Short-term T-bill rates sink to record lows

Investors flock to securities' safety as turmoil persists

WASHINGTON - Investors hungry for safety during these times of economic and financial peril are pouring money into Treasury securities, driving down rates on short-term bills to record lows.

Investors are basically willing to lend their money to Uncle Sam at almost no charge because they are looking for an ultrasafe haven. Once inflation and transaction costs are factored in, investors are actually losing ground.

"It essentially amounts to people putting their money under the mattress," said Sung Won Sohn, economist at the Martin Smith School of Business at California State University.

The Treasury Department auctioned $27 billion worth of three-month Treasury bills yesterday, fetching a discount rate of 0.005 percent, a new low. That surpassed the old record low of 0.050 percent set last week.

Another $27 billion in six-month bills was auctioned at a discount rate of 0.300 percent, a record low. That beat out the old record low of 0.430 percent also reached last week.

Skittish investors are drawn to Treasury securities because they are backed by the full faith and credit of the US government.

A global financial crisis - the worst since the 1930s - has made investors especially leery. Lending has locked up both in the United States and abroad as fallout from housing and mortgage meltdowns has spread to other areas.

Despite a series of dramatic actions by the Federal Reserve and the Treasury Department, credit and financial problems persist.

Another factor feeding into yesterday's record low Treasury rates: investors' belief the Fed will aggressively cut a key short-term interest rate - now near a historic low of 1 percent - at the last meeting of the year on Dec. 16.

Some economists are predicting the Fed could cut rates by a whopping three-quarters of a percentage point, which would drop the Fed's key rate to just 0.25 percent.

In yesterday's auction, the discount rates reflect that the bills sell for less than face value. For a $10,000 bill, the three-month price was $9,999.87, while a six-month bill sold for $9,984.83.

Separately, the Fed reported the average yield for one-year Treasury bills, a popular index for making changes in adjustable rate mortgages, dropped to 0.69 percent last week, from 0.93 percent the previous week.