U.S. treasury bills have experienced a tremendous rally today, especially the short-term treasury bills. Today alone the yield has fallen as much as 137 basis points on the 3 month bill.
The auction of short-term treasury bills today was a notable one, as the short-term rates dropped to their lowest level in more than two years. The Treasury Department auctioned off $21 billion in 3 month bills at a discount rate of just 2.850 percent, when just last week they auctioned off 3 month bills at 4.630 percent. The department also auctioned off $17 billion in 6 month bills at 3.950 
percent, down from 4.710 percent last week. These discount rates mean that the treasury bills are selling for less than face value. For a $10,000 bill, the 3 month price stands at $9,927.17, while the 6 month stands at $9,800.31.
The yields have fallen more today than any other day since the 1987 market crash. Many are looking to get out of money market funds and into the safest government backed security of all, treasuries. The shortest terms of the treasury bills have experienced the largest drops in yield as investors flock toward treasuries in an apparent flight to quality.
It is quite astounding that the short-term treasury markets are experiencing larger drops in yield today than right after September 11th. Investors and money market funds are losing faith in commercial paper, and swapping right into treasuries. Many believe that low treasury bill yields indicate the money needed in the credit markets are not getting to their intended destination, at least not yet. The fear is that the government is now the one who is benefiting from lower costs of borrowing, when the private sector is the sector who really needs the help.
The bond markets are going to play a very important role while this credit crisis is playing itself out. The prices on treasury bills might tell us just how much the liquidity is or isn't getting through the system to help out those companies in the most need.
» Finally a quiet day on Wall Street from GrowYourFunds
The quiet days on wall street lately have been few and far between so today seemed like a snoozer of sorts. Sure there was some volatility, but the Dow only had a 100 point range today, which is nothing compared... [Read More]
Tracked on: August 20, 2007 2:37 PM | Permalink to Trackback