A brief jump in US overnight lending rates this month is a likely harbinger of strains in money markets next year as the US government sells more Treasuries to cover its deficits, analysts have warned.
Concerns were sparked by a sudden rise early this month in the rate for borrowing cash overnight in the market for short-term funds, a move that was not mirrored in the rate charged by the Federal Reserve to take in excess cash.
A divergence between the two rates, which historically track each other closely, has raised fears over the potential for broader strains in the market lending rates for banks and customers, as cash becomes scarcer after years of excess liquidity.
“The real issue is whether you’re getting generalised funding pressure, or episodic as we saw here,” Joseph Abate, interest rate strategist at Barclays. “My sense is that it probably becomes more generalised.”
The sudden flicker at the start of December has…
