Friday, December 12, 2008

Treasury Bills Trade at Negative Rates

In another sign of the craziness of the markets, earlier this week US Treasury Bills traded at negative interest rates for a short time. Essentially this means you had to pay for the courtesy of someone else holding onto your money.

The Treasury sold $27 billion of three-month bills yesterday at a discount rate of 0.005 percent, the lowest since it starting auctioning the securities in 1929. The U.S. also sold $30 billion of four-week bills today at zero percent for the first time since it began selling the debt in 2001.

If you invested $1 million in three-month bills at today’s negative discount rate of 0.01 percent, for a price of 100.002556, at maturity you would receive the par value for a loss of $25.56.

No comments: