Interest rates on six-month Treasurys hit their lowest level on record and three-month bills their lowest point in 11 months in Monday's auction of T-bills.
The declines are good news for the government's efforts to hold down its borrowing costs _ but bad news for savers who rely on interest income.
The Treasury auctioned $30 billion in three-month bills at a discount rate of 0.040 percent, down from 0.065 percent last week. An additional $31 billion in six-month bills was auctioned at a discount rate of 0.140 percent, down from 0.165 percent last week.
Rates on short-term Treasury securities have been near historic lows for months, reflecting the Federal Reserve's efforts to keep interest rates low to strengthen the struggling economy.
Last week, rates on some short-term Treasury debt fell below zero for a brief period. That meant investors were willing to earn no interest at all on the securities they were buying. In part, this reflected banks' efforts to shift money into the safety of U.S. Treasury debt as they prepare to close their books on 2009.
Analysts said other factors included a move back to the safety of Treasurys by investors who think the most recent economic figures point to a weak global rebound.
Some analysts said Treasurys are also getting help from a looming battle over the congressional limit on the national debt. The current debt ceiling of $12.1 trillion is expected to be reached by mid to late December. Congress must raise the ceiling to keep the government operating and prevent any default on the nation's debt obligations.
Congress has never failed to raise the debt ceiling. But Republicans are expected to use the debate to attack the Obama administration for presiding over an explosion of debt. The deficit hit an all-time high of $1.42 trillion for the budget year that ended Sept. 30. The deficit in the current budget year is forecast to be even higher.
Some analysts say Treasury will begin to curtail the amount of debt it offers for sale as the debt limit approaches. But Treasury officials refused Monday to discuss what steps they will take as the limit nears.
In the past, those efforts have included temporarily removing investments from pension funds for government employees. This provides more room for borrowing from the public without hitting the debt ceiling. Once the debt ceiling has been raised, the funds are reinvested.
The record-low interest rates being paid for Treasury securities have kept the government's borrowing costs low. Yet once the economy rebounds and the Fed starts raising rates to guard against inflation, the government's interest payments are likely to soar.
The discount rates on the three-month and six-month bills Monday reflected that the bills sell for less than face value. For a $10,000 bill, the three-month price was $9,999. A six-month bill sold for $9,992.96. That would equal an annualized rate of 0.041 percent for the three-month bills and 0.142 percent for the six-month bills.
Separately, the Federal Reserve said the average yield for one-year Treasury bills, a popular index for making changes in adjustable rate mortgages, fell to 0.29 percent last week from 0.33 percent the previous week.
The three-month rate Monday was the lowest since these bills hit an all-time low of 0.005 percent set on Dec. 8 of last year. And the six-month rate set a new record low, surpassing the old mark of 0.150 percent reached in early October. The three-month bills and six-month bills have been auctioned weekly since the late 1950s.
A record was also set in a separate auction Monday of two-year notes, with $44 billion sold by the government at 0.802 percent, surpassing the old low of 1.020 percent set last month. The government has auctioned two-year notes monthly dating to 1974.
The central bank pushed it target for the federal funds rate down to a record low near zero percent in December. Many economists think the Fed will not consider rate hikes until the second half of next year after unemployment peaks.