By Ellen Freilich and Kirsten Donovan
NEW YORK/LONDON, Sept 29 (Reuters) - The average of overnight lending rates between U.S. banks fell to the lowest level since January on Tuesday as cash circulating around the market grew ahead of quarter-end.
Euro interbank borrowing costs also held near lows as the European Central Bank prepared to offer long-term funding and UK consumer lending remained subdued despite central bank efforts to get cash circulating.
'It is quarter-end, so overnight funding rates are going to be super low because there is a ton of cash in the market,' said Thomas Simons, money market economist at Jefferies & Co in New York.
The very low effective fed funds rate in the U.S, came after a key housing prices index rose for the third consecutive month, but September consumer confidence was down.
Benchmark sterling Libor rates hit a new low but short- sterling interest rate futures sold off, pushing implied rates higher after economists attending a meeting at the Bank of England said the bank was not planning to alter the interest it pays on reserves any time soon.
UK consumers paid down unsecured debt at the fastest rate since records began in 1993, Bank of England figures showed, suggesting many Britons are doing their best to work off debts accumulated during a decade of easy credit.
The numbers also indicate banks remain reluctant to lend, despite BoE efforts to get cash flowing around the economy, including its 175 billion quantitative easing program.
'It's not really showing the kind of pick-up that many people might have wanted to see given the fact that we've got the QE in place and that it should be generating some flow of credit into the household sector,' said Stephen Lewis, chief economist at Monument Securities.
Early this month, the Federal Reserve reported U.S. consumer credit decreased at an annual rate of 10.5 percent in July. Revolving credit decreased at an annual rate of 8 percent, and nonrevolving credit decreased at an annual rate of 11.75 percent.
The Bank of England said on Monday Governor Mervyn King had meetings with Sweden's Riksbank last week, fueling speculation it was moving closer to cutting the interest rate paid on banks' reserves to discourage hoarding of cash.
Meanwhile, three-month dollar rates edged up to 0.28969 percent as the rate covered the key year-end funding period for the first time.
Three-month borrowing rates for U.S. banks were 0.3113 percent on Sept. 16, according to ICAP's New York Funding Rate. ICAP's three-month NYFR was 0.3113 percent versus the previous session's 0.3250 percent, ICAP said.
That compares with a three-month dollar-denominated London interbank offered rate last fixed at 0.29188 percent. ICAP's one-month NYFR was 0.2550 percent versus the previous session's 0.2537 percent.
That compares with a one-month dollar-denominated Libor rate last fixed at 0.24375 percent.
ECB TO CALL FOR TENDER BIDS
Interbank euro trading remained subdued ahead of the European Central Bank launching its second tender of one-year funds, but three-month euro Libor rates inched up as that rate also took in the year-end period for the first time.
Banks can take unlimited money at the tender at a flat rate of 1 percent, but with the 12-month OIS rate at 0.64 percent , demand is expected to be much lower than at a similar operation in June where banks grabbed 442 billion euros.
The central bank's balance sheet shows open market operations totaled 683 billion euros in the week ending Sept. 18, meaning around two-thirds of outstanding liquidity is coming from the 12-month money taken in June.
That compares with open market operations of 618.3 billion euros ahead of June's tender when half the liquidity was in 1-week funds.
'If we can generalize about the use of the 12-month facility in June, it looks as though the 12-month cash has mostly been used to replace shorter-term open market operations at the ECB,' Calyon strategist David Keeble said.
Analysts polled by Reuters expect a take-up of 135 billion euros, slightly higher than the 125 billion euro median forecast by traders in a poll taken 11 days earlier.
(Additional reporting by Chris Reese; Editing by Andrew Hay) Keywords: MARKETS MONEY (chris.reese@thomsonreuters.com; +1 646 223 6073; Reuters Messaging: chris.reese.reuters.com@reuters.net) COPYRIGHT Copyright Thomson Reuters 2009. All rights reserved. The copying, republication or redistribution of Reuters News Content, including by framing or similar means, is expressly prohibited without the prior written consent of Thomson Reuters.
NEW YORK/LONDON, Sept 29 (Reuters) - The average of overnight lending rates between U.S. banks fell to the lowest level since January on Tuesday as cash circulating around the market grew ahead of quarter-end.
Euro interbank borrowing costs also held near lows as the European Central Bank prepared to offer long-term funding and UK consumer lending remained subdued despite central bank efforts to get cash circulating.
'It is quarter-end, so overnight funding rates are going to be super low because there is a ton of cash in the market,' said Thomas Simons, money market economist at Jefferies & Co in New York.
The very low effective fed funds rate in the U.S, came after a key housing prices index rose for the third consecutive month, but September consumer confidence was down.
Benchmark sterling Libor rates hit a new low but short- sterling interest rate futures sold off, pushing implied rates higher after economists attending a meeting at the Bank of England said the bank was not planning to alter the interest it pays on reserves any time soon.
UK consumers paid down unsecured debt at the fastest rate since records began in 1993, Bank of England figures showed, suggesting many Britons are doing their best to work off debts accumulated during a decade of easy credit.
The numbers also indicate banks remain reluctant to lend, despite BoE efforts to get cash flowing around the economy, including its 175 billion quantitative easing program.
'It's not really showing the kind of pick-up that many people might have wanted to see given the fact that we've got the QE in place and that it should be generating some flow of credit into the household sector,' said Stephen Lewis, chief economist at Monument Securities.
Early this month, the Federal Reserve reported U.S. consumer credit decreased at an annual rate of 10.5 percent in July. Revolving credit decreased at an annual rate of 8 percent, and nonrevolving credit decreased at an annual rate of 11.75 percent.
The Bank of England said on Monday Governor Mervyn King had meetings with Sweden's Riksbank last week, fueling speculation it was moving closer to cutting the interest rate paid on banks' reserves to discourage hoarding of cash.
Meanwhile, three-month dollar rates edged up to 0.28969 percent as the rate covered the key year-end funding period for the first time.
Three-month borrowing rates for U.S. banks were 0.3113 percent on Sept. 16, according to ICAP's New York Funding Rate. ICAP's three-month NYFR was 0.3113 percent versus the previous session's 0.3250 percent, ICAP said.
That compares with a three-month dollar-denominated London interbank offered rate last fixed at 0.29188 percent. ICAP's one-month NYFR was 0.2550 percent versus the previous session's 0.2537 percent.
That compares with a one-month dollar-denominated Libor rate last fixed at 0.24375 percent.
ECB TO CALL FOR TENDER BIDS
Interbank euro trading remained subdued ahead of the European Central Bank launching its second tender of one-year funds, but three-month euro Libor rates inched up as that rate also took in the year-end period for the first time.
Banks can take unlimited money at the tender at a flat rate of 1 percent, but with the 12-month OIS rate at 0.64 percent , demand is expected to be much lower than at a similar operation in June where banks grabbed 442 billion euros.
The central bank's balance sheet shows open market operations totaled 683 billion euros in the week ending Sept. 18, meaning around two-thirds of outstanding liquidity is coming from the 12-month money taken in June.
That compares with open market operations of 618.3 billion euros ahead of June's tender when half the liquidity was in 1-week funds.
'If we can generalize about the use of the 12-month facility in June, it looks as though the 12-month cash has mostly been used to replace shorter-term open market operations at the ECB,' Calyon strategist David Keeble said.
Analysts polled by Reuters expect a take-up of 135 billion euros, slightly higher than the 125 billion euro median forecast by traders in a poll taken 11 days earlier.
(Additional reporting by Chris Reese; Editing by Andrew Hay) Keywords: MARKETS MONEY (chris.reese@thomsonreuters.com; +1 646 223 6073; Reuters Messaging: chris.reese.reuters.com@reuters.net) COPYRIGHT Copyright Thomson Reuters 2009. All rights reserved. The copying, republication or redistribution of Reuters News Content, including by framing or similar means, is expressly prohibited without the prior written consent of Thomson Reuters.