Money markets on Tuesday staged a dramatic reversal of Monday’s flight to safety after an influential senator fuelled expectations of interest rate cuts and the Federal Reserve and Treasury moved to increase supplies of government securities.

The price of safe one-month Treasury bills tumbled, with the yield back up 87 basis points to 2.98 per cent by the close of trading in New York. This followed a bizarre government debt auction in which there was barely enough interest to sell the $32bn of securities on offer.