Reuters: US Dollar Report: MONEY MARKETS-U.S. rates little changed before Bernanke

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MONEY MARKETS-U.S. rates little changed before Bernanke Aug 30th 2012, 16:58 Tweet Share this Email Print Thu Aug 30, 2012 12:58pm EDT * Futures show view of Fed holding rates into 2015 * Fund managers pare chances on QE3-Reuters poll * U.S. repo rate ticks up before supply settlement By Richard Leong NEW YORK, Aug 30 (Reuters) - Short-term U.S. interest rates were little changed on Thursday, as traders awaited possible clues from Federal Reserve Ben Bernanke on whether the central bank is preparing more stimulus to bolster a sluggish economy. Low trading volume in cash and futures markets underscored reluctance among some traders to accumulate bets on further policy easing. A Reuters poll showed fund managers now see less than a 50 percent chance the Fed will embark on a third round of quantitative easing next month. Still expectations remain high the Fed would do something at its Sept. 12-13 policy meeting. U.S. interest rates futures signaled a market outlook that the Fed would stick to a near zero interest rate policy into 2015, longer than the Fed's current guidance of keeping rates near zero until late 2014. "Everyone is expecting a shift in an extension of the forward rate guidance," said Bret Barker, portfolio manager at TCW in Los Angeles, which manages $127 billion in assets. U.S. Treasury bill rates were modestly lower with three-month rates at 0.095 percent, down 0.5 basis point from Wednesday's close. The overnight rate on repurchase agreements was last at 0.18 percent, up from 0.16 percent from late on Wednesday. Repurchase agreements are a key source of funding for Wall Street where Treasuries and other investments are used as collateral in exchange for cash. Wall Street firms will likely need cash on Friday to settle their purchases of new Treasuries sold this week, analysts said. The U.S. Treasury Department will sell $29 billion in seven-year notes at 1 p.m. (1700 GMT) after selling a combined $35 billion in two-year supply and $35 billion in five-year debt on Tuesday and Wednesday. In unsecured lending, the London interbank offered rate on three-month dollars fell for a sixth straight session to 0.42075 percent, its lowest since October. FED SEEN HOLDING RATES NEAR ZERO The Fed adopted a policy rate target of zero to 0.25 percent in December 2008 at the height of the global credit crisis. On Thursday, rates futures implied traders place roughly a 66 percent chance the central bank would leave rates near zero at the end of 2014. This compared with 28 percent chance last Tuesday, a day before the Fed released its minutes on its July 31-Aug 1 meeting where most policy-makers reckoned more stimulus would be "fairly soon" unless the economy improves at a "substantial and sustainable" pace. In the wake of the minutes, traders have been anticipating more clues in Chairman Ben Bernanke's opening remarks at 10 a.m. (1400 GMT) on Friday at a gathering of global central bankers in Jackson Hole, Wyoming. Most of the traders' focus has been on whether he will hint at a third round of quantitative easing (QE) in the form of large scale bond purchases. Two years ago at the same event, he laid the groundwork on the second bout of QE that involved the Fed buying $600 billion in long-dated federal debt. In a Reuters poll published on Thursday, only 44 percent of fund managers now think the Fed will announce a third round of quantitative easing after recent data showing a modest improvement in U.S. economy. This was lower than from 70 percent in the same poll last month. There has also been chatter the Fed might lower the interest it pays on excess reserves to banks, although analysts see such a move as remote due to the possible disruption to money markets. Any of the above measures should keep short-term rates low. Tweet this Link this Share this Digg this Email Reprints Comments (0) Be the first to comment on reuters.com. Add yours using the box above.

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