How low are T-bill yields?

I have not paid much attention to T-bill yields for quite some time since that have been rather low relative to "safe" money market funds and FDIC-insured money market accounts. The primary reason for T-bill yields being so low is that demand for them is incredibly high since they are so safe. Here are the results from the most recent weekly auction (on Tuesday):

• 4-week T-bill: 0.051%
• 3-month (13-week) T-bill: 0.152%
• 6-month (26-week) T-bill: 0.498%
• 1-year (328-day) T-bill: 1.021%

The price for $100 of 4-week T-bills was $99.996111, or $999.96 for $1,000, the minimum purchase, or $9,999.61 for $10,000.

Actually, those T-bills are not yet "in circulation" since they will be issued on Friday, November 28, 2008.

The auction results for last week:

• 4-week T-bill: 0.101%
• 3-month (13-week) T-bill: 0.152%
• 6-month (26-week) T-bill: 0.855%
• 1-year (52-week) T-bill: 1.063%

According to Bloomberg, T-bills were trading yesterday at:

• 4-week T-bill: does not trade
• 3-month (this week's) T-bill: 0.04%
• 6-month (this week's) T-bill: 0.48%
• 12-month (last week's) T-bill: 0.91%

In other words, shortly after the auction the T-bills could be "flipped" for a quick pop in price.

This week's T-bills actually trade "when issued" even though they have not yet been issued. The 1-year (12-month) T-bill of last week trades since there was no 52-week T-bill issued this week (the odd 328-day T-bill was auctioned.)

It is interesting how a security that is available at a regular auction every week can so quickly be bid up in price. That is because only a limited amount is available in each auction, based on the needs of the U.S. Treasury. At least some of the big investors (e.g., mutual funds needing Treasuries since that is their charter) do not have their full needs met at auction, especially if they do not bid high enough, and have to buy on the open market.

Us retail investors can have all of our purchase orders fully met, up to $5 million, at the auction price, direct from the U.S. Treasury via TreasuryDirect. For us small retail investors almost any FDIC-insured interest-bearing bank account offers a better yield. Treasuries only become attractive for inividuals with much more than the FDIC, or even CDARS, limits.

-- Jack Krupansky