US treasury bills fall as short-term note yields remain low

New York: Treasury bill prices mostly fell on Friday, pushing their yields slightly higher, while yields on short-term bills hovered near their lows of the year.

The yield on the three-month T-bill, considered among the safest investments, was 0.015 per cent in afternoon trading on Friday. It fell as low as 0.005 per cent late on Thursday, its lowest level since last December, at the height of the financial crisis and as investors piled money into safe-haven investments.

Howard Simons, strategist with Bianco Research in Chicago, said traders are pressuring the short end of the yield curve because other investing options are not that attractive.

Investors essentially have two other options when looking for better return — longer-term bonds or stocks, he said. Yields on six- and 12-month bills are both below 0.3 per cent, Simons noted, offering little improvement over the returns on 1-month and 3-month bills.

Buying up notes with maturities of a few years or more adds a lot of interest-rate risk, he said. Interest rates are currently at historical lows of near zero percent, so as the economy improves, it is widely expected rates will rise to combat inflation. That could sharply curtail the value of longer-term bond holdings such as Treasurys.

The other option of buying stocks is also not attractive right now for investors who are risk-averse, Simons noted.

Cautious investors

For more cautious investors it makes more sense to just hold on to short-term bonds for a few months and see if other investments become more attractive, Simons said. While short-term bonds won't produce profit, they also won't lose anything either, as they could with longer-term bonds or stocks, he added.

Treasury prices also dipped as investors prepare for a new round of debt auctions next week. Treasury prices often decline ahead of auctions as traders try to boost the yield on newly auctioned government debt.

Reintroduction

The government is auctioning $30 billion (Dh110 billion) in three-month and $31 billion in six-month T-bills tomorrow along with $44 billion in two-year notes. It is selling $42 billion in five-year notes on Tuesday and $32 billion in seven-year notes on Wednesday. Seven-year notes were reintroduced this year as the government finances its massive economic stimulus programs.

In other trading, the yield on the 10-year note, which is often used as a benchmark for consumer loans, rose to 3.37 per cent from 3.34 per cent late on Thursday. Its price fell 7/32 to 100 2/32.

The price of the 30-year bond fell 14/32 to 101 5/32, pushing its yield up to 4.31 per cent from 4.28 per cent. The two-year note fell 1/32 to 100 16/32. Its yield rose to 0.73 per cent from 0.71 per cent.

The cost of borrowing between banks dipped. The British Bankers' Association said the rate on three-month loans in dollars — the Libor — fell to 0.2622 per cent from 0.2666 per cent.