U.S. Treasury bill rates turn negative in year-end scramble

NEW YORK Mon Dec 17, 2012 11:25am EST

NEW YORK Dec 17 (Reuters) - Interest rates on some U.S. one-month Treasury bills turned negative on Monday on demand fed by expectations that a federal insurance program covering large bank accounts will not be renewed by the end of the year.

Bets the Transaction Account Guarantee (TAG) program will not exist after two weeks have intensified, driving bids for other perceived safe vehicles to park cash including Treasury and agency bills and money market mutual funds.

Last Thursday, Senate failed to overcome a procedural challenge raised by Republicans against a bill to extend TAG for two years.

The TAG program, set to expire on Dec. 31, was created during the global credit crisis to provide unlimited guarantees for non-interest bearing checking accounts. Prior to TAG, the Federal Deposit Insurance Corp covered individual accounts up to $250,000.

"You are seeing the rejection of the TAG bill resulting in flows coming into Treasuries," said Shyam Rajan, an interest rate strategist with Bank of America Merrill Lynch in New York.

In early Monday trading, the interest rates on T-bills due in Jan. 17 and Jan. 24 were last offered at minus 0.25 basis point, down half a basis point from Friday's close, according to Tradeweb data.

The last time one-month T-bills was in negative territory occurred in January.

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