* One-month T-bill rates negative for 1st time since January
* Solid bids emerge at Treasury, agency bill auctions
* Three-month T-bill rates might turn negative in 2013-BAML
By Richard Leong
NEW YORK, Dec 17 Interest rates on some U.S.
one-month Treasury bills turned negative on Monday due partly to
expectations that a federal insurance program covering large
bank accounts will not be renewed by the end of the year.
Typical year-end hoarding of cash and nagging worries about
a possible fiscal crisis in Washington have also fed the
purchases of Treasury bills in recent weeks, analysts said.
Bets on an almost certain demise of the Transaction Account
Guarantee (TAG) program at year end have intensified bids for
other perceived safe vehicles to park cash, including Treasury
and agency bills and money market mutual funds.
Strong bidding at Monday's auctions of Treasury and agency
bills pushed the interest rates on new issues to their lowest in
January and last December, respectively.
Last Thursday, the Senate failed to overcome a procedural
challenge raised by Republicans against a bill to extend TAG for
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
"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, interest rates on T-bills due 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
The last time one-month T-bills were in negative territory
occurred last January.
The U.S. Treasury Department sold $32 billion in three-month
bills at an interest rate of 0.040 percent,
matching the lowest level since the auction held Jan. 23. It
also sold $28 billion in six-month debt at an
interest rate of 0.090 percent, the lowest since the auction on
Earlier, Freddie Mac sold $500 million in
one-month bills at an interest rate of 0.005 percent, the lowest
since last December. The government mortgage agency also sold $1
billion in three-month and six-month securities at slightly
higher interest rates.
Flows into U.S. money market funds have accelerated in
recent weeks. Money fund assets increased to $2.629 trillion in
the week ended Dec. 11, the highest level since February,
according to the Money Fund Report.
Given the risk the White House and Congress will not agree
on a budget pact in two weeks, it is probable Treasury bill
rates could turn more negative in early 2013 as anxious
investors pile into the securities.
"There might be more room to go negative," Bank of America's
Rajan said, adding that his forecast on the three-month U.S.
T-bill rate is minus 0.03 percent in the first quarter of 2013.
Without a timely fiscal deal, a series of automatic federal
tax hikes and spending cuts worth $600 billion will phase in
next year. Economists have warned this 'fiscal cliff' will cause
a U.S. recession.
President Barack Obama and Speaker of the House of
Representatives John Boehner met at the White House for about 45
minutes on Monday, but there was no word of any progress, an
aide to Boehner said.