Why Would Anyone Buy T-Bills at 0%? 29 comments
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Although currency and stock traders can’t figure out whether this is a bottom or a pause before more losses, the sentiment in the bond market is very negative.
For the first time since the US Treasury started selling 4 week T-bills in 2001, the yield hit zero. In other words, bond market investors are willing to buy T-bills at a negative real yield, which means that it earns less than cash. This drove the rates on 3 month bills to negative 0.01 percent, reflecting the market’s hunger for safety.
The only reason why anyone would buy Treasury bills at negative real return is if they believe that recession will deepen, driving bond prices higher and yields further below zero.
From my experience, the bond markets tend to have it right which suggests that we may see further losses in the currency and equity markets this week. The only thing that could help would be a bailout for the automakers and even then, the positive impact on investor sentiment may be limited.
Fed fund futures are now pricing in a 98 percent chance that the Federal Reserve will cut interest rates by 75bp to 0.25 percent on December 16th:
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On Dec 10 11:42 AM Smarty_Pants wrote:
> Q: "Why Would Anyone Buy T-Bills at 0%?"
>
> A: Because you can't fit $100 Million under your mattress.
>
> OK, kidding aside, that's a very good question. The very good follow-up
> question would be "Where else can they put it?"
>
> Before anyone blurts out 'cash' please remember that any huge amount
> of money is difficult to convert to currency and if placed in a money
> market fund is probably going to be parked in commercial paper or
> right back into those treasuries.
>
> What's the short list of safe places to park large amounts of money
> these days where the real return isn't negative or where the risk
> isn't "too high"?
>
> It's a real head scratcher.
On Dec 10 01:11 PM Socialism cannot compete! wrote:
> Note the big rise in commodities and gold of late? We're looking
> at the "big investors" readying for "The Plunge of All Plunges" perhaps?
> Pulling everything outta stocks and into gold & Treasuries? Personally...I'm
> stocking up on guns, gold, & canned goods! Civil unrest ahead
> when it all comes down...and there are both economic and political
> events on the near horizon that will trigger it all. Scary but exciting
> -- real freedom may finally be on the horizon again.
The moonbat soars
Glancing at porfolio
Moonbat is floored
At the bus stop
Moonbat lugs his metal
But the driver says no
Gold nuggets we don't settle
Borrowings from Fed. Reserve banks far exceed the money created. F.R free cash has been running around -$100 Billion every week. They can't keep up demand. I think this is why Bernanke wants permission from Congress to issue Bonds. Higher denominations of fiat money.
IMHO
Bernake want's to issue bonds because then he can pay interest like a bank, buy debt, and issue debt. And by US Givernment debt. Gee doesn't it sound like he can do everything now? Yup. Gee why have a treasury? Good question. Gee then does the public have any control over the money supply or treasury since now the Fed can issue unlimited debt, print unlimited amounts of money on debt and buy it back? Nope. Economics laid bare.
> guns gold and canned food..
Smith & Wesson stock is doing well lately ;-)
seekingalpha.com/artic...
....Why would anyone want to do this rather than simply keeping the cash under the mattress? Various technical factors were said to be involved, like window-dressing at the end of the year for some funds, or TARP recipients looking for a place to hide their money from potential borrowers.
This is a trend worth following up. There are other current market anomalies. The price of gold is in backwardation instead of contango, although it may not last. That means the price for future delivery is lower than that for current delivery. There is talk of huge tankers and tanks full of crude oil being stored (which costs money) to keep the oil off the market. This is another kind of backwardation, since when the oil is finally released it will have cost more than the spot price it will command, all other things being equal....
I am cutting Kathy Lien picture out and pasting it on my wall, she is cute.
I bought some BDN at 17 earlier this year, then bought some more at 3.86 - it is now around 6. Even when it pays the 33% yield from the 3.86 in the coming year I am worse off overall than T-Bills at minus 40 percent.
About 4 weeks ago I bought some enlay.pk at 7, and now it is around 5.40. If it pays out the 20 percent yield in the coming year I am about even, except for what is confiscated for foreign taxes.
I can personally see why people would rather park in a t-bill than try to catch a falling knife.
She is cute, but why let her know?
Okey dokey, Buy Gold. Average up, down and inbetween.
I still think Pawn shops deserve a look.
IMHO
On Dec 11 01:53 PM Dividend Growth Investor wrote:
> I wonder if there are alternatives to large companies to open hundreds
> of CD's in hundreds of Banks instead of purchasing 0% yielding products..
I think that rally just went by. The next one should be by after a while.
"The only reason why anyone would buy Treasury bills at negative real return is if they believe that recession will deepen, driving bond prices higher and yields further below zero."
1) The yield was actually a negative NOMINAL return, not just real return.
2) There is absolutely no way on the planet for the return to drop much more. Essentially, the absolute limit on T-bills is probably about -0.1% or so. That is because you can park your funds elsewhere at 0% and pay a few fees (guards protecting your safe?) to protect it for cheaper than the T-bills.
3) The real reason for paying below zero is simply security. The chance of default of the US government is less than a bank/mutual fund, etc. going under. Even though funds at banks are insured by the US government, if they fail, it can take time to get the money so the guarantee that one can get at the funds in 4 weeks may play some role. Still, it is pretty stupid.
With the Fed. and Congress still sounding dovish on the economy it is possible for investors to experience dramatically less volaitility in T-Bills, but that is with a price, and that price is the lower returns. As with what term maturuty treasuries to purchase that is up to the outlook for inflation. With inflation pressures growing greater and short term treasuries still on the low-side, I would recommend staying away from both long and short-term t-bills and sticking with medium term dated maturing t-bills, 1-5 years.