Negative Interest Rates

We have often spoken of the possibility in my Tax Timing class, but I never thought I’d actually see negative rates in the United States.

Today, however, if you bought $1,000,000.00 in 1-month T-bills, you would receive $1,000,000.00 back in 4 weeks.

And, if you paid $1,000,0025.56 for 3-month T-bills, you would receive $1,000,000 back in three months.

Long bonds traded late today at an all-time low.  Six month bills, 2-year notes, 5-year notes, and 10-year notes are either at or very close to their all-time lows (in term of yield – all-time high in terms of price), as well (yesterday was a low interest day, too).

For those who follow the bond market, this is stunning.  Until two weeks ago, the 30-year bond had never closed with a yield under 4%; it now is very close to closing below 3 %.  It is at 3.04%.  Essentially, Treasury inflation-indexed securities have been negative for a couple weeks.

Negative interest rates make my Financial Calculations For Lawyers and Tax Timing classes bizarre.  Before today, I argued that negative interest rates were theoretically impossible.  But large investors prefer to pay the Treasury to store money than to risk it in banks or corporations or commodities or land.

I fear the market is telling us to invest in guns and gold.  I guess if one had the latter, he’d need the former.  Too bad I hate guns and cannot afford much gold.  Perhaps Scotch will be a good substitute.