Treasuries hit the floor

Demand for government debt is so great that the US Treasury sold $30bn of four-week bills at a 0% interest rate for the first time ever in its latest auction; it could have sold four times as much at the same rate.

It was the 'cut out and keep' edition of the US Treasury's regular bond auctions, says FT Alphaville. Demand for government debt is so great that the Treasury sold $30bn of four-week bills at a 0% interest rate for the first time ever in its latest auction; it could have sold four times as much at the same rate. Three-month bill rates turned negative in the secondary market for the first time since America began selling the debt in 1929. Yields on two-, ten- and 30-year bonds reached record lows.

Yields that low look like madness. David Rosenberg of Merrill Lynch, a bond bull for many years, has been writing for some weeks that Treasuries are "clearly heading into a bubble phase". Other commentators are now coming round to his view. "Treasuries have some bubble characteristics, certainly the Treasury bill does," says Bill Gross of Pimco, which runs the world's largest bond fund. "A Treasury bill at 0% is overvalued. Who could argue with that in terms of the return relative to the risk? There is no return." GaveKal, the consultancy part-owned by Anatole Kaletsky of The Times, was even blunter: "Getting out of government bonds today is not only necessary, but could be urgent."

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