By Richard Leong and Emelia Sithole-Matarise
NEW YORK/LONDON, Nov 25 (Reuters) - U.S. money market fund assets rose in the latest week, posting their first increase in a month, despite low short-term dollar rates and appetite for higher-yielding investments.
In the U.S. Treasury market, T-bill rates were flat to higher after intense demand drove the rates on some older issues below zero last week.
Analysts attributed the demand spike for these ultra short-dated government securities to investors booking trading gains this year and parking the money in the least risky vehicles.
"There's a lot of money in the front end of the curve. For the most part, it's just window-dressing," said Mark Pawlak, market strategist with Keefe Bruyette & Woods in New York.
The three-month bill rate held at 0.045 percent, while the one-month bill rate rose 2 basis points to 0.08 percent.
In the London interbank market, three-month dollar rates fell for an eighth straight session to another record low, prompted by the perception the Federal Reserve will leave its policy rate in a zero to 25 basis point range well into 2010.
The three-month London interbank offered rate on dollars was fixed at 0.25563 percent, just half a basis point above the top end of the Fed's current target rate.
"Official interest rates basically are going nowhere," said Julian Jessop, a fixed income strategist at Capital Economics in London.
U.S. financial markets will be closed on Thursday in observance of the Thanksgiving holiday.
RARE MONEY FUND INFLOW
Since this spring, U.S. money market funds have experienced persistent outflows because of rock-bottom yields, improved appetite for stocks and other risky assets, and concerns over possible regulatory changes next year, analysts said.
Money market fund assets increased $7.3 billion to $3.3 trillion in the week ended Wednesday. This was the first weekly rise since the last week of October, the Money Fund Report said on Wednesday. For more, see
On a year-to-date basis, money fund assets have fallen by $465.5 billion, as the average yield on taxable money funds dipped to a record trough of 0.03 percent.
"There's no yield. Money is going to Treasuries and bond funds," said Connie Bugbee, vice president at iMoneyNet, which publishes the Money Fund Report.
ECB POLICY MEETING LOOMS
In the euro zone, the three-month euro Libor rate edged higher as market focus turns to the European Central Bank's policy meeting next week for any hints the central bank might be moving toward tighter monetary conditions.
See for more Libor fixings.
Focus is mainly on the central bank's 12-month tender next month and whether it will maintain a fixed rate for the funds, a policy which has kept the euro zone system flush with excess cash. A Reuters poll this week showed banks are expected to take up to 125 billion euros at the tender.
Earlier, the German Bundesbank said euro zone central banks should in principle return to offering banks funds at auction rather than at fixed interest rates, without giving any specific time frame.
The ECB has been lending banks unlimited funds at fixed interest rates since last October, but a decision is due on Dec. 3 whether this policy will be extended next year.
(Editing by Leslie Adler) Keywords: MARKETS MONEY
(richard.leong@thomsonreuters.com ; +1 646 223 6313; Reuters Messaging: richard.leong.reuters.com@reuters.net )
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