Banking & Commerse :: Market news

Money markets us repo rates elevated before fomc

´╗┐* Talk of Fed mulling reverse repos lifts repo rates * Analysts see low chances of a Fed "sterilized" bond move * No more ECB aid, T-bill supply as factors on higher rates By Richard Leong NEW YORK, March 12 A key borrowing cost for banks and bond dealers slipped on Monday, but remained at elevated levels ahead of a Federal Reserve policy meeting, which might hint at a move that could push up short-term interest rates. What banks and dealers charge each other on overnight loans secured by U.S. Treasuries fell to about 19 basis points from 21 basis points on Friday. This interest rate on overnight repurchase agreements (repos) is roughly 10 basis points above the recent low seen 2-1/2 weeks ago when investors scrambled for Treasuries in this corner of the funding market worth $1.6 trillion. Since then, the overnight repo rate had risen on a combination of factors including fading expectations that the European Central Bank will inject more cheap funds into the region's banking system and a modest increase in weekly Treasury bill supply since mid-February. "The main source of liquidity in the market, LTROs, over the last few months is now essentially a thing of the past," said Russ Certo, head of rates at Gleacher & Co. in Stamford, Connecticut. Since December, the ECB awarded more than a trillion euros in three-year loans through two long-term refinancing operations (LTROs) in an effort to give them time to raise capital and deal with the soured investments in peripheral sovereign countries. Last week, a Wall Street Journal article added upward pressure on dollar repo rates. It said should the Fed decide to buy more bonds to boost growth, it could borrow back the money it used to buy those bonds for short periods of time at low interest rates. By engaging in "reverse repos," the Fed would take that money out of circulation, or "sterilize" it. Such a Fed move could reduce the amount of the cash in the financial system, resulting in banks and dealers bidding more aggressively for short-term funds. "This could push short-term rates higher," said Raymond Gilmartin, head of repo trading at Bank of Nova Scotia in New York. Wall Street's consensus view is the Fed will stick to its near zero interest rate pledge until at least late 2014 at its policy meeting on Tuesday, but it would refrain from announcing any additional bond purchase program. The Federal Open Market Committee, the U.S. central bank's policy-setting group, is expeccted to release a statement at about 2:15 p.m. (1815 GMT). Some analysts downplayed speculation of a "sterilized" bond purchase program, which the Wall Street Journal story suggested the Fed might consider because it could curb inflationary pressure, as a factor behind the rise in overnight repo rates. They said any more stimulus from the Fed is unlikely after last Friday's better-than-expected U.S. payroll report and other recent encouraging reports on manufacturing. These analysts reckon the increase in repo rates stems more from an expected pickup in borrowing among dealers to fund $66 billion in coupon Treasuries supply this week and money market funds shifting money into riskier assets from their repo and Treasury bill holdings. Meanwhile, the elevated level in repo rates has partly fueled a rise in Treasury bill rates as investors demand higher returns on their short-term cash investments, they said. On Monday, the U.S. Treasury auctioned a combined $64 billion of three-month and six-month bills at higher interest rates than a week earlier despite stronger bids for them. The Treasury sold $33 billion of three-month bills at a rate of 9.5 basis points, up from 8.0 basis points a week ago. It sold $31 billion of six-month bills at a rate of 14.5 basis points, up from 13.0 basis points last week.

Press digest australian business news feb 13

´╗┐Compiled for Reuters by Media Monitors. Reuters has not verified these stories and does not vouch for their accuracy. THE AUSTRALIAN FINANCIAL REVIEW (this site)AGL Energy is in talks with Tokyo Electric Power Company (TEPCO) to acquire the Japanese company's 32.5 percent stake in the Loy Yang Power brown coal power station in Victoria. The Australian gas and power retailer, which already owns 32.5 percent of the generator, is understood to have struck a A$145 million deal for the holding. AGL values its existing holding at A$326.7 million. Page 1.-- Executives at media group Seven West Media have met with advisers from rival Nine Entertainment Co over the possible sale of the latter's ACP publishing and magazine group. Nine Entertainment has reportedly hired Macquarie Group to investigate a potential divestment of ACP, Australia's largest publisher with magazines such as Woman's Day and The Australian Women's Weekly. Page 1.-- Observers believe that Teck Resources is the mystery investor in iron ore producer Fortescue Metals Group . A company has acquired a 2.89 percent holding in the Australian miner through Quinambo Nominees, a nominee company of investment bank Royal Bank of Scotland, but Fortescue declined to publicise the name of the group. The Canadian resources house has a market value of A$22.4 billion and has long been considered a potential acquisition for global miners like Xstrata. Page 14.-- Former investment banker Mark Carnegie yesterday said the failure of Fairfax Media to agree on a deal to acquire Macquarie Radio Network was a bitter disappointment. "I learnt very early, in fact on the first day as a banker, that you don't want to hand the vendor 120 percent of the conceivable value [of an asset] including 100 percent of synergies," he said. Greg Hywood, chief executive of Fairfax, reportedly told the media conglomerate's staff that "the major bidder could not construct a finance package that was acceptable to us". Page 14.-- THE AUSTRALIAN (this site)The Packer family's Ellerston Capital funds management division, which is operated by Ashok Jacob, is on the verge of acquiring a A$5 million stake in e-commerce freight group Temando. Carl Hartmann, managing director of Temando, said the company was unique because "we deliver e-commerce, not just parcels". "Our system provides access to all the leading delivery providers, and these choices, combined with our buying power, result in the cheapest pricing in the market," Mr Hartmann added. Page 21.--

Lindsay Partridge, head of Brickworks, has predicted 2012 to be a tumultuous year for the brick manufacturer due to a combination of falling building approvals, additional governmental regulation, turmoil in the global economy and a trend towards apartments from detached housing. "My feeling is that we have bottomed," the managing director said. Page 21.-- One of the oldest firms in Australia, Ludowici, has received an indicative offer from Scotland's Weir Group that values the processing equipment designer and manufacturer at A$294 million. The bid is a 10 percent premium on a A$212 million cash takeover bid submitted by Danish engineering group FLSmidth last month. Jorgen Huno Rasmussen, chief executive of FLSmidth, said his firm had the right to increase its bid in the face of the Scottish engineering and mining services company's offer. Page 21.-- Jennifer Hill-Ling, chairwoman of Hills Holdings, the company famous for making the iconic Hills Hoist clothesline, has said she did not have the "right to be a director or chairman" because she was a daughter of Hills Industries' former chief executive and chairman Bob Hill-Ling. "I have never seen it as being something that the family needed. I have always believed I had to get it on my own merits," Ms Hill-Ling said. Page 21.--

THE SYDNEY MORNING HERALD (this site)A director of litigation funder IMF Australia, who is leading a lawsuit against Commonwealth Bank of Australia for former clients of BankWest, has claimed that the Reserve Bank of Australia was "keeping BankWest alive" while it waited for another party to acquire the struggling lender. Hugh McLernon's remarks are contrary to suggestions from the local banking lobby that Australian taxpayers did not bailout lenders during the global financial crisis. Page B1.-- An application by David Lombe, liquidator of Babcock & Brown, to reimburse creditors of the collapsed investment bank with an additional tenfold bonus on their individual contribution has been accepted by the Federal Court. The funds will come from a confidential settlement of a A$158 million claim against the former directors and auditor of Babcock & Brown. Page B1.-- The largest developer of residential housing in Australia, Stockland, has revealed that the company was able to meet increasing restrictions on housing affordability amidst a push to make houses more efficient. "At A$800-A$1000 per square meter build cost, reduction in house size represents potential savings of up to A$40,000 to A$60,000 for customers," Matthew Quinn, managing director of Stockland, said. Page B3.--

Officials from the finance union will meet with Australia and New Zealand Banking Group (ANZ) today amid concerns that the lender will announce details about a plan to cut jobs in a bid to lower costs. Rumours have circulated that ANZ will be the most aggressive of Australia's major lenders in making redundancies, with the Finance Sector Union claiming that as many as 900 workers could lose their jobs. Page B5.-- THE AGE (this site)As many as 300 managers in Crown Casino's table games unit will be told about planned redundancies today in a bid by the casino to update its management of table games and to increase efficiencies. Observers say the affected managers will be offered jobs in the new structure, while the casino is expected to recruit more dealers. Crown is spending more than A$2 billion on refurbishing its casinos in Melbourne and Perth in a bid to attract more VIPs from Asia. Page B1.-- Only two of Australia's largest listed firms saw their remuneration reports rejected by shareholders in the previous annual meeting season, the lowest proportion since 2006. A study by corporate governance group Ownership Matters found that despite intense debate over the introduction of the two-strikes legislation, clothing manufacturer Pacific Brands and casino operator Crown were the only two ASX 300 companies to have their remuneration reports voted down. Page B2.-- Analysts are predicting that BHP Billiton is likely to delay or taper down its US$12 billion investment in a potash project in Canada. Chief executive Marius Kloppers last week revealed during a results presentation that the potash venture posted the greatest technical risk out of the global miner's "mega" projects, which includes the Olympic Dam expansion in South Australia and the building of the Outer Harbour in Western Australia's Port Hedland. Page B3.-- A decision by the Malaysian Atomic Energy Licensing Board to award a two-year refining licence to Australian-listed rare earths producer Lynas Corporation has been heavily criticised by environmental groups, who described the public consultation process as a "sham". "It beggars belief that [the licensing board] could have adequately and properly considered the 1123 public comments within merely two working days," Lim Chee Wee, president of the Malaysian Bar association, said. Page B3.--