Please take my money: The zero-yield bill

December 28, 2011

Wall Street firms are begging the U.S. Treasury to take their cash, at least judging by the latest auction of short-term Treasury bills. Treasury sold $30 billion of four-week bills at a “high rate” (pause for laugther) of 0.000% on Wednesday, a mix of strong demand for year-end portfolio shuffling but also a reflection of ongoing fears of a credit crunch emanating from Europe.

It was the fourth straight sale in as many weeks that brought a high rate of zero. The zero percent rate means buyers of the debt will receive no interest at all, sacrificing any return simply to hold cash in the safest of investments.

A rise in repo financing costs is “a sign the year-end demand for short, safe assets has begun,” said Roseanne Briggen, our New York-based colleage at IFR Markets, a unit of ThomsonReuters.

The expensive repo financing also reflects the other typical year-end event – lots of accounts unwilling to lend securities. This scenario worsens into the turn of the year, but then is offset by dealers scrambling to finance what’s left on their books over the turn.

Which strengthens the case of those who think the Treasury market will increasingly behave like the notoriously low-yielding market for Japanese government bonds or JGBs.

While demand for short-term U.S. debt remained strong, key euro zone bank-to-bank lending rates fell for the fifth session running on Wednesday, pushed down by a funding glut after banks took almost half a trillion euros at the European Central Bank’s first-ever injection of 3-year cut-price loans.

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