The premium that European lenders pay to obtain dollar-denominated cash flows increased to an almost eight-month high amid speculation the European Central Bank will increase monetary stimulus tomorrow.
Use of the Federal Reserve’s reverse repurchase agreement facility is surging as speculation rises that policy makers may make the program a permanent tool to be used during the unwinding of unprecedented monetary stimulus.
Money market rates, which surged during the debate to raise the federal borrowing cap, dropped below zero percent as Europe’s sovereign-debt crisis bolstered U.S. government securities’ appeal as the world’s safest assets.
The rate to borrow and lend U.S. government securities rose to an almost two-week high as demand for repurchase agreements declined after MF Global Holdings Ltd. declared bankruptcy and more securities entered the marketplace following auction settlements.
The Federal Reserve will make greater use of its reverse-repurchase agreement facility while policy makers shift focus to rate guidance from asset purchases, according to the central bank’s former markets group head.
Treasury 10-year notes declined for the first time in three days amid speculation a rally that pushed yields to a three-month low amid tumbling emerging markets and weaker U.S. data is losing momentum.