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MONEY MARKETS-Dealers seen dominating 4-week Treasury bill sale

Wednesday, 10 Oct 2012 | 11:06 AM ET

(Reuters plans to discontinue New York money market reports as of Oct. 15 and fold coverage into daily U.S. Treasury reports. Significant money market developments will be reported separately. Please e-mail comments to william.schomberg@thomsonreuters.com)

By Ellen Freilich

NEW YORK, Oct 10 (Reuters) - Elevated general collateral repo rates indicated the Treasury's $40 billion four-week bill auction Wednesday is likely to be dominated by dealers.

The one-month bills the Treasury will sell today yielded 0.115 percent in when-issued trade. The Treasury will auction the bills at 11:30 a.m. (1530 GMT).

"Demand for the bills is likely to be dealer-dominated today because high repo rates keep anyone except dealers and those who are mandated to buy bills away from auctions and the bill market in general," said Thomas Simons, vice president and money market economist at Jefferies & Co in New York.

"Add to that a slightly inverted curve - the three-month bills are trading at a premium due to a maturity date that bridges year-end - and you have a pretty clear indication of investor apathy towards the extreme front end," he said.

"Investors think the rates are too low," said Tom di Galoma, managing director at Navigate Advisors LLC, a Stamford, Connecticut-based broker-dealer.

Short-term U.S. Treasury bills traded with yields 10 to 17 basis points above zero, anchored by the Federal Reserve's very low overnight rates.

At its September policy meeting, the Fed said it would keep the target range for its federal funds rate at zero to 1/4 percent and said it currently anticipated "that exceptionally low levels for the federal funds rate are likely to be warranted at least through mid-2015."

Three-month Treasury bills yielded 0.10 percent while six-month Treasury bills yielded 0.147 percent.

Overseas, the LIBOR three-month dollar rate was fixed at 0.34275 percent versus 0.34675 percent on Tuesday, according to the British Bankers' Association.

The three-month dollar LIBOR/OIS spread stood at 20 basis points on Wednesday, unchanged from the previous day, according to Reuters data. The spread of three-month Libor rates over three-month OIS rates expresses the three-month premium paid over anticipated central bank rates, or Overnight Index Swap rates.

(Editing by James Dalgleish)

((ellen.freilich@thomsonreuters.com 646-223-6309))

Keywords: MARKETS MONEY/