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news and things sacred and irreverent put together by opinionated people.

Uncle Sam’s Credit Card Rate? Zero Percent

Posted by tothewire on December 11, 2008

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Arnallht_biz_080811_mn_2 ABC News’ Daniel Arnall reports: For the first time ever, the Federal Government was able to borrow money from the open market for FREE. That’s right… no interest payment at all for Uncle Sam.

The most recent auction of $30 billion worth of 28-day Treasuries had four-times the number of buyers than they had bonds, and at zero percent interest. First time that’s ever happened.

 

It’s a sure sign that investors are scared. They’d rather park their cash with the government and get no appreciation – just the principle back – than risk it in the stock market or even a bank account.

And it’s not just the four-week bonds that are pegging all-time low interest rates. On Monday, $27 billion worth of three-month Treasury bills were auctioned with an infinitesimally small 0.005% rate – the lowest on that particular term since the government first issued them in 1929.

 

In the secondary market today, where investors buy these bonds from the original auction winners, these three-month government bonds actually had a negative yield. Investors who want to park their money in these super-safe instruments were actually willing to give up some of their principle to get their hands on government paper.

 

 

“These institutions realize that their balance sheets will be scrutinized for months by risk-adverse investors and that having, for example, risky assets on their books open them up to speculation and such,” said Crecenzi in an email note.

Also of interest, Crecenzi says this demand for liquidity and safety has been a driver of the surge in the amount of U.S. currency in circulation. He says the amount of cash in circulation has increased at a whopping 25.4% pace since the end of September, to $872.5 billion, a far faster pace than the usual 4% rate of increase.

What’s causing the huge demand for Treasuries? Tony Crecenzi, chief bond market strategist at Miller Tabak + Co., says that financial institutions are trying to clean-up their balance sheets for the end of the year.

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