Tuesday, December 09, 2008

Say what? Yep a negative T-bill rate

From Bloomberg.com: Treasury Bills Trade at Negative Rates as Haven Demand Surges :
"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."
Which means:
"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."
Why? Probably in part window dressing so that they appeared to own safe securities at year end and in part because people are so scared they are going to lose money in other securities. Which really says something about risk aversion levels now.

Thanks Tom for the link!

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