Investors are so nervous they're willing to accept the same return from government debt they'd get from burying money in a coffee can — zero.
Investors are so nervous they’re willing to accept the same return from government debt they’d get from burying money in a coffee can — zero.
The Treasury Department said Tuesday it had sold $30 billion in four-week bills at an interest rate of zero percent, the first time that’s happened since the government began issuing the notes in 2001.
And when investors traded their T-bills with each other, the yield sometimes went negative. That’s how extreme the market anxiety is: Some are willing to give up a little of their money just to park it in a relatively safe place.
“No one wants to run the risk of any accidents,” said Lou Crandall, chief economist at Wrightson ICAP, a research company that specializes in government finance.
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At last week’s government auction of the bills, the interest rate was slightly higher but still a paltry 0.04 percent.
Three-month T-bills auctioned Monday paid poorly, too — 0.005 percent.
While everyday people can keep their cash in an interest-earning certificate of deposit or savings account at the bank, institutional investors with hundreds of millions of dollars often use government debt as part of their investment strategy.
In the Treasury market, the U.S. government, considered the most creditworthy of borrowers, issues IOUs of varying durations to raise money.
The zero-percent rate is no reason to panic. As recently as Monday, investors were plowing cash into stocks, and averages like the Dow industrials are off their lows.
And long-term government bonds, while near record lows, still pay decent money considering the tumultuous climate. The yield on a 30-year bond Tuesday topped 3 percent.
There’s good news in all this for taxpayers.
Low interest rates on government debt mean the U.S. is financing its $700 billion bailout of the financial system very cheaply. The Treasury has sold mountains of debt to pay for it.
But the trend also underlines stubborn anxiety that could keep the economy sluggish for years, and it translates into stagnant returns money-market funds.
“There’s a price for safety,” said Peter Crane, president of money-market-fund information company Crane Data. “Down slightly is the new up.”