Back in May I wrote, “That Zero Is Too Cold For Me,” as the government, for the first time, sold inflation-indexed securities paying zero interest. Well investors are now clamoring for the safety of treasuries in such numbers that they are willing to pay the government for the right to lend them money. (Read that last sentence again; it’s a doozy.) Bloomberg reports:
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…
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.
I find this absolutely mind-boggling. At the very least, put your money in an FDIC insured savings account that pays you something. But paying the government to take your money is nothing more than kicking the taxman a nice, little bonus: “Thank you, sir, may I have another!” I don’t get it.
But if you won’t take it from me, listen to Billy:
Treasury Bills Trade at Negative Rates as Haven Demand Surges
Daniel Kruger and Cordell Eddings
December 9, 2008