US Short term interest rates turned negative Thursday as banks stockpiled government securities in order to polish their balance sheets for the end of the year. The growing appetite for short-term government debt reflects an effort by banks to present pristine year-end balance sheets to regulators and investors, a practice known as “window dressing” on Wall Street. With the US Federal Reserve maintaining an overnight target rate of zero to 0.25%, investors are demonstrating a willingness to completely forgo interest income, or even to take a small loss, to own securities that are seen as safe. This action has been exacerbated by the fact that all leading US banks, many sitting on big trading profits, will this year close their books at the same time, at the end of December. In past years, investment banks such as Goldman Sachs and Morgan Stanley reported annual results in November. Late Thursday, US T-bills maturing in January traded below zero %, traders said. Three month T-bills traded at 1 bp and six-month T-bills fell to a record low of 13 bp, compared with 14bp at the height of the crisis last year.
Investors looking for some return bought two-year T-notes, driving their yield down to 0.68 % a low for the year.
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November 21st, 2009 at 10:26 pm
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