* One-month T-bill rate touch lowest since January
* Possible end to a bank insurance program feeds bids
* "Fiscal cliff" worries add safe haven demand for T-bills
By Richard Leong
NEW YORK, Dec 14 Interest rates on U.S.
one-month Treasury bills moved closer to zero on Friday on
demand stoked by the likelihood that a federal insurance program
covering large bank accounts will not be renewed by the end of
Safe-haven demand on worries about the absence of a budget
deal in Washington has also driven down rates on ultra-short
dated U.S. government debt in recent weeks, analysts said.
On Thursday, the Senate failed to overcome a procedural
challenge raised by Republicans against a bill to extend the
Transaction Account Guarantee (TAG) program 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
"The decline in bill rates can be attributed primarily to
the Senate's failure to pass an extension of (TAG)," Tony
Crescenzi, portfolio manager at PIMCO wrote in a note on Friday.
In late trading, the interest rate on one-month Treasury
bills was at 1 basis point after touching 0.25 basis point
earlier, the lowest since January. It closed at 2.25 basis
points on Thursday.
The one-month T-bill rate fell for a third consecutive week.
In late November, it was just shy of 16 basis points, which
was the highest since early August 2011 during the fight in
Washington over raising the federal debt ceiling.
Even if the Senate approved the TAG extension bill, it would
be tough to pass it in the House of Representatives, analysts
Still, there might be a remote chance TAG could survive if
the proposed extension was attached to a major law such as a
budget deal to avert the "fiscal cliff."
The "fiscal cliff" is a package of automatic tax increases
and spending cuts set to begin early next year if U.S. President
Barack Obama and Congress fail to reach a budget deal before the
year-end. Economists have warned the fiscal contraction will
cause a recession.
Without TAG, analysts forecast that corporate treasurers and
cash managers will begin to withdraw funds from checking
accounts and spread the money among T-bills, money market mutual
funds and other safe assets.
The forecast decline in cash from TAG accounts among
analysts ranged from $200 billion to $600 billion.
There was roughly $1.5 trillion in TAG accounts at the end
of third quarter, according to FDIC data.
The withdrawal from large checking accounts might still be
modest because most investors prefer the relative safety of a
bank, said Alex Roever, short-term fixed income strategist at
J.P. Morgan Securities in New York.
"At least they know where their money is. Most of the money
will stay in the banking system," he said.
The shift into other money market securities was expected to
lower the interest rates on them, resulting in cheaper loans for
companies and governments, analyst said.
In addition to the likely end of TAG, worries about the
"fiscal cliff," year-end build in cash holdings and the
expiration of the Federal Reserve's "Operation Twist" program
will exert downward pressure on T-bill rates, analysts said.
The three-month T-bill rate fell 2 basis points to 3.25
basis points on Friday, while the six-month rate dipped half a
basis point to 9.5 basis point.