Thirty Billion Dollars of T-Bills Sold Earlier This Week With a Yield of 0.00%

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In case you missed it, earlier this week the annualized yields on three-month Treasury bills dropped to 0% (and actually hit -0.01%) before rising to 0.01%.

The last time that short-term Treasury yields dropped below 0% was in the late 1930s, according to the book, "A History of Interest Rates" by Sidney Homer and Richard Sylia.

T-bills do not pay interest - rather, an investor buys them at a discount to their par value, which will give them a return on their money by the time that the T-bill matures. T-bills are considered to be the safest possible investments in the world when it comes to preserving investor capital.

Earlier this week, $30 billion dollars worth of T-bills were sold to investors around the world. The t-bills were sold at a yield of 0.00% - meaning, investors will receive NO return on their money after one month. Even more incredibly - this debt offer was apparently four times oversubscribed, meaning that there was an insatiable demand worldwide for these T-bills.

So what gives? Why the incredible demand for these T-bills? And why would any investor voluntarily invest in something that would guarantee them no return after three months?

The answer: preservation of capital.

What is perceived to be the safest investment in the world right now?

Short-term US government paper.

Banks, brokers and other financial institutions are snapping up this debt to bolster their balance sheets before the end of the year.

Institutions, high net-worth individuals, sovereign wealth funds, pension funds and even foreign governments are also buyers of US debt.

The question is: if you had billions upon billions of dollars to invest and your number one priority was protecting your investment, where else would you invest the money? Keep in mind that it would have to be a highly liquid investment as well.

Are you going to invest in real estate? No. The stock market? No. Commodities? No. Debt of other countries? Maybe, but no other country on the planet has the insatiable demand for buyers of their debt like the United States. Currency? Too volatile.

You start crossing all of these potential investments off your list, and you can start to see the reason why investors are plunging billions upon billions of dollars into short-term US debt.

Again - investors don't care right now about making money. They only care about preserving capital, which is why $30 billion dollars worth of T-bills sold this week at a 0.00% yield.
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Filed under: The Economic Meltdown |