NEW YORK (Dow Jones)--Demand for the three-month Treasury bill is ramping up as investors seeking safety heading into the end of the year stock up on the safest possible securities at a time when Treasury bills are in short supply.
This is driving the bond equivalent yield on the three-month T-bill down, and strategists said its yield is likely to fall into negative territory before the end of the year. When market participants buy Treasury bills at negative rates, they're essentially paying the government to keep their money safe.
The three-month bond equivalent yield fell as low as 0.15% Thursday, according to TradeWeb.
Bill yields last fell below zero in late 2008 amid the financial market panic that was triggered by the Lehman Brothers bankruptcy. The decline now isn't driven by the same sorts of fears though - it's more about a scarce supply of T-bills amid strong demand for safe assets given the hazy economic outlook.
The amount of T-bills in the marketplace has dwindled with the government letting the bills in its Supplementary Financing Program--which financed the ballooning deficit though the issuance of bills--mature rather than sell new bills to roll over the debt. At the same time, money market investors face fewer options to park their cash.
For instance, the issuance of commercial paper, a popular money-market investment, has shrunk during the credit crisis. On a seasonally adjusted basis, the commercial paper market, where companies go to finance day-to-day needs like payroll, is $1.267 trillion in size, substantially down from a peak of $2.2 trillion in July of 2007.
"The money market cash on the sidelines is looking for places to go," said William Larkin, a fixed-income portfolio manager at Cabot Money Management in Salem, Mass.
Larkin said that with T-bill yields likely to slide even further in December, the higher yielding two-year Treasury note is a much better bet for investors who still want to hold onto safer, more-liquid securities as the year draws to a close.
Into next year, Larkin expects the amount of cash being funneled into money funds to drop as investors start to feel a little more secure about taking risk, and that could push T-bill yields back up again.
Assets in money funds have already ticked down. After peaking at $3.936 trillion in January, according to the Investment Company Institute, money fund assets on a weekly basis were last at $3.334 trillion. Larkin said that they could fall under $2.5 trillion if yields turn and remain below zero.
For now though, demand for T-bills remains robust and supply scarce.
In September, the Treasury said that it was going to reduce the balance of its supplementary financing program, which was about $200 billion in September, to $15 billion. The SFP kicked off in September 2008. Through the program, Treasury sold T-bills to provide cash for use in Federal Reserve initiatives.
The three-month bond equivalent yield last fell negative in December 2008, to as low as -0.04%. That was the first time it had fallen below zero since the Great Depression. The yield fell last year on a massive flight to quality--market participants nervous about their counterparties preferred to stick with government debt with the shortest maturities. During the weeks heading into the Christmas holiday in 2008, the three-month bond equivalent yield traded negative to flat, and then improved into the beginning of 2009.
George Goncalves, managing director and head of fixed-income rates strategy at Cantor Fitzgerald in New York, said that this year it could fall as low as -0.05%.
"As much as people have worries about the Treasury market, there's still a preference to have those securities at the end of the year on their books," Goncalves said.
"This is going to be evident across the curve," he said, but it's starting with T-bills.
-By Deborah Lynn Blumberg, Dow Jones Newswires; 212-416-2206; deborah.blumberg@dowjones.com
This is driving the bond equivalent yield on the three-month T-bill down, and strategists said its yield is likely to fall into negative territory before the end of the year. When market participants buy Treasury bills at negative rates, they're essentially paying the government to keep their money safe.
The three-month bond equivalent yield fell as low as 0.15% Thursday, according to TradeWeb.
Bill yields last fell below zero in late 2008 amid the financial market panic that was triggered by the Lehman Brothers bankruptcy. The decline now isn't driven by the same sorts of fears though - it's more about a scarce supply of T-bills amid strong demand for safe assets given the hazy economic outlook.
The amount of T-bills in the marketplace has dwindled with the government letting the bills in its Supplementary Financing Program--which financed the ballooning deficit though the issuance of bills--mature rather than sell new bills to roll over the debt. At the same time, money market investors face fewer options to park their cash.
For instance, the issuance of commercial paper, a popular money-market investment, has shrunk during the credit crisis. On a seasonally adjusted basis, the commercial paper market, where companies go to finance day-to-day needs like payroll, is $1.267 trillion in size, substantially down from a peak of $2.2 trillion in July of 2007.
"The money market cash on the sidelines is looking for places to go," said William Larkin, a fixed-income portfolio manager at Cabot Money Management in Salem, Mass.
Larkin said that with T-bill yields likely to slide even further in December, the higher yielding two-year Treasury note is a much better bet for investors who still want to hold onto safer, more-liquid securities as the year draws to a close.
Into next year, Larkin expects the amount of cash being funneled into money funds to drop as investors start to feel a little more secure about taking risk, and that could push T-bill yields back up again.
Assets in money funds have already ticked down. After peaking at $3.936 trillion in January, according to the Investment Company Institute, money fund assets on a weekly basis were last at $3.334 trillion. Larkin said that they could fall under $2.5 trillion if yields turn and remain below zero.
For now though, demand for T-bills remains robust and supply scarce.
In September, the Treasury said that it was going to reduce the balance of its supplementary financing program, which was about $200 billion in September, to $15 billion. The SFP kicked off in September 2008. Through the program, Treasury sold T-bills to provide cash for use in Federal Reserve initiatives.
The three-month bond equivalent yield last fell negative in December 2008, to as low as -0.04%. That was the first time it had fallen below zero since the Great Depression. The yield fell last year on a massive flight to quality--market participants nervous about their counterparties preferred to stick with government debt with the shortest maturities. During the weeks heading into the Christmas holiday in 2008, the three-month bond equivalent yield traded negative to flat, and then improved into the beginning of 2009.
George Goncalves, managing director and head of fixed-income rates strategy at Cantor Fitzgerald in New York, said that this year it could fall as low as -0.05%.
"As much as people have worries about the Treasury market, there's still a preference to have those securities at the end of the year on their books," Goncalves said.
"This is going to be evident across the curve," he said, but it's starting with T-bills.
-By Deborah Lynn Blumberg, Dow Jones Newswires; 212-416-2206; deborah.blumberg@dowjones.com
选择“Disable on www.wenxuecity.com”
选择“don't run on pages on this domain”
