Credit Markets Seizing Up


What do Big Foot, a pink Cadillac and Wednesday’s yield on one-month T-bills all have in common. They’re all something rarely seen.

The yields on U.S. Treasury bills plummeted on Wednesday, pushing the one-month yield briefly below zero, as turbulent financial markets spurred a scramble for cash and ultra low-risk investments.

Money managers piled into Treasuries anticipating heavy redemption demands from investors spooked by deep losses at a money-market mutual fund run by one of the industry's pioneers, which was burned by the bankruptcy of Lehman Brothers.

"They have no choice but to buy short-dated Treasury bills," Carl Lantz, interest rate strategist with Credit Suisse in New York said of money market funds.

One-month T-bill yield traded 0.14 percent, down 43 basis points from late Tuesday. It reached briefly below zero percent, according to analysts, which is the lowest level since the one-month bill was reintroduced in 2001.

The scramble for short-dated government debt was sparked by troubles at the Reserve Primary Fund. The money market mutual fund fell below $1 a share in net asset value due to losses on its holding of securities issued by Lehman.

“I think this is the money market going into Main Street, says William Larkin of Cabot Money Management. "Retail investors are running with fear into T-bills or government backed money market accounts.”

“The mistake here is that they’re going into something that’s too short,” he adds. “They need to look at something like government backed home financing securities.”

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