Year-end demand pushes U.S. Treasury bill rates lower

Tue Dec 11, 2012 12:58pm EST

* One-month T-bills sold at lowest interest rate since June

* One-year bills auctioned at lowest rate since February

* Possible end of a bank insurance program feeds T-bill bids

By Richard Leong

NEW YORK, Dec 11 (Reuters) - Interest rates on new U.S. Treasury bills fell on Tuesday on keen demand for the low-risk securities in a typical year-end move among fund managers.

Money market mutual funds were among the investors vying for T-bills in recent weeks. Money funds have seen a jump in assets, partly on corporate treasurers and cash managers shifting money away from bank accounts whose unlimited government guarantee might not be renewed by year-end, analysts said.

"There was a pretty good bid from the buyside. That's pretty typical at year-end," said Thomas Simons, money market economist at Jefferies & Co in New York.

The U.S. Treasury Department sold $40 billion in four-week or one-month bills at an interest rate of 0.05 percent, matching the lowest level set on June 19.

Just two weeks earlier, the Treasury auctioned one-month bills at an interest rate of 0.175 percent, matching the highest level in two years.

A year ago, it sold one-month T-bills at zero percent interest.

The ratio of total bids to the amount offered on the bill issue due Jan. 10, 2013 was 4.64, the highest in five weeks.

At the same time, the Treasury sold $25 billion in one-year bills at an interest rate of 0.160 percent, the lowest since February.

The bid-to-cover ratio on one-year bills was stronger-than-average at 4.96, but it was below the 5.08 at the auction held a month earlier.

POSSIBLE END TO A BANK PROGRAM

Some large investors have been socking more cash into money market funds and Treasury bills in anticipation that a federal guarantee program on large business checking accounts will not be renewed by year-end.

On Dec. 31, the Federal Deposit Insurance Corp is set to terminate its "Transaction Account Guarantee," or TAG. It insures bank deposits of more than $250,000, the amount the FDIC normally covers, in checking accounts that do not pay interest.

TAG was created in September 2008 during the height of the global financial crisis. It was intended to help stabilize the banking system as the collapse of Lehman Brothers roiled financial markets. TAG was meant to reassure depositors that their money was safe and to ensure that businesses and local governments had access to cash.

Under TAG, money kept in large business accounts grew to $1.49 trillion at the end of the third quarter, according to the most recent FDIC data.

The Senate is scheduled to vote later Tuesday on extending TAG, but it is unclear whether it will pass. Even if it clears the Senate, an extension is expected to face a tough fight in the House of Representatives, analysts say.

A couple walks along the rough surf during sunset at Oahu's North Shore, December 26, 2013. REUTERS/Kevin Lamarque

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