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In 1934 exactly this happened---T-bill rates went negative for about 1
month.
The Fed required the banks to hold their reserve requirements in T-bills
over year end. Prices were bid up to where rates were -.50% ------more
buyers than sellers.
I used to work at the Fed. We looked at these type things when I studied the
Tbill futures market for them in 1978.
In 1979, someone DLJ was long 2 times the deliverable supply of Tbill
futures causing a real squeeze on the shorts. Just a few days before
delivery the Fed made them liquidate.
Jim
"Those who ignore the past are destined to repeat it."
-----Original Message-----
From: Cliff Scheller <cliffsch@xxxxxxx>
To: richard macneil <rickinri@xxxxxxx>; omega-list@xxxxxxxxxx
<omega-list@xxxxxxxxxx>
Date: Tuesday, November 10, 1998 4:07 PM
Subject: Re: Japan interest rates
On 10 Nov 98, at 15:59, richard macneil wrote:
> Have been hearing regularly about negative interest rates .How can that
be?
Richard,
Imagine a situation where you were so afraid of the safety of your
money in a banking institution, and so afraid of the viability of the
bank itself, that you made a huge rush to deposit your money in
the safety (!!??) of the government.
You would make that deposit by buying Tbills, and if there were
many, many like you, your buying would drive the price up and up
(therefore the yield down and down) till it crossed zero.
In essence, the buyers are so afraid that they are PAYING for the
govement to hold their money....
Cliff
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