Hot demand for T-bills encourages U.S. borrowing wave
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The hottest investment on Wall Street at this moment is the humble U.S. Treasury bill.
Good thing the government has so many to sell.
With the Federal Reserve already having committed much of its balance-sheet resources to help bolster the financial system via loans to banks, brokerages and American International Group, theTreasury launched a new program to replenish the Fed’s reserves.
The Treasury today sold investors $40 billion in 35-day bills and deposited the proceeds with the Fed. And there’s much more on the way for the central bank: On Thursday the government plans to sell $30 billion in 20-day T-bills and another $30 billion in 76-day T-bills under the new program.
This borrowing is apart from the Treasury’s normal debt sales to fund the federal budget deficit and keep the government operating.
Today, demand for short-term Treasury securities was off the charts as banks and other big financial-market players hoarded cash, too afraid to lend to one another for fear that the credit crisis will worsen.
The annualized yield on the three-month T-bill plummeted to 0.06% -- that’s not a typo -- from 0.7% on Tuesday and 1.69% two weeks ago. The 35-day T-bills the government sold today paid an annualized 0.3%.
So the Treasury is giving spooked investors exactly what they want: very-short-term debt, good as cash, that has an iron-clad guarantee of principal repayment. And Uncle Sam (which means all of us, as taxpayers) isn’t paying much for the privilege.
Presumably, some of those ravenous T-bill investors are foreigners who still see U.S. government securities as a haven at times like this.
But New York Mayor Michael Bloomberg today raised the issue that nobody really wants to contemplate.
From an Associated Press report on a talk Bloomberg gave at Georgetown University:
Bloomberg warned that a ‘next wave’ of financial pain may come from overseas if foreign entities stop buying U.S. debt. ‘It’s not clear who’s going to be buying our debt’ longer term, he said. ‘The systemic problem is we’ve all gotten into a situation where we want it now, there’s no pain. ... We keep saying we want to have it, we don’t want to pay for it. You can’t go on forever not addressing the key issues in this country’ such as health care and immigration, he said.