An interesting, although not necessarily disconcerting, phenomenon is taking place in the Treasury market. Some short-term Treasury bill rates have turned negative today after inching below zero yesterday, meaning investors are effectively paying the government to hold their money.
The last time this occurred was in late 2008 when people were worried about the impending doom of the financial system. Those fears have prompted some to wonder if another devastating event is on the horizon.
“Could there be something more pressing and/or catalytic? We have not heard peep from any of the big banks in a while,” Tyler Durden writes at Zero Hedge.
But the consensus seems to believe that negative short-term T-bill yields are merely “a technical phenomenon” and not reason to start panicking again, John Jansen writes at Across The Curve.
“There is a massive wall of liquidity, a pile of cash which needs a home,” he says, which is helping drive yields lower. “Typically as the year end approaches clients tend to unwind profitable trades and reduce balance sheets. I think that some of that deleveraging process has created new piles of cash and that money needs a place to park.”
There’s also more evidence to believe that this isn’t the beginning of another crisis. Our MarketBeat colleague Matt Phillips points out other panic gauges, such as three month Libor, aren’t spiking like they were in September 2008. Libor, an interbank lending rate, is actually at an all-time low. From Phillips:
Yields on corporate debt didn’t spike either. And the dollar, while seeming to have found a bit of stability lately, isn’t anywhere near getting the kind of flight-to-safety bid it saw last year.
So don’t get too concerned that investors continue to show a strong allegiance to some of the market’s safest investments. If anything, this can merely be interpreted as window dressing as 2009′s end approaches. From LA Times’ Tom Petruno:
In large part the latest decline in shorter-term yields just stems from moves by banks and other financial firms to bolster their balance sheets with highly liquid assets as 2009 ends, says Tom di Galoma, head of U.S. rates trading at Guggenheim Capital Markets in New York.
“They’re dressing up the books for year-end,” he said. The more liquid you can look to your regulators, the better.