T-Bills Wilt Under New Supply
Treasury bills fell Tuesday, pushing up yields, as the government announced an unexpected increase in supply to fund a temporary borrowing program.</br></br>The fall in bills contrasted with the gains seen in Treasury securities that mature in more than a year, which benefited from renewed worries about the economic recovery in the U.S. and elsewhere -- concerns that helped attract buyers to the Treasury's sale of $44 billion in two-year notes.</br></br>The Treasury's increase in the size of its Supplementary Financing Program, or SFP, from $5 billion to $200 billion in the next two months, will come as relief to money-market funds, which have been stymied by a lack of supply and short-term yields near zero percent. These funds, which are required to buy financial assets maturing in a year or less, have seen outflows of more than $400 billion over the past year.</br></br>Tuesday's announcement will "help to put some air under short-term rates," said Ward McCarthy, chief financial economist within the fixed-income group at Jefferies & Co. "Short-term rates are so low that it is difficult for investors in short-term instruments, such as the T-bill sector, to make any money."</br></br>The Supplementary Financing Program was initially set up in September 2008 at the height of the financial crisis and was used to provide funding to the Federal Reserve to support its liquidity programs to rescue banks and the credit markets. Late last year, as the federal government's borrowing approached the debt ceiling, Treasury scaled back the program to $5 billion. Earlier this month, Congress raised the debt ceiling by $1.9 trillion to $14.3 trillion, allowing the program's resumption.