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Money markets treasury bills near flat as investors fret

NEW YORK, Sept 25 Yields on U.S. Treasury bills barely budged on Tuesday as Europe's ongoing debt crisis and upcoming U.S. elections kept investors from moving into riskier assets. The interest rate on overnight repurchase agreements traded flat, as well."There's so much indecision that it's difficult to do anything," said Kim Rupert, managing director of global fixed income analysis at Action Economics LLC in San Francisco. Between the U.S. presidential election and the continuing euro zone debt crisis, she said, investors see little reason to buy risk. That leaves bills as a safe haven - but with little return."Bills aren't yielding anything and aren't going to yield anything," she said. "They're going to be stuck in a range if the Fed maintains its through-2015 low rate scenario."Yields on three-month bills traded at 0.112 percent. Yields on six-month bills traded at 0.141 percent. The interest rate on overnight repos was last quoted at 0.31 percent on Tuesday, flat from Monday.

Also in shorter-dated debt markets, the Treasury sold $40 billion of four-week bills at a high rate of 0.055 percent. In addition, an auction of $35 billion in new two-year notes priced at a high yield of 0.273 percent, around a third of a basis point below where the notes traded before the sale, in solid but unsurprising demand. The Treasury will sell an additional $35 billion in five-year notes on Wednesday and $29 billion in seven-year notes on Thursday.

In Europe, after a slight dip in August on primarily seasonal effects, volumes in the euro zone overnight Eonia rates market have inched higher this month and on one day last week topped 30 billion euros for the first time since April. This, to some analysts, is a sign banks are widening the list of counterparties they choose to lend to as record low rates prompt them to take more risk to increase returns on their cash. Daily average Eonia volumes for September are 25.7 billion euros, compared with 20.9 billion in August, 23.7 billion in July and 23.5 billion in June, according to Reuters data. In September 2008, before the financial crisis froze interbank lending, daily Eonia volumes reached more than 70 billion euros.

LIBOR PROPOSAL EXPECTED In unsecured lending, the London interbank offered rate on three-month dollars slid to 0.36350 percent, its lowest in about a year, from 0.36725 percent on Monday. Markets are expecting a proposal from Martin Wheatley, a top UK regulator, on Friday stripping the British Bankers' Association of its supervisory role in setting the hugely influential benchmark rate. In a statement on Tuesday, the association said it would support such a change in responsibility for Libor. was happy to hand over the task to regulators, days ahead of an expected UK proposal to take tighter control of the scandal-tainted benchmark. Libor - or the London Interbank Offered Rate - underpins global trade, but has been engulfed in controversy since Barclays was fined a record 290 million pounds in June for fixing it in the past.

Money markets us bill supply may rise on lower tax receipts

* Weaker tax receipts seen raising federal borrowing* Meager income growth, capital gains seen cutting tax revenues* T-bill, repo rates steady after earlier declineBy Richard LeongNEW YORK, April 20 The U.S. government might ramp sales of Treasury bills later this year if tax receipts continue to run below last year's levels and federal spending holds steady at current levels. An increase in T-bill supply should exert upward pressure on short-term borrowing costs for Washington, banks and companies, analysts said on Friday."Bill issuance should pick up in the second half of this year," said Priya Misra, head of U.S. rates strategy at Bank of America Merrill Lynch in New York. The amount of any increase in T-bill supply is unclear since it hinges on the Treasury Department's deciding on its offering of longer-dated coupon securities for the rest of the year and whether it will introduce a two-year floating-rate note.

T-bill rates stabilized on Friday after they had fallen earlier this week in anticipation of a shrinkage in supply with the repayment of more than $40 billion in bills on Thursday."We have seen steady buying all week," said Andrew Shulman, a bill trader at Wunderlich Securities in New York. Bids for ultra short-dated U.S. government securities persisted as worries lingered over the euro zone debt crisis even after Group of 20 nations on Friday were prepared to raise at least $400 billion in crisis funds for the International Monetary Fund, Shulman said.

In the $1.6 trillion tri-party repurchase agreement market, the overnight rate on loans for banks and Wall Street firms was last quoted at 0.13 percent mid-market, steady from late Thursday. In March, the Treasury began paring its weekly issuance during its annual period of personal income tax collection. However, tax receipts have been running below year-ago levels. There is a chance they could catch up in the coming days, "but indications are not very encouraging," Misra said. On a cumulative basis, non-withheld tax receipts through Wednesday totaled $48 billion, down from $58 billion during the same period last year, according to Misra.

She forecast this would reduce tax revenues by $25 billion this year compared with 2011."Even with tax issuance, the government still needs to compensate for last year's tax cut extensions," she said. Analysts blamed the lower tax receipts on sluggish income growth and meager capital gains in the stock market last year. While it might be some time before the Treasury decides on enlarging its weekly T-bill auctions, the amount of T-bills available in the open market will be buoyed by the Federal Reserve's $400 billion "Operation Twist" program, analysts said. The Fed's program involves selling its short-term Treasuries holdings and buying longer-dated debt with the goal to hold down mortgage rates and other long-term borrowing costs. Operation Twist is scheduled to end in June. On Monday, the Treasury will sell $30 billion in three-month bills and $28 billion in six-month bills .

Obama orders new steps to help small business

WASHINGTON, July 11 President Barack Obama on Wednesday ordered a series of modest steps aimed at helping small businesses, his latest election-year effort to show voters he is doing whatever he can to tackle high unemployment and a struggling economy. The initiatives call for accelerating federal payments to government contractors, streamlining paperwork and making it easier for small firms to get access to loans and tax credits, the White House said. This follows Obama's call for a one-year extension of Bush-era tax cuts for families earning less than $250,000, part of a re-election strategy to cast himself as a champion of the middle class and the Republicans as the party that favors the rich. But Republicans - who argue that tax cuts should be maintained for everyone, including high earners - say letting taxes rise for wealthier Americans will punish many small businesses and discourage them from creating jobs. Obama was due to discuss his proposed incentives for small-business growth and hiring as part of a broader meeting with Democratic congressional leaders at the White House on Wednesday, the White House said. Republicans have accused Obama of trying to divert attention from his economic stewardship - considered the top issue on which his re-election hinges - after government data last week showed another month of weak job growth.

The small initiatives on Wednesday reflected election-year gridlock in Congress that has stalled much of Obama's legislative agenda. They are as follows:* Obama is directing government agencies to pay their bills on an accelerated timeline to all prime contractors for the next year - within 15 days as opposed to 30 days.

* He is calling on Congress to let small businesses write off up to $250,000 in capital investments in 2013.* The Small Business Administration is revamping its Small Loan Advantage program to raise the maximum loan amount from $250,000 to $350,000 and streamline the loan process.* SBA is launching "QuickApp," a streamlined application process for surety bonds.

* The SBA's Disaster Loan Program is streamlining its online application process to give families and businesses easier access to rebuilding funds.* The administration is working on regulatory reforms to the New Markets Tax Credit to make it easier to attract private sector funds for startups and small businesses in lowerincome communities.

Philippines central bank in broad islamic finance push

In what could be one of the most ambitious efforts to facilitate Islamic finance in a non-Muslim country, the Philippines' central bank is pushing several initiatives to develop the sector and encourage financial inclusion of the Muslim minority. The effort follows a landmark peace deal signed in October last year which sought to end a 40-year conflict with Muslim separatists that has killed 120,000 people, displaced two million and stunted growth."There is renewed interest in this and the key drivers are the peace initiative in Mindanao as well as broad initiative of the BSP to create a more inclusive financial system," Nestor Espenilla, deputy governor of the Bangko Sentral ng Pilipinas (BSP) told Reuters."That is the arching principle."Mindanao island, roughly the size of Portugal, accounts for around one-quarter of the country's 97 million population and one-fifth of its economy. But decades of neglect, corruption and violence have impoverished parts of the island, despite being rich in natural resources which the government wants to develop."We have a significant Muslim population and they are economically active and if you want to create an inclusive financial system then you should also have financial products that are geared to that particular customer base."

Espenilla said the central bank has asked congress to have its charter amended, a move that would allow it to provide sharia-compliant instruments to Islamic banks, in particular interbank lending products. Islamic finance follows religious principles such as a ban on interest and gambling, making interest-based transactions a major problem for Islamic banks operating outside of the core industry hubs in the Middle East and Southeast Asia."That is just once piece of a broader initiative," he said. The BSP hopes an Islamic banking law can also help attract more market participants as there is only one Islamic bank, Al Amanah, which has struggled financially and is being privatised by the Development Bank of the Philippines (DBP)DBKPH. UL.

"Even if DBP is successful in privatizing it, it will just result in one Islamic bank in the country. If you want to fully enable an Islamic banking system, as opposed to one Islamic bank, we may have to come up with an Islamic banking law."The BSP would thus have to tackle an issue shared by other countries trying to encourage Islamic finance: taxation. Certain Islamic finance contracts, such as sukuk or Islamic bonds, can attract double or even triple tax duties because they require multiple transfers of title of the underlying asset. The BSP has setup a working group that is now drafting the proposed law which would then be presented to congress, Espenilla said, without giving a time frame.

Such a legislative approach would be complemented by a regulations-based approach, broadening the types of products which could also be delivered by conventional banks, he said."We also need to coordinate mutual-type products, with securities and insurance regulators as well," he added. The BSP has sought support from industry bodies such as the Malaysia-based Islamic Financial Services Board (IFSB), of which the central bank is an associate member. Last October, the IFSB signed a five-year agreement with the Manila-based Asian Development Bank (ADB) ADB. UL to promote Islamic finance, focusing on Indonesia, Bangladesh, Pakistan, the Maldives, Afghanistan, Kazakhstan and the Philippines. The IFSB and ADB also plan to hold a two-day Islamic finance conference in Manila in November.

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