More on Negative T Bills

November 19th, 2009 6:47 pm | by John Jansen |

In my closing post I noted that T bill rates arein negative territory and gave some reasons for that. Here is an excerpt from David Ader of CRT on that same topic;

“We instead take our cue from activity in the financing markets, where year end is playing its hand – Jan bills are trading negative.  The story here is not a new one as we saw bills negative at the end of the last quarter,  but exacerbated by a more intense year end.  We say that because 1) it’s clearly the talking point on funding desks, 2) EVERYONE has a Dec 31 year end as we have no investment banks any longer, and 3)  as bank holding companies there’s a likelihood that former IBs, too, need to show cash in something other than a mattress.”

Another analyst whom I read suggested that an exacerbating factor was the maturity of some cash management bills which were not replaced.

Whatever the case, I am certain that the present circumstance is not an indicator of financial stress as plunging bill rates have been in the past.

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  1. 21 Responses to “More on Negative T Bills”

  2. By Barney on Nov 19, 2009 | Reply

    John – I just read jml’s question to your 3:10 pm post about how retail investors can make the trade you recommended. Why not just buy TLT? You get the dividend yield (currently 3-4%) plus another approx 10% gain if the ten yr falls to 2.6% (ie TLT goes from $95 to 105.)

  3. By trader on Nov 19, 2009 | Reply

    The moron author over at Zero Hedge posts outright fabrications and everyone over there believes what he writes.

    In some respects, that is the worst blog in the world. He literally has no clue what he’s talking about there with negative tbill rates. Does he not care that he’s misleading people?

  4. By Ad Orientem on Nov 19, 2009 | Reply

    Why would anyone PAY the Treasury to lend them money… knowing they are going to be paid back with freshly printed (and therefore inflated) dollars? Is there really no other investment out there that would provide relative safety and at least a MODEST return?

    (quietly bangs head on wall in utter amazement)

  5. By BL on Nov 19, 2009 | Reply

    I bought TLT a couple bucks ago. I expect portfolio rebalancing in the big funds toward year end and subdued economic numbers with low inflation in the U.S.

    How the global economy feeds back into the U.S. is unclear. Ken Fischer was on Bloomberg today touting Asia the new economic engine. I’m not convinced; they have a culture of savings, and generally no place to put stuff they might buy even if they want too. The paradox of thrift may rule the next decade.


  6. By GYSC on Nov 19, 2009 | Reply

    common sense says that paying to keep your money is retarded, is that not the big argument against gold?? I am sure there are crazy plays with money where this works out, but that just proves that all this trading (bonds, stocks) is a waste of potential.

    We need creative, productive use of capital, not spread trades of .000000006 bps on 5 billion in money.

  7. By Ad Orientem on Nov 19, 2009 | Reply

    I am not a big gold bug. That said I own some and would buy more before I would buy bonds at a negative yield. Gold may be one of the most functionally useless pieces of metal in the world. It has almost practical uses beyond bling and dental work. It grants ownership over nothing. And it has no yield or interest.

    But it has one thing going for it.

    For some unknown reason, for as far back as we have written records people have called gold “money.” And this is a form of “money” that can not be mass produced with a printing press. That makes it a better buy right now than most bonds in my book.

  8. By nyinvestingmeetup on Nov 19, 2009 | Reply

    Sorry to confuse you with some important facts, but gold has a lot of uses. Many electronic devices have gold in them (your cell phone particularly). Gold is also used in fuel cells, nanotechnology and biotechnology applications, and pollution control devices. 13% of annual demand for gold is industrial and that percentage is growing.

  9. By Joe Schmoe on Nov 20, 2009 | Reply

    I’m having a problem embracing the concept that negative bill rates is “technical” and does not indicate any sort of difficulty. Mr. Jansen’s theory would appear to be that the buyers of bills have enormous cash hordes on hand and that money has to find a home.

    Well, my rebuttal is that choosing a home that requires the buyer to “pay rent” for that home cannot equate to an optimal return profile. There are many homes that could be chosen if the searcher is not risk averse. There are corporate bonds. There are equities. There is precious metal. There is even further out on the curve.

    No. You’re wrong on this. You have to be. A rational, non panic induced choice to drive bill rates negative is absolutely no less ominous than the same choice made in a panic.

  10. By Bman on Nov 20, 2009 | Reply

    remember – they did NOT extend the money market guarantee program. Many ARE willing to pay for safety at the moment. When short rates are + or – 20 bps around zero, it’s not really about ROI as much as return of investment.

  11. By Cedric on Nov 20, 2009 | Reply

    Gold is pretty, and has been getting prettier this whole decade. Unfortunately, Volker cured me of a young bout with goldbuggedness, and I did not participate this go around. That said, we have no Volkers anymore, so goldbugs appear to be very safe nowadays.

    But I do agree that negative Tbill rates are not a sign of financial stress, at least of the credit crunch variety we saw in 08 and early 09. That was due to banks fearing banks, and everything else, which led to a widespread deleveraging in the real economy.

    I think what we have now is a general realization that asset valuations are pricey, thanks to global ZIRP and lack of demand for cash and lending to the real economy.

    And a lot of asset managers are sitting on nice gains and looking at the end of year looming, and mulling over the prospect of a sure big bonus this year, or a wispy chance at one next year.

    This makes me believe in a year end correction in most asset markets, and the associated dollar mini rally(also fueled by foreign central bank support and foreign financial flow controls).

    So I’ve taken profits in my foreign bonds and am letting cash sit in my broker account, because zero is better than a negative number.

    Still have TBT, but I too think the time frame for rising rates has been pushed out much longer than I thought when I bought it in April, thinking that it was the last buy and hold opportunity out there. However, I don’t think we get the 2.6% Armegeddon rate on the 10s like we did last winter.

  12. By Jay Michaels on Nov 20, 2009 | Reply

    I would completely agree with you. Yes there is window dressing, and no IB’s to park your garbage over year end. But I believe the Fed is “clearly” playing a dangerous game here with their “People Magazine” monetary policy. Everyone say outloud, “there is sooooo much cash in the system, the market is scared to extend maturities or invest outside of guaranteed government paper, that it has forced institutional investors to purposefully choose to lose money for their share holders.”

    Any way you slice it, negative t-bills are a bad sign, and explaining them away as ok is irresponsible.

  13. By Cedric on Nov 20, 2009 | Reply


    Agreed, this is very frustrating, and I can only characterize it as Orwellian treatment of savers and investors. They are clearly abusing the power of fiat currency, and are, so far, getting away with it. Will baseball cards become the next “store of value”? You at least get a stick of bubble gum with new issues!

  14. By John Chauvin on Nov 20, 2009 | Reply

    Based on your response I find it hard to believe you are a trader of anything. He has facts, data and he works things out and explains his process. ust because he uses “leaked” facts which certain people REFUSE to believe does not mean he is wrong.

  15. By Phaesed on Nov 20, 2009 | Reply

    Negative interest rates create a roadblock in the flow of capital and also take all calculations performed by billions of computers out of the real set. It’s like writing a number 2 in binary code…. it can’t be done and all computers get a big fat “ERROR” when spitting out the answer to life, universe, and everything and it’s not 42.

    In all instances going back into history, negative interest rates precede deflationary waves and is never “technical”. The incredibly intelligent individual who runs this blog should know that considering his expertise and his prior work environment.

    Somewhere, someone, went bankrupt.

    Thanks for the update on the Ukranain situation. I really wish more economists were actual mathematicians or vice versa.

  16. By KJ on Nov 20, 2009 | Reply

    If we’re ‘window dressing’ to be more liquid in the eyes of regulators/shareholders, why the preference for bills over actual (zero yielding) cash?

  17. By professor pinch on Nov 20, 2009 | Reply

    KJ, that’s a good question. Cash isn’t showing stress right now because (I think) 1) cash lending and borrowing is usually about meeting reserve requirements for very short periods 2) I still think there’s very little interbank lending going on.

    I’d like to get my hands on volume data for the interbank market because # of transactions and dollar volume of transactions would also do a lot to show overall market health.

  18. By JK on Dec 11, 2009 | Reply

    This is a question from a novice but a sincere one.

    As I have less than seven figures invested, it is pretty easy for me to have cash accounts that are insured by the government if I was spooked by the market (which I am a bit).

    If instead I had 8 or 9 figures invested, and I was spooked by the market, T bills would make sense as an insured vehicle to keep my money mattress safe even if the return was near zero.

    Isn’t that one way institutional investors “might” use T Bills when, for a smaller amount of invested funds, it would be equal to just have insured accounts with cash in them?


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