Rates rise slightly at weekly Treasury auction

AP News
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Posted: Dec 21, 2009 6:04 PM

Interest rates on short-term Treasury bills rose in Monday's auction to the highest levels since late October.

The Treasury Department auctioned $30 billion in three-month bills at a discount rate of 0.070 percent, up from 0.040 percent last week. An additional $31 billion in six-month bills was auctioned at a discount rate of 0.170 percent, up from 0.160 percent last week.

The three-month rate was the highest since three-month bills averaged 0.075 percent on Oct. 26. The six-month rate was the highest since 0.185 percent, also on Oct. 26.

Even with the small increases Monday, three- and six-month bills remain near historic lows. They have been there for much of the past year, reflecting the Federal Reserve's efforts to keep interest rates low to strengthen the struggling economy.

The Fed held its final meeting of the year last week and once again voted to keep its target range for its bank lending rate at zero to 0.25 percent, where it's stood since last December.

Most economists say the Fed won't begin raising rates until the middle of 2010 at the earliest. Even then, they are predicting that rate increases will be slow and gradual as the central bank tries to ensure that its efforts to keep inflation under control do not derail the economy's fledgling recovery.

The discount rates reflect that the Treasury bills sell for less than face value. For a $10,000 bill, the three-month price was $9,998.23 while a six-month bill sold for $9,991.41. That would equal an annualized rate of 0.071 percent for the three-month bills and 0.173 percent for the six-month bills.

The Federal Reserve's regular weekly report on the average yield for one-year Treasury bills, a popular index for making changes in adjustable rate mortgages, was delayed until Tuesday because the Federal Reserve's Washington offices were closed Monday because of a snowstorm.