Treasury Bill Rates Go Negative; Loaning Money At A Guaranteed Loss

from the wow dept

It caught some attention yesterday when the rate on four-week US treasury bills went to zero yesterday, but an even more astounding data point occurred when the yield on three month US treasuries briefly went negative. Yes, this meant that companies were willing to lend the government money for three months, knowing they wouldn't make back all their money.

If you want to know just how bad things are out in the market right now, this means that companies feel more comfortable losing some money to the government than investing in anything.

As for the obvious question of why would anyone invest in a bond that's guaranteed not to earn them a return, it simply comes down to alternatives. In theory, you could keep all that money in cash, and not lose any of it -- but that's not practical. If you literally kept it in cash in a giant vault somewhere, you'd pay so much to protect it, effectively you'd be "losing" more of it anyway -- not to mention the very real risk that some of that cash would be stolen. But why not leave it in a bank? Well, again, this comes down to how much of the money in a bank account is actually federally insured to be there. Insurance only covers so much, and since there's a small, but very real, risk that certain banks might just up and disappear, many companies recognize that treasuries at a loss are the best investment. In other words, they feel that no matter what they do with their money, they're going to lose money. So the strategy of investing in a negative t-bill is to lose as little as possible.

Of course, some might point out that going negative doesn't really mean that much. After all, if the return on the t-bill was less than inflation you were losing money in real purchasing terms anyway already. However, from a psychological perspective, it's still rather stunning that on a purely nominal basis, the return is negative. As a basic indicator of just how scared companies are to invest money right now, it's pretty powerful.
Hide this

Thank you for reading this Techdirt post. With so many things competing for everyone’s attention these days, we really appreciate you giving us your time. We work hard every day to put quality content out there for our community.

Techdirt is one of the few remaining truly independent media outlets. We do not have a giant corporation behind us, and we rely heavily on our community to support us, in an age when advertisers are increasingly uninterested in sponsoring small, independent sites — especially a site like ours that is unwilling to pull punches in its reporting and analysis.

While other websites have resorted to paywalls, registration requirements, and increasingly annoying/intrusive advertising, we have always kept Techdirt open and available to anyone. But in order to continue doing so, we need your support. We offer a variety of ways for our readers to support us, from direct donations to special subscriptions and cool merchandise — and every little bit helps. Thank you.

–The Techdirt Team

Filed Under: financial crisis, negative returns, treasury bills


Reader Comments

Subscribe: RSS

View by: Time | Thread


  1. identicon
    Slow TV watcher, 10 Dec 2008 @ 4:05pm

    Trust the old hag..........

    ... and buy looooooooootttttttttts of gold.

    You can also invest in buying Obama plates and you can make aa handsome profit (did I tell you the dye will be destroyed in 60 days?)

Add Your Comment

Have a Techdirt Account? Sign in now. Want one? Register here



Subscribe to the Techdirt Daily newsletter




Comment Options:

  • Use markdown. Use plain text.
  • Make this the First Word or Last Word. No thanks. (get credits or sign in to see balance)    
  • Remember name/email/url (set a cookie)

Follow Techdirt
Advertisment

Report this ad  |  Hide Techdirt ads
Essential Reading
Techdirt Deals
Report this ad  |  Hide Techdirt ads
Techdirt Insider Discord

The latest chatter on the Techdirt Insider Discord channel...

Loading...
Recent Stories

This site, like most other sites on the web, uses cookies. For more information, see our privacy policy. Got it
Close

Email This

This feature is only available to registered users. Register or sign in to use it.