WASHINGTON - The demand for U.S. Treasury securities - investments in which the investor lends money to the federal government - has become so frenzied that yields have fallen to minuscule levels. At one point this month, the interest rate even hit zero for one batch of four-week Treasury bills.
Zero - the same rate of return you'd get if you locked a stack of 20-dollar bills in your basement.
Who exactly puts money into Uncle Sam's bills, notes and bonds? And why would they make investments that offer little or no return?
Here are some questions and answers about what is happening in the bond market.
Who would buy Treasury debt that is bringing such low rates?
Plenty of people. The demand for those four-week bills was so high that the government could have sold four times as much as the $30 billion in debt that it did sell.
Why is that?
Fear. The current financial crisis, the most serious since the Great Depression, which began in 1929, has seen investors lose trillions of dollars on their other investments as Wall Street and stock markets around the world tanked. Those huge losses have made investors nervous about putting their money anywhere that is not supersafe.
"At the moment, global investors are willing to take no interest rate because they are nervous and scared," said Mark Zandi, chief economist at Moody's Economy.com in West Chester, Pa. "They just want to be sure they get their money back."
Who are these investors?
Institutional investors and foreign central banks dominate the market for Treasury securities - although small investors play a role, because so many have pension funds and money market mutual funds that, in turn, invest in the bills and bonds.
How much of a stake do foreign governments control in Treasury securities?
About half of the nation's $5.3 trillion in publicly traded debt - bills, notes and bonds - is held by foreign nations. China has the largest holdings.
Q: Why do foreign governments pour so much money into Treasury securities?
Even though the global financial crisis began in the United States, holdings of U.S. government securities are still viewed as the safest investments in the world. The United States has never failed to meet a debt payment.
Besides security, what do foreign governments get for their U.S. Treasury investment?
It provides them with a hedge against a loss of value in their own currencies. Let's say country A buys three-month Treasury bills, and its own currency then declines in value against the U.S. dollar. The country would come out ahead on its dollar-denominated Treasury securities because they would be worth more relative to the country's own falling currency.
The U.S. trade deficits also play a role. Those deficits mean billions in U.S. currency are being transferred to foreigners, who are perfectly happy to take dollars in return for the televisions and cars they sell to U.S. consumers. But the dollars have to go somewhere, and Treasury securities are a safe investment.
What about other big institutional investors?
Money market mutual funds, pension funds, and state and local governments also have big holdings in Treasury securities, again in large part because they represent safety.
Since the stock market collapse in September, investors have been avoiding the stock market and putting billions of dollars into money market mutual funds. The managers of those funds have to do something with that money, and the safest bet is to buy Treasury securities.