Sunday, May 23, 2010

US Treasuries 'Safe Haven'? Not the Short-Term Bills

With the stock markets around the world diving last week, you would think the investors had gone to grab liquid Treasury bills, right?


Looking at the last week's auction result, Treasury bills were out of favor, even if the rates were higher. 4-week bill result was lackluster to say the least: bid to cover ratio was only 3.72 (4-week bill's bid to cover is usually well over 4), and the Treasury had to give a higher rate on 4-week bill than on 56-day CMB (Cash Management Bill).

Short-term Treasury bills have been under pressure for some time. Higher rates, lower bid to call ratio, and the increasing percentage of direct bidders.

Borrowing short-term fund and spend (invest) in longer-term projects - oh wait, wasn't that what destroyed Bear Stearns and Lehman Brothers when the short-term fund dried up?


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