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The world’s nearly $9 trillion pile of negative-yielding debt got a little bigger this week as returns on 1-month and 3-month Treasury notes fell below zero for the first time since 2015.
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The yields on the 1-month and 3-month bills closed at -0.057 percent and -0.044 percent, respectively. A bond's yield is the premium demanded by investors, including both interest and any discount on pricing.
“You've just seen a lot of demand from both the Fed and from the investor community for these types of liquid cash, alternative type products,” Leslie Falconio, senior strategist at UBS Global Wealth Management, told FOX Business. “Moving into slightly negative yield isn't really as much of a concern for them for three months. It's more of the safe-haven preservation of capital.”
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The Federal Reserve announced on Monday that it would buy unlimited assets, including Treasury securities, to buffer the U.S. economy from the economic fallout related to the COVID-19 pandemic, which has led cities to issue “stay-at-home” orders and resulted in the temporary closing of stores, restaurants and businesses, putting millions out of work.
The Fed’s introduction of unlimited asset purchases, or so-called quantitative easing, came just over a week after the central bank, at an emergency meeting, slashed its key lending rate by a full percentage point to nearly zero. A week earlier, the Fed made an emergency cut of 50 basis points.
Falconio says yields falling below zero for longer-term debt would only be temporary, noting it’s “highly unlikely” the Fed embarks on a negative interest-rate policy as such a program has proven ineffective abroad.