How much do you have to invest to get 12.64$ 3 months from now?

Thanks to the FT

US Treasury bills sold at nearly 0% on safety search

By Michael Mackenzie in New York

Published: December 9 2008 00:36 | Last updated: December 9 2008 00:36

The US Treasury sold three-month bills at nearly zero per cent on Monday as investors sought the security of short-term government debt for virtually no return.

The Treasury sold $27bn three-month bills at a discount rate of 0.005 per cent. That means investors put up $999,987.36 to receive $1m in three months’ time, a return of $12.64 cents.

Bills are sold at a discount from their face value. This means that the interest rate reflects the difference between the purchase price of the security and the sum received when it matures.

The rate for the bills was the lowest according to records dating back to 1934 at the Federal Reserve. The rate for three-month bills peaked at 17.14 per cent in December 1980.

“We will know the financial and economic crisis is ebbing when investors turn their back on US Treasuries,” said Tony Crescenzi, strategist at Miller Tabak. “This of course has not happened yet.” Demand for the latest weekly bill sale was strong at 3.33 times the issue, while non-dealers, including foreign central banks, bought more than half of the issue. Investors are looking to close out the year holding Treasury bills on their balance sheets as a sign of safety and assurance.

Rick Klingman, managing director at BNP Paribas, said the bills enhanced balance sheets as the year ended.

The three-month bill was been consistently quoted at yields below 1 per cent since late October. At the previous weekly auction, three-month bills were sold at a discount rate of 0.05 per cent, down from 0.15 per cent.

Bill traders said because the Treasury was not selling as many cash management and supplementary bills, which were recently issued to help the Fed fund its liquidity programmes, there was a growing shortage of securities to meet demand.

The sale of $27bn six-month bills came at a discount rate of 0.3 per cent, down from the prior week’s level of 0.43 per cent.