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:
- 4-week paper on December 11, 2008
- 4-week paper on December 18, 2008
- 4-week paper on December 26, 2008
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