Should Janet Yellen’s Treasury Take Free Money?
The U.S. has avoided selling T-bills at negative rates. It might be tougher to say no this time around.
Free money?
Photographer: Paul Yeung/Bloomberg
Treasury Secretary Janet Yellen is facing a conundrum that, at first glance, might hardly seem like one at all. Investors may soon be willing to pay more than 100 cents on every dollar for U.S. Treasury bills. But current rules won’t allow it.
The main reason for these restrictions is that if the Treasury accepted such a high price, it would effectively be issuing — and perhaps tacitly endorsing — negative-yielding debt. T-bills don’t pay interest but rather are sold at a discount to their face value, which provides a modest yield for investors. That discount has disappeared slowly in auctions this year: Four-week bills were sold at 99.993778 cents on the dollar on Jan. 7, then 99.994167 cents a week later on Jan. 14, then 99.994556 cents, then 99.995722 cents, and finally 99.997667 cents in the past two weeks. The respective yields on those sales: 0.08%, 0.075%, 0.07%, 0.05% and 0.03% (twice).