Posted by
Locutisprime on Wednesday, December 10, 2008 7:27:20 AM
Treasury Bills Trade at Negative Rates as Haven Demand Surges
By Daniel Kruger and Cordell Eddings
Dec. 9 (Bloomberg) -- Treasuries rose, pushing rates on the
three-month bill negative for the first time, as investors
gravitate toward the safety of U.S. government debt amid the
worst financial crisis since the Great Depression.
The Treasury sold $27 billion of three-month bills
yesterday at a discount rate of 0.005 percent, the lowest since
it starting auctioning the securities in 1929. The U.S. also
sold $30 billion of four-week bills today at zero percent for
the first time since it began selling the debt in 2001.
“It’s the year-end factor,” said Chris Ahrens, an
interest-rate strategist in Greenwich, Connecticut, at UBS
Securities LLC, one of the 17 primary dealers that trade
directly with the Federal Reserve. “Everyone wants to be in
bills going into year-end. Buy now while the opportunity is
still there.”
The benchmark 10-year note’s yield tumbled 11 basis points,
or 0.11 percentage point, to 2.63 percent at 4:48 p.m. in New
York, according to BGCantor Market Data. The 3.75 percent
security due in November 2018 gained 31/32, or $9.69 per $1,000
face amount, to 109 23/32. The yield touched 2.505 percent on
Dec. 5, the lowest level since at least 1962, when the Fed’s
daily records began.
The two-year note’s yield fell 10 basis points to 0.84
percent. It dropped to a record low of 0.77 percent on Dec. 5.
If you invested $1 million in three-month bills at today’s
negative discount rate of 0.01 percent, for a price of
100.002556, at maturity you would receive the par value for a
loss of $25.56.
http://www.bloomberg.com/apps/news?pid=20601087&sid=aOGXsWKEI6F4&refer=worldwide
I can't speak for everyone else? But this is news that bothers me. And it bothers me on two levels. First, is this not the equivalent of hiding your money under the mattress? I mean with no return on investment and that as a known factor going in? Then those buying these T bills have to know that there will be no benefit aside from possible survival. Which represents to me? That we are in pretty deep doo doo finacially globally IMO.
And for reasons that I am not comfortable with, these foreign investors seem to think that the best place to ground their dwindling assets right now, is in American securities. Which means precisely what? Especially as it concerns the potential for these investors to make a run on our treasury later on down the road in the coming year.
I am no economist, but it strikes me that the US government can and has used these T bills in the past, as collateral to back up the extended credit that we have been surviving on for the last forty years. So what happens when our T bill deposits are run on by a different wind of fear and we as a nation are left literally holding an empty bag, with no means to further finance our own fiscal dillusions?
This is not a good scenario any way you slice it IMO. Something has to give and when it dies, it won't just be a tear. I will be a full blown eruption and collapse of our economy.