Treasury Bill Yields Turn Negative as Fed Leaves Rates Unchanged

Most Important Two Minutes of the Fed News Conference
  • Yields fall as investors have `thrown in the towel' after Fed
  • Demand surges as Treasury pays down maturing $35 billion bill

Yields on U.S. Treasury bills fell below zero as an influx of cash and pent-up appetite for safe assets led investors to accept negative returns after the Federal Reserve decided not to raise its short-term interest rate.

Demand surged across the spectrum of maturities for the shortest-term debt as the Treasury paid down a $35 billion cash management bill Thursday, leaving investors with money needing a home heading into the end of the third quarter. The rate on the security maturing on Dec. 10 fell as low as minus 3 basis points, or negative 0.03 percent.

Investors will have additional funds totaling about $100 billion returned to them in the next month as the government cuts bill supply heading into negotiations with Congress about the statutory debt limit, said Kenneth Silliman, head of U.S. short-term rates trading in New York at TD Securities unit, one of 22 primary dealers that trade with the Fed.

“We know there’s been a backlog of client money waiting to go into the market, waiting for the Fed to get out of the way,” Silliman said. “Anybody who had been short or holding off from buying bills at these levels, hoping that a Fed hike would boost yields, has thrown in the towel and come to the realization that it’s going to be very expensive and very illiquid to try and get these positions back.”

A negative yield means investors buying the bills will get back less at maturity than they paid at purchase.

Treasury two-year note yields fell the most since March 2009, when the Fed announced its quantitative-easing program.

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