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leistb
12-09-2008, 04:33 PM
Treasury Sells $30 Billion of Four-Week Bills at Zero Percent

By Cordell Eddings and Daniel Kruger

Dec. 9 (Bloomberg) -- The Treasury sold $30 billion of four-week bills at zero percent for the first time since it began selling the securities in 2001 amid persistent demand for the safety of U.S. debt during the worst financial crisis since the Great Depression.

The bills were sold at a high discount rate of zero percent, the Treasury Department said today in Washington. The government received bids for the bills totaling more than four times the amount sold.

“It’s the year-end factor with those four-week bills,” said Chris Ahrens, (http://search.bloomberg.com/search?q=Chris+Ahrens%2C&site=wnews&client=wnews&proxystylesheet=wnews&output=xml_no_dtd&ie=UTF-8&oe=UTF-8&filter=p&getfields=wnnis&sort=date:D:S:d1) an interest-rate strategist in Greenwich, Connecticut, at UBS Securities LLC, one of the 17 primary dealers that trade directly with the Federal Reserve. “Everyone wants to be in bills going into year-end. Buy now while the opportunity is still there.”

Indirect bidders, a group that includes foreign central banks, bought 47.2 percent of the amount sold, compared with 31.7 percent in the prior auction. Primary dealers bought 52.1 percent, while direct bidders such as individual investors purchased 0.7 percent.

Yields on government securities have plummeted this year to record lows as investors have gravitated toward their safety as stocks and emerging-market assets plunged. Rates (http://www.bloomberg.com/apps/quote?ticker=USGG3M%3AIND) on three-month bills, viewed as a haven in times of turmoil, traded at a negative rate of 0.01 percent today. The Treasury sold $27 billion in three-month bills yesterday at a rate of 0.005 percent, the lowest rate since it starting auctioning the securities in 1929.

The rate on four-week bills peaked at 5.175 percent on Jan. 29, 2007. The government began issuing the four-week bills in July 2001, according to Stephen Meyerhardt (http://search.bloomberg.com/search?q=Stephen+Meyerhardt&site=wnews&client=wnews&proxystylesheet=wnews&output=xml_no_dtd&ie=UTF-8&oe=UTF-8&filter=p&getfields=wnnis&sort=date:D:S:d1), a spokesman for the Bureau of Public Debt in Washington. The bills are intended to reduce the government’s reliance on irregularly issued cash management bills.

To contact the reporter on this story: Cordell Eddings (http://search.bloomberg.com/search?q=Cordell+Eddings&site=wnews&client=wnews&proxystylesheet=wnews&output=xml_no_dtd&ie=UTF-8&oe=UTF-8&filter=p&getfields=wnnis&sort=date:D:S:d1) in New York at ceddings@bloomberg.net (ceddings@bloomberg.net); Daniel Kruger (http://search.bloomberg.com/search?q=Daniel+Kruger&site=wnews&client=wnews&proxystylesheet=wnews&output=xml_no_dtd&ie=UTF-8&oe=UTF-8&filter=p&getfields=wnnis&sort=date:D:S:d1) in New York at dkruger1@bloomberg.net (dkruger1@bloomberg.net)

Last Updated: December 9, 2008 14:03 EST

http://www.bloomberg.com/apps/news?pid=20601087&sid=adLrsq9KMJL8&refer=home#

BirdGuano
12-09-2008, 04:39 PM
Return OF capital, not return ON capital. :D



http://msa4.files.wordpress.com/2008/08/alfred_e_neuman.jpg

leistb
12-09-2008, 04:45 PM
Return OF capital, not return ON capital. :D





Does this signal a collapse of the bond market? And are these bidders in effect, shorting the government? If so, why is it in the government's interest to allow this?

Pablo Escobar
12-09-2008, 04:56 PM
collapse is where no one wants to buy the bonds, so interest rates shoot to 20- 30%. This is the opposite, where everyone is piling into US bonds, because the alternatives are far, far worse.

When was the last time rates were so low? Right before the great depression. It is a very, very bad sign.

Because what comes next, is a collapse of the bond market. Then everyone loses their shorts.

Bad, bad juju

DReynolds
12-09-2008, 05:16 PM
The willingness to buy bonds with a zero return proves maximum pessism. A 0% implies that people think there is no positive net return investment in the economy. But the million $ question is whether this kind of extreme pessism is warranted? I doubt it. Just like there was a period of irrational exuberance, there are periods of irrational pessimism, and I bet now is one of them.

BirdGuano
12-09-2008, 05:17 PM
Actually I believe that pessimism is currently UNDERweighted.


:beer:

DReynolds
12-09-2008, 05:26 PM
Actually I believe that pessimism is currently UNDERweighted.

If there are no bad external events (nuclear war, natural disaster, disease outbreak), then I think the economy will be fine in 5 to 10 years. Even the worst depressions have never lasted longer than that.

leistb
12-09-2008, 05:44 PM
I'm still having a difficult time getting my brain around a negative rate. Are the buyers in effect shorting the government or are they buying the treasury bond and in addition, giving a percentage of that face value of the bond to the government all in the name of having a safe haven for their money?

DReynolds
12-09-2008, 05:59 PM
I'm still having a difficult time getting my brain around a negative rate. Are the buyers in effect shorting the government or are they buying the treasury bond and in addition, giving a percentage of that face value of the bond to the government all in the name of having a safe haven for their money?

A negative interest rate occurs when buyers pay $100.10 for a govt bond that pays back $100 in 1 month.

Ought Six
12-09-2008, 06:10 PM
I think the buyers are banks trying to prevent the entire government/banking system from collapsing.

Fattail
12-09-2008, 06:28 PM
The willingness to buy bonds with a zero return proves maximum pessism. A 0% implies that people think there is no positive net return investment in the economy. But the million $ question is whether this kind of extreme pessism is warranted? I doubt it. Just like there was a period of irrational exuberance, there are periods of irrational pessimism, and I bet now is one of them.

I don't think you can classify pessimism in the current environment as irrational with the Fed at ZIRP, quantitative easing going on, moral hazard being tossed aside for the sake of "systemic stability", a projected trillion dollar deficit, nationalization of the large banks and auto industry, and a global recession.

Seems quite rational to me. The fellows trying to pick a bottom in the stock market and continually talking up "now is the time to buy" , and "buy and hold", seem irrational.

BirdGuano
12-09-2008, 07:32 PM
or are they buying the treasury bond and in addition, giving a percentage of that face value of the bond to the government all in the name of having a safe haven for their money?

BINGO.

Safe should be in quotes however.

:D

BirdGuano
12-09-2008, 07:33 PM
The fellows trying to pick a bottom in the stock market and continually talking up "now is the time to buy" , and "buy and hold", seem irrational.

+1

penguinzee
12-09-2008, 07:43 PM
If you're a foreign bank or rich person, whose collapse of your home economy is almost totally assured, wouldn't you flee to a (seemingly) stable economy first chance you get? Methinks that's what we're seeing here, at least in part... the question then is who is imploding (besides Zimbabwe and Iceland)? Look at exchange rates for that answer...

From Calculated Risk:

http://calculatedrisk.blogspot.com/2008/12/treasury-bills-trade-at-negative-rates.html

"Treasury bill yields can be large when converted back into another currency which is devaluing vs the dollar. 0% T-bills would have yielded a nice return in Euros, Pounds, Rubles, Rupees, or Reals over the past 3-6 months."

So many corpses to trip over...

Franc (penguinzee)

BirdGuano
12-09-2008, 07:48 PM
Rubles, Rupees

We have another BINGO !

I have heard the Russian's can't get it out of the country
quick enough.

:D

Sysiphus
12-09-2008, 07:50 PM
I think the buyers are banks trying to prevent the entire government/banking system from collapsing.

Perhaps. Another likely source is foreign institutions, because fear is even greater overseas than in the U.S. So much for the collapse of the U.S. dollar, which a number of persons on this board await with bated breath.

Fiddlerdave
12-10-2008, 06:34 AM
Perhaps. Another likely source is foreign institutions, because fear is even greater overseas than in the U.S. So much for the collapse of the U.S. dollar, which a number of persons on this board await with bated breath.:lol: Note that these are 1 month bonds.

The USD has been appreciating nicely, and that is where your return comes from on a 0% interest rate bond if you hold a different currency and now do not trust banks since they just lost half your money in their collapse.

There are entities in the world preparing new nice, "safe" places for people and institutions to invest their money instead of the USD and Treasury Notes. (Note "Safe" IS in quotes, but the reality isnt going to matter because USA credibility is gone - it won't take much to make something else look much better)

And this bubble in the value of the USD is not going to last much longer than that.

DoubleD
12-10-2008, 10:08 AM
The fact that the investors are taking a net loss on the purchase of US treasuries says that the investor is betting on deflation. It's no longer about "earning interest" but "not losing as much" in the deflationary cycle. The treasury at zero (or slightly less) yeild is going to preserve capital where holding cash or equities could likely result in losses (probably significant) through devaluation/deflation.

Misty
12-10-2008, 10:35 AM
IMO, the evidence so far favors the probability that it's large foreign funds dumping money into the short-term bills in order to take advantage of currency fluctuations, and doing it in a 'safe' vehicle. That brought the yield down.

leistb
12-10-2008, 04:11 PM
Pimco’s Bill Gross Says Treasury Market Is Overvalued (Update1)
By Kathleen Hays and Michael J. Moore


Dec. 10 (Bloomberg) -- Bill Gross (http://search.bloomberg.com/search?q=Bill+Gross&site=wnews&client=wnews&proxystylesheet=wnews&output=xml_no_dtd&ie=UTF-8&oe=UTF-8&filter=p&getfields=wnnis&sort=date:D:S:d1), manager of the world’s biggest bond fund, said the U.S. Treasury market is overvalued, with sectors such as bills taking on “bubble” like characteristics.

“Treasuries have some bubble characteristics, certainly the Treasury bill does,” Pacific Investment Management Co.’s Gross said in a Bloomberg Television interview from Newport Beach, California. “A Treasury bill at zero percent is overvalued. Who could argue with that in terms of the return relative to the risk? There is no return.”

The Treasury sold $30 billion of four-week bills yesterday through an auction at zero percent, while three-month bill rates turned negative for the first time since the U.S. began selling the debt in 1929.

Gross expects the Federal Reserve to cut its target rate to 0.5 percent when policy makers meet next week and will likely signal that interest rates will remain low for a “considerable” period of time.

“There’s some risk” for the dollar to weaken, said Gross. “Certainly the government and the Fed cannot continue to talk about trillions of dollars of expansion of the Fed’s balance sheet without the risk of the dollar going south. It is fair to say other economies are doing much the same thing. The dollar doesn’t have to go south if all the economies reflate at the same time.”

Gross’ Total Return Fund (http://www.bloomberg.com/apps/quote?ticker=PTTRX%3AUS) lost 2.1 percent in the three months through Sept. 30, compared with a 0.49 percent slump by the benchmark it uses to measure performance, according to Pimco’s Web site (http://www.pimco-funds.com/Performance.aspx). Mortgage securities and investment-grade corporate debt accounted for 93 percent of its holdings.

Pimco, a unit of Munich-based Allianz SE, has about $790 billion in assets under management.

To contact the reporters on this story: Michael J. Moore (http://search.bloomberg.com/search?q=Michael+J.+Moore&site=wnews&client=wnews&proxystylesheet=wnews&output=xml_no_dtd&ie=UTF-8&oe=UTF-8&filter=p&getfields=wnnis&sort=date:D:S:d1) in New York at mmoore55@bloomberg.net (mmoore55@bloomberg.net).

Last Updated: December 10, 2008 14:44 EST

http://www.bloomberg.com/apps/news?pid=20601087&sid=aCRh_T4S.l_M&refer=home

Fiddlerdave
12-10-2008, 04:49 PM
Bill Gross, manager of the world’s biggest bond fund, said the U.S. Treasury market is overvalued, with sectors such as bills taking on “bubble” like characteristics.

“Treasuries have some bubble characteristics, certainly the Treasury bill does,” Pacific Investment Management Co.’s Gross said in a Bloomberg Television interview from Newport Beach, California. “A Treasury bill at zero percent is overvalued. Who could argue with that in terms of the return relative to the risk? There is no return.”"Bubble-like characteristics" indeed. :lol: If this bubble were a zit, it would be about 20 times bigger than the head it is growing on.

The popping will be quite, ah, dramatic, if you like that sort of thing. I would have preferred to watch it from a distance. :(

ltow
12-10-2008, 11:45 PM
john belushi
animal house
"i'm a zit!"

Fiddlerdave
12-11-2008, 03:50 AM
john belushi
animal house
"i'm a zit!"The name Bill Gross is quite inspiring, isn't it? :laugh:

leistb
12-11-2008, 04:07 PM
Thursday, December 11, 2008

Treasury Sells 10-yr Bonds At Lowest Yield On Record




NEW YORK -- The Treasury on Thursday sold nearly $16 billion of 10-year bonds at a high yield at 2.67%, the lowest-yield ever offered by the government in an auction. The bid to cover ratio stood at 2.44, an indication of firm demand. In the bond market, benchmark 10-year bonds rose, sending the yields on 10-year bonds down 4 basis point to 2.643%.

Copyright © 2008 MarketWatch, Inc.

http://www.foxbusiness.com/story/treasury-sells--yr-bonds-lowest-yield-record/