Interbank dollar funding rates edged up on Friday, revealing anxiety about cash supplies as banks prepare to close their books for the year-end even as many of them used government guarantees to issue debt.
US banks' direct borrowing from the Federal Reserve at the discount window fell in the latest week, but the Federal Reserve's presence in commercial paper market rose, Fed data showed on Friday.
Banks' overall borrowings from the Fed averaged $US283.18 billion per day in the week ended Nov. 26, versus an average $US296.82 billion per day the week before.
Banks' primary credit discount window borrowings averaged $US93.63 billion per day in the latest week, versus $US91.55 billion the previous week.
Primary dealer and other broker dealer borrowings were $US57.89 billion as of Nov. 26, versus $US46.61 billion on Nov. 19.
Credit extended to American International Group, Inc., a new category in this week's Fed release, averaged $US79.59 billion per day in the week ended Nov. 26.
The Fed's lending to banks to enable them to purchase asset-backed commercial paper from money market mutual funds was $US53.31 billion as of Nov. 26, versus $US61.92 billion on Nov. 19.
Proceeds from the US Treasury's sales of Treasury bills in the Fed's supplementary financing account, which are helping to fund the Fed's support of financial institutions, were $US479.05 billion as of Nov. 26, versus $US508.96 billion as of Nov. 19.
The Fed's balance sheet liabilities were $US2.091 trillion on Nov. 26 versus $US2.171 trillion on Nov. 19.
The Federal Reserve continued to increase its role in the US commercial paper (CP) market with net portfolio holdings of the Fed's Commercial Paper Funding Facility rising to $US294.09 billion as of Nov. 26 versus $US270.88 billion on Nov. 19, data on Friday showed.
Total US commercial paper outstanding rose to $US1.640 trillion in the week ended Nov. 26, up $US26.2 billion from a week earlier.
The asset-backed commercial paper segment, which had helped to fuel the erstwhile housing boom that has turned to bust, expanded by $US5.8 billion to a total of $US746.8 billion in the latest week.
Unsecured financial issuance rose by $US16.0 billion in the latest week, after rising by $US11.2 billion the previous week.
Worst not over yet
Reinforcing the view that the worst was not yet over in money markets, European Central Bank President Jean-Claude Trichet said pumping in billions of euros and dollars into the system was still vital, and cutting back the amounts was still not an option.
The ECB is one of a string of central banks pumping in massive amounts of cash into markets to prevent banks from running out of money.
In Japan, the central bank carried out its biggest daily cash injection since lifting its quantitative easing policy two years ago as credit risks weighed.
Markets were also anticipating further interest rate cuts as central banks battle to shore up growth, with the ECB and the Bank of England monetary policy decisions due next Thursday. The US Federal Reserve, which is getting close to the end of its easing cycle, is expected to cut again at its December meeting.
London interbank offered rates for three-month dollars rose to 2.21688% from 2.20250% on Thursday. Rates across the other maturities were also a touch higher.
The cost of borrowing three-month dollars, euros and sterling relative to expected central bank rates across all three currencies rose, most notably for sterling.
"I don't expect to see any magical reduction in Libor rates," said Padhraic Garvey, head of investment grade strategy at ING in Amsterdam. Continued…
