Money markets short term us yields low as policymakers could act

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Short-term U.S. debt will likely be rangebound in coming sessions on expectations that global policymakers will keep interest rates low to help spur sluggish economies and keep the euro zone intact. European Central Bank President Mario Draghi is said to be holding talks with other council members on new ECB measures, according to Bloomberg. The news sent riskier assets such as equities higher around the world as analysts saw policymakers pushing to keep the monetary union together even as the region's debt crisis threatens to engulf larger economies in the zone. But prices on Treasury bills didn't seem to react, with 3-month, 6-month and 1-year bills unchanged."The fact that the front end of the market is unwilling to break its recent range is not that surprising," said Ian Lyngen, a senior government bond strategist with CRT Capital.

Any measures that Draghi might take would keep downward pressure in front-end rates, Lyngen said. Those measures could include another long-term refinancing operation. In two previous operations, the ECB pumped about 1 trillion euros into the banking system. Also said to be under consideration would be more bond buying or another interest rate cut.

New steps from the U.S. Federal Reserve would likely result in the same pressure on short-term rates. The FOMC meets next week, and analysts have speculated that the bank could engage in more easing at some point this year as the recovery in the U.S. economy - the world's largest - remains tepid. Data on Friday showed that U.S. economic growth slowed in the second quarter as consumers spent at their slowest pace in a year.

As a result, Lyngen said, short-term yields could simply trade sideways in coming sessions, with investors unwilling to budge from the current low rates. Three-month Treasury bills yielded 0.107 percent, and six-month bills 0.147 percent. Both were unchanged in price from Thursday. Benchmark three-month dollar Libor slid to 0.44660 percent, its lowest level since early November. In the derivatives market, the spread between the two-year U.S. interest swap rate and two-year Treasuries narrowed to 20.5 basis points, the narrowest in about a year, suggesting traders see chances of more Fed stimulus would help the banking system. Two-year interest swaps are seen as a proxy for bank credit risk.