US state borrowing for nothing
THE interest rate on US Treasury bills has dropped below zero in a scenario last seen in 1938, leaving investors in the bizarre position of paying the government for the privilege of lending it money.
The collapse in short-term borrowing costs comes as stocks continue to shoot up, a deeply unusual combination last seen during the Great Depression. Three-month bills traded at a rate of 0.005 per cent yesterday, down from 0.11 per cent at the end of September. But traders told City PM that the rate had actually dropped fractionally below zero on some bills due in January.
“Investors are looking for a safe place to put their money,” said Anthony Harmer, a trader at Winterflood.
With ultra-loose policies flooding markets with liquidity, investors have been keen to put their money in the relatively safe option of Treasury bills. But while Treasury prices typically move in the opposite direction of stocks, extra liquidity has meant money pouring into stocks too.
Meanwhile, the dollar dropped after US Federal Reserve official James Bullard said the bank should continue buying mortgage-backed securities after the former March deadline for the programme ending.
With the dollar weak, commodity stocks were heavily in demand and the price of gold soared $22 an ounce to a new record of $1,170. And shares of mining companies surged on the FTSE 100, which closed up two per cent at 5,355.50. MARKETS: P20