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Correction to This Article
The article incorrectly said that Dec. 9 was the first time that three-month Treasury yields had fallen into negative territory. In fact, yields for short-term U.S. government securities were negative for periods in the 1930s and early 1940s.

In New Sign of Investor Fear, T-Bill Yields Go Negative

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By Renae Merle and Steven Mufson
Washington Post Staff Writers
Wednesday, December 10, 2008

Here's how nervous investors have become: At one point yesterday afternoon, people were willing to pay the Treasury to keep their money safe for three months.

News of weak balance sheets at some of the world's largest companies sent stocks tumbling, and investors fled once again to the safety of U.S. government securities. In trading yesterday, the yield on three-month Treasury bills briefly fell into negative territory for the first time ever.

Investors normally expect to earn some interest if they lend money to the government, but that expectation was set aside with the prospect of a deepening recession and new private sector setbacks. The Treasury Department sold $30 billion in four-week bills at an auction at a rate of zero percent for the first time since the bills began regular sale in 2001.

For days, rising apprehension has been translating into record demand for government bonds, a traditional safe haven. On Monday, the Treasury sold three-month bills at a rate of 0.005 percent, the lowest since 1929.

The stock market slumped with the mood of investors. The Dow Jones industrial average fell 2.7 percent, or 242.85 points, to 8691.33, and the Standard & Poor's 500-stock index was off 2.3 percent, or 21.03 points, to 888.67. The tech-heavy Nasdaq composite index closed down 1.6 percent, or 24.40 points, at 1547.34.

Hopes that the Federal Reserve would cut interest rates and that President-elect Barack Obama's economic stimulus package could pass early next year have buoyed investors recently, analysts said. But that optimism faded yesterday.

Adding to investor fears, some of the country's largest companies have announced major layoffs and lowered their financial outlook this week. FedEx fell 14.5 percent, to $63.65 a share, yesterday after cutting its earnings outlook for fiscal 2009. Texas Instruments lowered its earnings forecast for the fourth quarter, but climbed 4.9 percent, to $15.55. Sony announced yesterday that it would shed 8,000 jobs, or about 4 percent of its workforce. It was up 2.3 percent, to $20.50.

For institutions preparing for the end of the year, government bonds are a safe play, said Win Thin, senior currency strategist for Brown Brothers Harriman. "Having Treasuries on your balance sheet looks good," Thin said.

But the surge in demand for Treasuries suggests that traders are uneasy, analysts said. "It makes me feel that we're not out of the woods," Thin said. "We have seen some optimism in recent weeks, but things are still not normal."

One of the only relative bright spots in economic news was an indicator that dropped less than expected. The pending home sales index, a gauge of future sales, fell to 88.9 in October from 89.5 in September, according to the National Association of Realtors. That was better than analysts expected.

Crude oil fell nearly 4 percent to $42.07 a barrel, on the New York Mercantile Exchange.


© 2008 The Washington Post Company

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