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Three-Month Treasury Bills Lowest Since Auctions Began in 1929
George
Washington's Blog
Wednesday, Dec 10, 2008
Bloomberg writes:
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.
Why are treasuries at their lowest-ever rate?
Some of it is certainly because investors fear any other asset
class except cash, given the massive economic crisis we face.
But analysts also point out other contributing factors:
(ARTICLE CONTINUES BELOW)
For example, bond expert John Jansen says:
Central banks have flooded the system with money and
the system is awash in a surfeit of liquidity. That money is searching
for a home. [GW's note: in other words, banks are squirreling
away their bailout funds in treasuries.]
I also think that very large chunks of money which left the stock
market and money funds when Lehman crumbled is in government-only
funds and that creates a tremendous demand for bills.
December is always a month with bill demand as the process of
sanitizing balance sheets for year-end examination is always a
concern. With the trials and tribulations in the financial markets
this year, that demand will be orders of magnitude larger than
normal.
One last point, which a veteran salesman and former portfolio
manager made to me, is that the money raised by financial institutions
via the FDIC bonds is exacerbating the situation. The borrowers
do not need that money now. They are defeasing maturities which
will arise in 2009. So that money will sit in the short market
until it is needed next year.
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, says
"It’s the year-end factor . . . . Everyone wants to be in
bills going into year-end. Buy now while the opportunity is still
there.”
Are these guys right, or will the short-term treasury market
continue to crash due to the grim economy? Only time will tell.
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INFOWARS:
BECAUSE THERE'S A WAR ON FOR YOUR MIND
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