How worried are investors these days? Well here's a good indication as commented on in the Financial Times; investors are scared to death of putting their money in traditional banks for fear that the money wont be there in the future, or worse yet, the bank itself wont be there. Even more frightening is the prospect of investing in an increasingly volatile market. The safe haven for investors these days seems to be US government debt, and the demand for US Treasury bills shows it.
The demand for t-bills has been so great that the interest rates actually went negative earlier this week...what does this mean? It means that investors are actually willing to pay the US government to hold their debt...The way t-bills traditionally work is that the government proposes a debt; investors "loan" the government money by purchasing t-bills; the government pays the investor interest on the t-bill.
So let's say that I loan the government $1000 (by buying a $1000 treasury bill) at 5% interest; at the end of one year the US government will owe me $1050 ($1000 x 1.05). With a negative interest rate investors are willing to take a loss in exchange for the peace of mind that their money will be there in the future. Let's pretend I purchase that same $1000 treasury bill at -5% interest; at the end of one year the government will owe me $950...I would actually be paying the US government ($50.00) to borrow money from me! And yet, with the mess that financial institutions and the markets are in this is the best bet! How's that for worried?!?!!?
