US treasury bills bring smiles for money marketers

The previous week has brought signs of happiness for the American economy. The US Treasury bills hitting a record have finally fetched bright rays of hope for the buyers to fight against the European debt crisis. The miracle took place especially after the stringent warnings from several economic experts that the debt crisis in Europe can bring down the credit ratings of near about 15 euro zone countries. According to sources, the US bagged a huge demand of four-week T-bills at the $35 billion auction. Although the approaching year end stood as the biggest factor behind it, the euro zone crisis seems to be a growing concern for prudent investors.

Investors had shown willingness in paying a certain amount of premium for safety whereas T-bills have been trading with unattractive interest rates. In a few days, the European leaders will meet face-to-face to chalk out a framework designed to implement fiscal discipline within the 17-nation euro zone block. The German and French leaders desire to bring changes in the EU rules so that penalties can be imposed on states crossing deficit targets.

According to Raymond Gilmartin, one of the prime heads of New York’s Bank of Nova Scotia, the idea had not seemed encouraging that can make things fall in the right place. In fact, if the euro zone ratings downgrade, the banks will be left with no other options than lending money to each other.

Owing to the spreads between overnight indexed swap rates and three-month dollar Libor rates, the nervousness among banks seemed to grow with time. However, the rates widened just a few days ago and fetched 46 basis points. This extended the gap between the two.

Just after the Central banks reduced the expenses for borrowing dollars via swap lines, questions have been raised by investors whether banks use such cheaper credit rates. In the open market, banks usually borrow dollars from several financial organizations. In fact, every bank has a tendency to use the central bank to be the ultimate resort. Well, in this respect, the analysts will be eyeing on the increasing demand of the 3-month dollar tender during the first week of December.

Amazingly, 92 basis points were secured by the overnight indexed swap rates and the 3-month Euro Libor rates after the financial hassles encountered by the European economy. Despite high bank pressures, stock traders are noticing signs of optimism in the coming years.