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Rates on 6-month T-bills at record low

Associated Press / December 16, 2008
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WASHINGTON - Interest rates on six-month Treasury bills have fallen to the lowest level on record at the weekly Treasury auction.

The government said the auction yesterday saw rates on six-month bills drop to 0.270 percent, from 0.300 percent last week. Heavy demand for Treasury securities by nervous investors has pushed rates to historically low levels.

While rates on three-month bills edged up slightly, they still remained close to zero. The rate for a three-month bill rose to 0.050 percent, up from 0.005 percent last week. The rate this week on three-month bills was the highest since they stood at 0.150 percent on Nov. 24.

Last week, an auction of four-week Treasury bills actually came in at zero percent, meaning that investors were willing to get no interest on money they were investing with the government for one month.

When investors traded their four-week Treasury bills with each other last week, the yield sometimes went negative. That means some were willing to give up a little of their money just to park it in a relatively safe place.

The record lows are being driven by the fear gripping credit markets. Investors have rushed to the safety of Treasury securities because of the massive losses in other investments being sustained during the worst upheavals on Wall Street in 70 years.

In yesterday's auction a total of $27 billion was sold in three-month bills and a similar amount was sold in six-month bills.

The discount rates reflect that the bills sell for less than face value. For a $10,000 bill, the three-month price was $9,998.74 while a six-month bill sold for $9,986.35. That would equal an annualized rate of 0.051 percent for the three-month bills and 0.274 percent for the six-month bills.

Separately, the Federal Reserve said yesterday the average yield for one-year Treasury bills, a popular index for making changes in adjustable rate mortgages, fell to 0.50 percent last week from 0.69 percent the previous week.

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