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3 month t-bill goes to a yield of -.01% today


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 to negative 0.01 percent, as investors gravitate toward the safety of U.S. government debt amid the worse 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 securities 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 dropped nine basis points, or 0.09 percentage point, to 2.65 percent at 2:31 p.m. in New York, according to BGCantor Market Data. The 3.75 percent security due in November 2018 gained 27/32, or $8.44 per $1,000 face amount, to 109 19/32. 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.

The Treasury received bids for the four-week bills totaling more than four times the amount sold.

‘Horrible Year’

Indirect bidders, a group that includes foreign central banks, bought 47.2 percent of the four-week bills, compared with 31.7 percent in the prior auction. Primary dealers bought 52.1 percent, while direct bidders such as individual investors purchased 0.7 percent.

“It’s been such a horrible year people want to show they have the good stuff on their balance sheets, not the bad stuff, but with yields already so low it pushes these even lower,” said Theodore Ake, the head of Treasury trading in New York at Mizuho Securities USA Inc., another primary dealer.

The rate on four-week bills peaked at 5.175 percent on Jan. 29, 2007. The government began issuing the four-week bills in July 2001, according to Stephen Meyerhardt, a spokesman for the Bureau of Public Debt in Washington. The bills are intended to reduce the government’s reliance on irregularly issued cash management bills.

‘Herky-Jerky’

The National Association of Realtors’ index of signed purchase agreements, or pending home resales, fell a less-than- forecast 0.7 percent to 88.9 from a revised 89.5 in September, according to a report from the group today in Washington. The median forecast in a Bloomberg News survey of 35 economists was for a 3 percent decline.

Treasuries price action has been “very herky-jerky, very erratic, very illiquid,” said David Robin, an interest-rate strategist at Newedge USA LLC in New York, an institutional brokerage firm. “You can’t overanalyze particular momentary price action. In an hour it could be totally different.”

The amount of Treasuries traded yesterday through ICAP Plc, the world’s largest broker of trades between banks, was $162.1 billion, below the three-month daily average of $271.8 billion and the lowest full-day volume since Nov. 17.

The Treasury Department will sell $28 billion of three-year notes tomorrow and $16 billion of 10-year notes the following day. The $44 billion total is about $3 billion more than expected by Wrightson ICAP LLC.

To contact the reporter on this story: Daniel Kruger in New York at dkruger1@bloomberg.net.

Last Updated: December 9, 2008 14:36 EST