Treasury bill yields fell the most in at least two decades on speculation the expanding credit crunch will lead the Federal Reserve to cut borrowing costs next month.
Three-month yields fell to the lowest since 2005. More than half of the 21 primary government security dealers that trade with the Fed now expect the central bank to cut its target interest rate by next month from the current level of 5.25 percent.
``The Fed is going to lower the funds rate, it's a question of when,'' said Thomas Tierney, head of U.S. Treasury trading at Citigroup Global Markets Inc. in New York. ``Credit's gotten tighter, and it's going to slow the economy.''
The yield on the three-month Treasury bill fell 1.23 percentage points today to 2.53 percent as of 12:26 p.m. in New York. It's the biggest drop since at least Oct. 20, 1987, when it fell 85 basis points on the day the stock market crashed.
There's more to this then betting the Fed will cut rates. Short-term Treasuries are considered some of the safest investments in the world. Right now, investors are literally gobbling them up at the highest rate in 20 years. That means there is a whole lot of concern out there about liquidity and the credit crunch.