At one point today, the yield on the three-month Treasury bill (^IRX) hit 0.01%!!
One Freakin Bip!!
This means that the risk-free rate is now in direct competition with the underside of your mattress.
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From an economic standpoint what does that mean?
I was thinking that with money maret funds breaking the buck, and halting redemptions for 7 days, if you have over 100k to park the only place to put it is in t-bills.
Simply amazing! How do money markets not break the buck with bill rates this low? They do have overhead, don't they?
I'll second the request for an explanation of what this means (could be from you, Megan, could be from another commenter). A lot of panic inducing explanations went through my head, and I've only calmed down by assuring myself that I have no idea what this could mean.
I'm no economist, jmo, but I think the widespread belief in your reasoning is exactly why the yield is crashing.
Very few safe investment opportunities = lots of demand for the one remaining safe vehicle: t-bills.
Lots of demand for t-bills = very low t-bill rates as people bid them down.
I'm not generally one for apocalyptic thinking but I'm starting to wonder if the end times might be upon us.
Two independent investment banks left? (And Morgan Stanley apparently looking to partner up, leaving Goldman standing alone?)
The US government taking over the largest insurer?
An election in which the candidates are from the 48th, 49th, 50th & 1st states in the Union?
These things are beyond improbable...
Ms. McArdle may have her own answers, but I would say, Justin, that this means that there is a massive flight to quality, in which people who would have bought AAA commercial paper, or short-term deposits in money center banks, or any of the various high-grade short-term interest-bearing investments that are out there, are fleeing from there to the only thing they trust, U.S. Treasury bonds.
Interestingly, CDS prices on Treasuries are also rising, although I don't know if they sell CDS on the three-month bills.
It means that because T-bills are widely considered risk-free debt and the 13-week yield is 0.01%, you'll be getting just as good a rate by burying it in your back yard. IOW, there's no such thing as a risk-free return.
I had another thought, with the collapse of the commodities boom - (oil fell below 90 a barrel) inflation over the next three months could be negative. So, even at 0.1% you may end up earning a positive rate of return.
Brooksfoe had joked about buying canned goods and ammunition. But, with the end of the commodities boom, you could loose your shirt on that as well.
Truely the only safe place is t-bills....
Yield going down means price going up means lots of people buying them.
Deflation is the real worry for the Fed tonight. Helicopter Ben can't be too far off, in my humble opinion.
Not a good sign for the stock market either that it ended the day at the low, and pierced what had been support at the July low.
It means: Goodbye, and thanks for all the fish!
In all panics, there is money-flight out of risky investments and back into whatever people consider the most sound. T-bills are one such; their low rate reflects sky-high demand. Gold is the other thing to watch here. Hmm, how's it today? ...
http://bigcharts.marketwatch.com/quickchart/quickchart.asp?symb=gld
Up 11% today! Zoiks!
Thanks, y81. I hadn't gotten my head around the fact that these are sold by auction, so that .01% yields indicate high demand, rather than lack of confidence in t-bills.
The rate today on short term gov't notes is negative for September and October maturities. You get a whopping 30 bps if you go out to November.
And this week isn't the first time a money market fund 'broke the buck'. It happened about a month ago at Legg Mason, but Legg owned up to their error* and made the fund whole so the individual shareholder wasn't hurt. The problem this week is that the fund manager isn't willing to own up their error in having 3% of the fund in Lehman paper.
*I believe they were too heavy in MBS and other assets that were getting beaten into the ground.
"At one point during the day, investors were willing to pay more for one-month Treasurys than they could expect to get back when the bonds matured."
Wow, US T-Bills with negative yields!!!
Dogs and cats living together - mass hysteria.