(Corrects three-month debt amount to $42 billion from $43 billion in 7th paragraph)
* U.S. sells record amount of Treasury bills in one day
* Solid demand for 1-month, 3-month, 6-month, 1-year bills
* Money fund conversion buttresses demand for T-bills
By Richard Leong
NEW YORK, Oct 11 (Reuters) - A record single-day amount of U.S. Treasury bills landed on Tuesday in advance of new rules for the $2.7 trillion money market fund industry later this week.
Money fund demand for Treasury bills has been solid as a large number of prime money market funds have converted into ones that own only government-related debt.
“There has been strong demand for some time due to the adjustments that money funds were making in anticipation of the deadline,” said Lou Crandall, chief economist at Wrightson ICAP.
Roughly $1 trillion worth of prime fund assets have changed over to government-only fund assets over the past 12 months, according to iMoneynet.
The funds’ conversion has come at the expense of commercial paper and other non-federal debt, resulting in higher short-term borrowing costs for corporations and some cities and states.
On Tuesday, the Treasury sold $138 billion worth of U.S. government debt that mature in a year or sooner, which Crandall said was a record one-day amount for T-bill supply.
The Treasury offered $40 billion in one-month bills; $42 billion in three-month debt; $36 billion in six-month bills and $20 billion in one-year debt.
Solid demand for the flood of T-bills offset the heavy supply, resulting in a modest rise in interest rates than those on supply a week earlier, analysts said.
“It has been absorbed pretty well. There was only a small concession in yields compared to last week,” said Tom Simons, money strategist at Jefferies & Co.
Prime money funds have also reduced the average maturity on the debt they own in anticipation of heavy redemption from some investors before regulations on share prices, together with fees and limits on redemption, which will go into effect on Friday.
With the uncertainty about the redemption level for the rest of the week, money funds have loaded up on low-risk cash-equivalent securities, analysts said.
On Tuesday, the Federal Reserve awarded $201.55 billion in overnight reverse repurchase agreements to money funds, mortgage agencies and other qualified participants.
Under the Fed’s reverse repo program, participants earn interest income by holding the Fed’s Treasuries holdings for an agreed period. (Reporting by Richard Leong; Editing by Andrew Hay, Bernard Orr)