Wednesday, December 10, 2008

Please give my money back

Treasury bills of up to three month maturities are being sold by the U.S. at zero interest. This is unusual. In the last few days almost $60 billion of this short term paper has been sold and market talk is that demand was four times that amount. For a short while some 4 week paper was being sold at negative interest, meaning investors were paying to have a place to put money over year end.

There are many explanations. Apart from the fact that there is no mattress big enough for the money seeking safety, the most credible reasons here are:
---Any fund or institution that is expecting further redemptions or financial obligations as year end approaches simply wants the money available in the safest most liquid instrument in order to avoid any last minute year end liquidity crisis.
---Despite the U.S. recession and attendant challenges, the safe haven status has returned. Foreign investors see the dollar as the safest store of value once again, and zero return is in fact better than zero if they anticipate that their home currency will decline against the dollar as year end approaches.
---Everyone just wants this year to be over. Losses have been taken, performance has been poor, and there is absolutely no appetite for any further risk. If capital levels and liquidity are just adequate, commercial corporations and financial institutions alike want to get through the crucial year end marks as is, and they'll even pay to just get past Boardwalk and start over again in the new year.


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