Can’t possibly explain this just yet.  Here are the figures from the 4 week or 28 day Treasury Bill auction.

Allocation at the High 82.27%     
Offering Amt 30.0 billion   Announce Date 12-08-2008
Auction Date 12-09-2008   Issue Date 12-11-2008
Maturity Date 01-08-2009   Dated Date n/a
Auction Format SINGLE PRICE     
Total Tendered $128,455,438,500   Total Accepted $32,420,952,400

Term: 4-WEEK
Issue Date: 12-11-2008
Maturity Date: 01-08-2009
Discount Rate:  0.000
Investment Rate:  0.000
Price Per $100.00:  100.000000
Cusip Number:  912795J69

This outcome follows the auction results announced for the most recent 13 week and 26 week T-Bills in which the 13 week bills had an interest rate of 0.005% and the 26 week bills had an interest rate of 0.30%.

Unless there are footnotes we have failed to read, this is an unbelievable flight to quality.  26 weeks is a 6 month investment where the holder of these bills expects essentially no rate of return.  One could expound on the data regarding these interest rates and conclude that the rate will not even keep pace with inflation, however the number of financial professionals ( soon to be an oxymoron ) discussing the possibility of deflation would give pause to calculating the real rate of return on these Treasury securities. 

I will have to run over to the investment gurus in the backroom to ask how to evaluate the real rate of return on an asset during a period of deflation, do you take the interest rate paid and add the deflationary component.  Rate of Return = Nominal Rate + Deflation.

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