Cash is still king for some investors: T-bill yields hit new low

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Some investors put money to work in stocks today, but plenty of others are holding on tightly to their cash.

One indication of that: The government sold new three-month Treasury bills at the lowest yield since it began auctioning the securities in 1929.

The annualized yield on $27 billion worth of three-month bills sold today was a mere 0.005%, down from 0.051% a week earlier.

The Treasury also sold $27 billion in six-month bills at a yield of 0.305%, down from 0.437% a week earlier.

The rock-bottom yields are a sign that ‘there’s still a tremendous amount of cash stuck at the front end [of the bond market], and it wants to stay there,’ said Brian Edmonds, head of interest rates at brokerage Cantor Fitzgerald in New York.

Despite some signs that credit conditions are loosening -- and despite the stock market’s sharp rebound since Nov. 20 -- the appetite for super-safe T-bills isn’t lessening.

That’s good for the Treasury and for taxpayers, of course, because the government’s borrowing needs are monumental as it seeks to spend the economy out of this recession.

Investors also are betting that the Federal Reserve will, in effect, bless ever-lower rates when policymakers meet Dec. 16: Futures markets now overwhelmingly expect the Fed to cut its benchmark short-term rate to 0.25% at that meeting, from the current 1%.

Also, with year-end approaching, many banks and other financial institutions are trying to bolster their balance sheets as best they can. That means hoarding cash -- even if that cash is earning a negative return, after inflation.

-- Tom Petruno