Interest rate on US T-bills turns negative

[marmar]

from the Dollars & Sense blog:



Interest rate on US T-bills turns negative
by Dollars & Sense


From The Financial Times:

Interest rate on US T-bills turns negative
By Michael Mackenzie in New York
Published: December 9 2008 23:27 | Last updated: December 9 2008 23:27

Nervous investors on Tuesday paid for the privilege of owning US government debt, pushing interest rates on three-month Treasury bills to negative levels for the first time in postwar history.

The implied yield for three-month bills briefly traded at negative 0.01 per cent--the first time that has happened since 1940, traders said. At such a level, an investor is essentially paying someone to own the security.

The flight to safety helped the Treasury sell $30bn in four-week bills at a discount rate of zero per cent for the first time. That auction followed the sale of $27bn in three-month bills at a discount rate of 0.005 per cent on Monday.

Ted Wieseman, economist at Morgan Stanley, said: "Demand for cash remained extreme" and described the result of the four-week sale as "absurd".


http://www.dollarsandsense.org/blog/2008/12/interest-rate-on-us-t-bills-turns.html

[TahitiNut]

1. It'll be interesting to see the Social Security Trust Fund interest yields next quarter.

:shrug:

The December 2008 'loans' were made at an effective interest rate of 2.75%.



http://www.ssa.gov/OACT/ProgData/intRates.html

[muriel_volestrangler]

2. So I guess this means they feel the risk of having money in a bank account is too much

That it's better to have a Treasury bill that pays no interest, for 3 months, rather than the money being in bank account, at whatever rate a bank might pay, but where the bank might fail.

[Dreamer Tatum]

3. Not exactly that simple

It was something like $27B auctioned at a negative yield - some money funds have rules about allocations that
forbid cash from sitting in a bank.

[muriel_volestrangler]

5. Seems they should be changing those rules

if they're going to end up losing them money.

[sarcasmo]

4. All of these first time that has happened stories are going to add up to one word.

DEPRESSION!