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Fallout: The Financial Crisis

Big investors rush to 0% T-bills

Alisa Roth Dec 10, 2008
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Fallout: The Financial Crisis

Big investors rush to 0% T-bills

Alisa Roth Dec 10, 2008
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TEXT OF STORY

KAI RYSSDAL: Speaking of financing bailouts, that item we mentioned yesterday about interest rates on Treasury bills dropping to zero or below is playing out some more today — why it happened and why it might not be such a good thing if it keeps on happening.

From New York, Marketplace’s Alisa Roth explains.


ALISA ROTH: Treasury bills are essentially a short-term loan to the U.S. government. Investors usually buy them at a discount — say 97 cents on the dollar — and then make a small profit when the government pays them back at full price. Even in the best of times, they’re not big money makers for investors. But they are considered very, very safe.

This week, the bills were essentially getting no yield at all. And in some cases, investors were even paying more than face value for the bills.

LOU CRANDALL: That’s more or less the equivalent of paying rent on a safe-deposit box to put your cash in.

Lou Crandall is chief economist at research firm Wrightson ICAP.

This week’s rush on Treasury bills came mostly from money market funds. They’re supposed to invest in extremely safe things like commercial paper, which is issued by companies, or short-term municipal bonds, which are issued by cities. But these days, even those kinds of investments can feel a little risky.

David Kovacs is chief investment officer at Turner Investment Partners.

David Kovacs: The anxiety has caused investors to come out of these types of money market funds and into the only entity that appears to guarantee its obligations and that’s the U.S. government.

Stashing money in Treasury bills might make investors feel better. But it’s not necessarily good, since all the money the Fed’s putting into the system is ending up back in Treasuries, instead of in the broader economy.

In New York, I’m Alisa Roth for Marketplace.

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