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Here, I'll pay you to borrow my money:

Some Treasury bills maturing at the start of next year traded at negative rates Thursday, a sign of investors' strong demand for the safest securities at a time when T-bills are in scarce supply.

When market participants buy Treasury bills at negative rates, they are essentially paying the government to keep their money safe.

Rates on issues maturing in early January and February turned negative Thursday, to as low as -0.03%, traders said. Some issues maturing in the first two weeks of December also slipped, trading at flat to a bit negative Thursday.

Bill yields last fell below zero in late 2008 amid the financial market panic that was triggered by the bankruptcy of Lehman Brothers Holdings Inc. (LEHMQ). The decline this time, though, isn't driven by the same sorts of fears--it's more about a scarce supply of T-bills amid strong demand for safe assets, given the hazy economic outlook.

The amount of T-bills in the market has shrunk with the government letting the bills in its Supplementary Financing Program--which financed the ballooning deficit though the issuance of bills--mature rather than sell new bills to roll over the debt. At the same time, money-market investors face fewer options to park their cash.

Rates on bills three months and out, though, were still trading positive Thursday (Barely! - Eddy). Strategists, however, said they wouldn't be surprised to see those rates turn negative as well.

George Goncalves, managing director and head of fixed-income rates strategy at Cantor Fitzgerald in New York, said this year the rate on the three-month T-bill could fall as low as -0.05%.

Posted by edelfenbein at November 20, 2009 10:18 AM