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Dire Straits wisely observed back in 1985 that it’s nice — but possibly derisible — to have people give you money for nothing.
Nevertheless, it happens to be the way to do it if you’re the US Treasury (H/T Clusterstock).
As Market Watch reported on Tuesday:
NEW YORK (MarketWatch) — The Treasury Department sold $10 billion in 1-month bills /quotes/comstock/31*!ust1mo (UST1MO 0.01, -0.01, -47.37%) on Tuesday at a rate of 0%, the fourth time since December that the government has sold the short-term securities for no yield at all. Bidders offered to buy 5.55 times the amount of debt being sold. Later in the session, the government will auction $44 billion in 2-year notes.
So is this something we should worrying about?
Well, it all depends on a) where that free money is coming from? and b) how common the zero-auction-effect is getting.
And while it may only be the fourth time since December that the Treasury has sold four-week paper at the zero rate, it’s actually the fifth time if you count its 36-day auction on December 30, which also fetched a worrisome zero rate.
Furthermore, if you peruse the historical archive at Treasury Direct, you’ll find the last time we had a spate of zero auctions was as far back as December 2008 — not only was this pre-liquidity bubble, it was when capitalism was still on the brink of collapse.
In fact, the issue dates of the zero paper (all four-week) were:
If you chart the highest rates achieved in bill auctions post-crisis — up to and including 52-week paper –you get the following state of affairs:
And if you take into account the lowest bids achieved, you get an even more disconcerting:
So, not only are highest auction-rates coming into the zero-bound ever more frequently, the lowest rates achieved– i.e. the rates some think are still competitive bids for US Treasury bills — have been coming into the zero-bound almost consecutively since August, 2009.
When you chart the highest-rate measure on a longer time frame that looks like this:
Now, if you consider the zero rate is only acceptable to investors fearing deflation…
… what does that tell us?
Related links: Treasury Mystère – FT Alphaville Direct bids for US Treasury notes lead to speculation over buyer "“ FT Who buys Treasury securities at auction "“ Federal Reserve Smoke, mirrors and Treasury sales "“ FT Alphaville
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