Missing The Point
CNN reports on today’s bond sale:
NEW YORK (CNNMoney) — The stomach-churning stock market roller coaster is ramping up demand for Treasuries, even after Standard & Poor’s downgraded the United States on Friday.
Combine stock market volatility with the Federal Reserve’s gloomy comments about the economy, and it’s no surprise then that hunger for low-risk assets remains high.
As a result, the 10-year yield fell to 2.09% Wednesday afternoon, trading near its record low close of 2.06% last seen in December 2008.
A $24 billion auction of 10-year notes also drew solid demand, even at a 2.14% yield — the lowest 10-year yield at auction, ever on record.
So, after an S&P downgrade the US is selling bonds at a lower interest rate that ever before. Does this mean if the US is downgraded again people will pay the Treasury to take their money for 10 years? If you think that’s an absurd question, you are probably unaware that the interest rate on shorter term T-bills has been negative for some time, i.e. people are already paying Treasury to take their money for shorter periods.
This isn’t as insane as it seems when you consider that the most common place people have kept large sums of money was real estate, and that’s in the tank. Bank deposits are only guaranteed up $250K, so the safest place to put large quantities of cash is in T-bills.
