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NEW YORK (MarketWatch) -- Treasurys headed higher Tuesday, helped by a strong bill auction that showed investors purely wanted assurance that they would get their principal back.
The market reached the highs of the day after the Treasury Department sold $32 billion in four-week bills at a yield of 0%.
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<http://blogs.wsj.com/marketbeat/2008/12/09/three-month-bill-yield-goes-negative/
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December 9, 2008, 2:16 pm Three-Month Bill Yield Goes Negative Posted by David Gaffen
In bond markets, there are two numbers to worry about: price, and yield. Now, there is no yield to speak of. At some point during the afternoon, the yield on the three-month Treasury bill dipped below 0%, according to traders, as investor desire to hold short-term liquid debt trumps all else.
Year-end needs for liquidity probably play a part in this, according to one fund manager, but it’s still insane. “It’s the modern version of stuffing it into your mattress,” says Thomas di Galoma, head of trading at Jefferies & Co. “You just can’t make it up.”
A negative bill yield means investors are willing to pay to get the securities and forego the interest they’d normally receive. It comes one day after a three-month bill auction that yielded 0.005%, the lowest auctioned yield since 1941, and at a time when investors, in part because of year-end worries, are “trying to hide their money for year-end in the safest instrument known to mankind, and that’s Treasury bills,” Mr. di Galoma says.
Most of the Treasury bill curve is sporting a yield of zero, or just about. The one-month bill was lately yielding 0.025%; the six-month bill was at 0.25%, and the one-year bill sported a yield of 0.4%.
— With reporting by Min Zeng