Rates on 6-month Treasury bills hit low for year (AP)
Mon, 15 Jun 2009 21:29:56 Etc/GM
The Treasury Department on Monday auctioned $30 billion in six-month bills at a discount rate of 0.290 percent, down from 0.345 percent last week. Another $31 billion in three-month bills was auctioned at a discount rate of 0.160 percent, down from 0.190 percent last week.
The six-month rate was the lowest since they sold for 0.250 percent on Dec. 29, 2008. The three-month rate was the lowest since the bills sold for 0.150 percent on June 1.
Rates on the three- and six-month bills have been moving in a narrow band below 1 percent for many months. Analysts expect they will stay at low levels until the economy shows greater signs of recovering and the Federal Reserve starts raising interest rates to guard against inflation.
The Fed in December cut its target for the federal funds rate, a key short-term rate which influences three- and six-month Treasury rates, to a record low of between 0.25 percent and zero.
Fed officials will meet again on June 23-24, and economists believe they will maintain a low funds rate to provide more support for a recovery expected in the second half of this year. The funds rate directly influences banks' prime lending rate, the benchmark for millions of short-term business and consumer loans such as home equity lines of credit. The prime rate has been at 3.25 percent since December, the lowest level in more than a half-century.
Longer-term interest rates have been rising in recent weeks, reflecting a variety of factors such as signs the economy is stabilizing and worries about the amount of debt the federal government is having to sell to finance a budget deficit projected to hit a record $1.84 trillion this year.
Sung Won Sohn, an economist at California State University, Channel Islands, said that the increases in long-term rates could present a problem for the economy if they begin to depress demand for home mortgages. The 10-year Treasury note, a key benchmark for home mortgage rates, is now trading around 3.7 percent, up about 1.7 percentage points from its lows of December.
Rates on 30-year mortgages jumped to the highest level in seven months last week, rising to 5.59 percent, from 5.29 percent the previous week, according to a survey by mortgage giant Freddie Mac. That increase has depressed mortgage activity including what had been a big boom in refinancings.
The discount rates on three-month and six-month Treasury bills reflect that the bills sell for less than face value. For a $10,000 bill, the three-month price was $9,995.96, while a six-month bill sold for $9,985.34. That would equal an annualized rate of 0.162 percent for the three-month bills, and 0.294 percent for the six-month bills.
Separately, the Federal Reserve said Monday that the average yield for one-year Treasury bills, a popular index for making changes in adjustable rate mortgages, rose to 0.56 percent last week from 0.50 percent the previous week.
source: http://biz.yahoo.com/ap/090615/us_treasury_bills.html?.v=4