Bloomberg News

Overnight Repurchase Rates Rise as Debt-Limit Deadline Nears

July 29, 2011

July 29 (Bloomberg) -- Rates for borrowing and lending securities in the repurchase-agreement market increased to the highest level in five months amid the government stalemate over raising the nation’s debt ceiling.

The average level of overnight general collateral repo rates traded through ICAP Plc was 0.20 percent at 10 a.m. in New York, when most trading takes place, the highest since Feb. 2. The rate dropped to 0.001 percent on July 20. Rates averaged 0.05 percent the past three months and 0.15 percent in the last year, according to ICAP, the world’s largest inter-dealer broker.

Money-market rates had lingered near year lows as a reduction in Treasury bill sales and Federal Reserve debt purchases combined with a Federal Deposit Insurance Corp. fee change to cause collateral shortages. In a repurchase agreement, one party provides cash to another in exchange for a security. Repos are used to finance holdings, meaning movements in the rates affect the cost of holding the securities.

“We are far from a liquidity crisis,” said Michael Pond, co-head of interest-rate strategy in New York at Barclays Plc. “However, the market is saying that the probability of one has increased.”

Effective Rate

Rates on Treasury six-month bills set to mature Aug. 4, just after the Aug. 2 deadline for when the U.S. will exhaust its ability to borrow, rose 13 basis points to 0.27 percent, the biggest jump and the highest level since the securities were issued in February, according to Bloomberg Bond Trader data. The bills are the first government debt securities to mature after the deadline.

In February, the Treasury eliminated $195 billion in Supplementary Financing Program bills, or SFPs, it sold on behalf of the Fed as it sought to help avoid exceeding the U.S. debt limit. The Treasury reduced the amount of four-week bills it sold this week by 36 percent, the first decrease since May.

The average rate for overnight federal funds, known as the fed effective rate, was 0.08 percent yesterday, which compares with the central bank’s target rate for overnight loans between banks of zero to 0.25 percent. Securities that can be borrowed at interest rates close to the Fed’s target rate are called general collateral.

--With assistance from Elizabeth Stanton in New York. Editors: Paul Cox, Robert Burgess

To contact the reporter on this story: John Detrixhe in New York at

To contact the editor responsible for this story: Dave Liedtka at

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