Reuters: US Dollar Report: MONEY MARKETS-US commercial paper market grows on the week

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MONEY MARKETS-US commercial paper market grows on the week Jul 19th 2012, 16:48 Thu Jul 19, 2012 12:48pm EDT By Chris Reese NEW YORK, July 19 (Reuters) - The U.S. commercial paper market expanded in the latest week, suggesting an increase in corporate borrowing despite worries about a global economic slowdown, Federal Reserve data showed on Thursday. The size of the U.S. commercial paper market grew by $600 million to $982.5 billion in the week ended July 18 on a seasonally adjusted basis, according to the latest Fed data. The market had expanded by $9.4 billion the previous week. The market size without seasonal adjustments also rose, by $5 billion to about $1 trillion. Foreign banks' commercial paper outstanding increased $1.5 billion in the latest week to $195.3 billion on a non-seasonally adjusted basis, the latest Fed data showed. Separately, the interest rate on U.S. repurchase agreements, a key source of short-term funding for Wall Street, fell on Thursday on speculation the Federal Reserve may eventually cut the interest rate it pays on excess reserves to banks. That interest rate is currently at 0.25 percent. The Fed may be mulling such a move in an effort to make it less profitable for banks to keep assets with the central bank and motivate them to lend and invest in growth-oriented assets. Fed Chairman Ben Bernanke, in speaking to Congress this week, listed such a move as one of the options available to the central bank in efforts to prop up the economy. The rate on repos secured by Treasuries was last quoted at 17 basis points, the lowest since late April and down from 0.21 percent late Wednesday. Speculation the Fed could cut the interest on excess reserves was sparked after the European Central Bank on July 5 cut to zero the deposit rate it pays banks for parking money with it overnight. Euro zone bank-to-bank lending rates plumbed new depths on Thursday, driven by record low ECB interest rates and the central bank's move to stop paying banks the interest on their overnight deposits. The ECB's overnight deposit rate acts as a floor for money market rates as banks only lend to one another if they are able to earn a better rate of interest than at the ECB. Traders said the intended effect of the ECB move may not materialize. JPMorgan Chase & Co, BlackRock Inc - the world's largest money manager - and Goldman Sachs Group Inc have already restricted investor access to European money market funds and hedge funds are also unlikely to lend at negative yields, market players said. Although some money market analysts say the cut could backfire and kill off parts of the market, the move, plus a growing belief the ECB could cut rates further, has had an immediate impact on bank-to-bank rates. Three-month Euribor rates, traditionally the main gauge of unsecured bank-to-bank lending, hit a new low of 0.458 percent on Thursday, falling from Wednesday's 0 . 464 percent. Link this Share this Digg this Email Reprints

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