U.S. 3-Month Bill Auction Sets Record Low Zero Percent Yield

  • Demand for the short-term debt was the highest since June
  • Investors face scarcity as government faces borrowing limit

The Treasury’s offering of $21 billion of three-month bills sold at a zero percent yield for the first time, with bidding rising to the highest level since June.

Investors were willing to accept no return on the securities amid a scarcity of safe short-term debt before the U.S. government’s deadline for extending its statutory debt limit. Demand as measured by the bid-to-cover ratio, which gauges demand by comparing the amount bid with the amount offered, was 4.14 times, the highest since the June 22 offering of the securities.

The limit on how much the U.S. can borrow has cut into the supply of the shortest-term Treasuries, while demand is expected to balloon as regulations governing money-market funds are expected to push additional demand into the shortest-term Treasuries. Rules affecting money-market funds, which will lead prices of those portfolios to fluctuate if they are invested outside of government debt, are expected to boost demand, magnifying supply shortages.

“It’s a whole lot of non-economically-driven demand,” Thomas Simons, a government-debt economist in New York at Jefferies Group LLC, one of the 22 primary dealers that are obligated to bid U.S. debt sales. “It doesn’t seem that we’re going to get resolution on the debt ceiling any time soon. If you need to be invested now, you’ve got to do something. That’s the name of the game in three-month bills.”

The Treasury’s $1.42 trillion of bills outstanding is down 31 percent from the $2.07 trillion peak reached in August 2009, as the economy began climbing out of the worst recession since the Great Depression.

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