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U.S. repo rate rises on Greece debt jitters

American dollar notes are displayed in this photo illustration in Johannesburg August 13, 2014. REUTERS/Siphiwe Sibeko

By Richard Leong

NEW YORK (Reuters) - The borrowing cost on a key source of overnight loans for Wall Street rose on Monday as a breakdown in talks between Greece and its creditors caused a mad dash for cash to fund trades in advance of the end of the second quarter.

The impasse between Athens, and European officials and international lenders nearly sealed the chance the Greek government would miss its $1.77 billion repayment to the International Monetary Fund on Tuesday.

Such a move has raised concerns it would hasten the debt-laden nation's exit from the euro zone economic bloc, which some traders fear would roil financial markets worldwide.

Greece's debt mess has complicated the typical quarter-end move among banks and dealers to fund their balance sheets and money market funds and other investors to conserve cash to meet reporting and regulatory requirements.

In anticipation that Greece's problems won't be resolved anytime soon, some banks and dealers locked down longer-term financing earlier than usual in the $5 trillion repurchase agreement market, where they pledge Treasuries and other securities as collateral in exchange for cash from investors, analysts said.

"There's definitely a scramble. It's all dependent on Greece," said Gennadiy Goldberg, interest rate strategist at TD Securities in New York. Still, he said, the rise in the overnight repo rate was not as acute as what was seen toward the end of the first quarter. "A lot of people tried to lock in as much funding as possible."

The interest rate on overnight repos was last quoted as high as 0.20 percent before easing to 0.15 to 0.18 percent. It ended at a five-week low of 0.07 percent on Friday, according to ICAP.

On March 31, overnight repos were bid up to 0.58 percent, the highest since November 2008, during the global credit crisis, ICAP data showed.

Longer-term repo rates hovered at their highest level in more than two-and-a-half years. One-month repo rates were quoted at 0.25 to 0.29 percent on Monday, little changed from Friday.

After Greece shut banks for the week and imposed capital control, investors sought safety in Treasury bills and term reverse repurchase agreements from the Federal Reserve.

On Monday, the U.S. central bank awarded $100 billion of two-day reverse purchases at an interest rate of 0.07 percent to 72 bidders.

Interest rates on Treasury bills going out to early August remained in negative territory, as investors were willing pay a premium to own these ultra short-dated government securities.

Demand at Monday's three-month and six-month bill auctions <912796GG8=> , however, was the weakest in three months.

In the futures market, some short-term interest rates futures rose to contract highs (FFU5) (FFZ5), suggesting a revived view the Fed may not raise rates this year.



(Reporting by Richard Leong Editing by W Simon)