Clients of the largest U.S. banks withdrew funds this month at the fastest weekly pace since the Sept. 11 attacks as a deposit-insurance program ended and customers tapped into their year-end cash hoards.
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 bailout that rescued Greece from a looming default has failed to restore confidence in credit markets, where traders are paying nine times more to insure European government bonds than they are for Treasuries.
Treasury 10-year notes will become less coveted in the short-term market for borrowing and lending the securities by next week as the government sells more of the debt, according to Bank of America Corp. and Barclays Plc.
U.S. money market rates dropped to about one-year lows as a change in deposit insurance fees makes some banks reluctant to lend securities and the Treasury reduces issuance of bills to avoid exceeding the debt limit.