Zero Yield Economy

Safety premium: imagine investments where the maximum gain is nothing – and the demand for these is enormous.

The Zero Yield Economy

Excerpt:

We mentioned this yesterday as it happened, but Treasuries traded down to previously unseen yields. The 3 month T-bill went negative yield for the first time ever.

At auction, Treasury sold $27 billion of three-month bills at a discount rate of 0.005%…

Just as astounding, the U.S. sold $30 billion of four-week T-bills, at zero percent for the first time ever (4 week treasuries have been around only since 2001)…

A quick para [from Investors Buy U.S. Debt at Zero Yield, NY Times]:

"When was the last time you invested in something that you knew wouldn’t make money?

In the market equivalent of shoveling cash under the mattress, hordes of buyers were so eager on Tuesday to park money in the world’s safest investment, United States government debt, that they agreed to accept a zero percent rate of return.

The news sent a sobering signal: in these troubled economic times, when people have lost vast amounts on stocks, bonds and real estate, making an investment that offers security but no gain is tantamount to coming out ahead. This extremely cautious approach reflects concerns that a global recession could deepen next year, and continue to jeopardize all types of investments…

While this will lower the cost of borrowing for the United States government, economists worry that a widespread hunkering-down could have broader implications that could slow an economic recovery...

In addition, for a brief moment, investors were willing to take a small loss for holding another ultra-safe security, the already-issued three-month Treasury bill."