Magazine article American Banker

Short-Term Rates Fall Again on Fed Optimism

Magazine article American Banker

Short-Term Rates Fall Again on Fed Optimism

Article excerpt

NEW YORK -- Short-term interest rates fell sharply Wednesday amid increased optimism that the Federal Reserve System will ease monetary policy.

Rates on three-month Treasury bills tumbled 18 basis points to 9.02%, their lowest level since early February. Traders and analysts said that the market was encouraged because the federal funds rate stayed below 10% during the session, despite the fact that the Treasury on Wednesday accepted payment for nearly $16 billion of recently auctioned two-year and four-year notes. Some analysts had forecast that funds would rise as high as 10-1/4% because of the new-issue settlements. Funds traded at 9-15/16 Wednesday, down from Tuesday's average rate of 10.10%.

The funds rate was "rather low, given the settlements of the four-year and two-year issues," said Elliott Platt, director of research at Donaldson, Lufkin & Jenrette, a securities firm.

The recent sharp drop in short-term rates has also been sparked by increased speculation that the Fed's policymaking arm, the Federal Reserve System's Open Market Committee, will vote to ease monetary policy further at their meeting on Nov. 7, traders said. The speculation has spread primarily because of very weak growth recently in the nation's money supply and further signs that economic activity continues to slow.

By the time the open market committee meets in early November, "odds are that the economy will be presenting a picture of continuing weakness," said Allen Sinai, chief economist at Shearson Lehman/American Express. …

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