Thursday, March 20, 2008

3 Month Treasuries Drop to Lowest Rate since 1954

So where is the smart money? Hiding in three month treasuries. Fear in the markets has driven investors to short term treasuries that are now offering a return of only .38%.

This is a negative return when including inflation. Karl Denninger described it best by saying the Fed interest rates are basically at zero when you look at short term treasuries in the bond market. The Fed is running out of bullets. The three month treasury is a great indicator for fear as investors normally flock to treasuries when equities do not look attractive. A quote from the article:

"U.S. Treasury three-month bill rates dropped to the lowest since at least
1954 yesterday as investors sought the safety of government debt. Bill rates
declined as low as 0.387 percent as finance company CIT Group Inc. drew on $7.3
billion in credit lines after being shut out of short-term debt markets.
``This is all about money,'' said Leonard Kaplan,
president of Prospector Asset Management in Evanston, Illinois, who has been
trading gold since 1973. ``The Fed can control the price of money but the banks still don't want to lend.''

Betting against the bond market has never been a very successful trade. 99% of the time they are dead right. The smart money wants no part of this market.

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