies to lend. There was little knee-jerk reaction to the latest negative headlines from Europe and weaker-than-expected readings on the U.S. factory sector, traders and investors said. "A lot of people are already conservative to begin with," said Joe D'Angelo, head of money markets at Prudential Fixed Income at Newark, New Jersey. In the repurchase agreement market, a vital source of cash for Wall Street, the overnight interest rate on loans secured by Treasuries traded mostly at 0.14 percent, unchanged from Monday's level on the DTCC GCF repo index on Treasuries. The benchmark London interbank offered rate on three-month dollars record its biggest drop in more than a month. The three-month dollar Libor was fixed earlier at 0.44810 percent -- its lowest level since early November 2011 -- down from 0.45110 percent on Monday. Link this Share this Digg this Email Reprints

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