Inflation? Deflation related Blogs

Form Bloomberg: Treasury Bills Trade at Negative Rates as Haven Demand Surges

Treasuries rose, pushing rates on the three-month bill negative for the first time ... 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. The rate on four-week bills peaked at 5.175 percent on Jan. 29, 2007. The flight to treasuries is across all durations: the Ten year is now yielding 2.67% and the thirty year treasury just over 3.0%.

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Treasuries rose, pushing rates on the three-month bill negative for the first time, as investors gravitate toward the safety of U.S. government debt amid the worst financial crisis since the Great Depression.

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.

The benchmark 10-year note’s yield dropped seven basis points, or 0.07 percentage point, to 2.67 percent. The 3.75 percent security due in November 2018 gained 21/32, or $6.56 per $1,000 face amount, to 109 12/32. The yield touched 2.505 percent on Dec. 5, the lowest level since at least 1962, when the Fed’s daily records began.

The two-year note’s yield fell nine basis points to 0.85 percent. It dropped to a record low of 0.77 percent on Dec. 5.

If you invested $1,000 in three-month bills today at a 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.


A nice explaination of why Rates of zero percent is not the same as inflation even with surge of monetary base. Little money is going to the M1 as banks save them as reserves rather than lend.