Interest rates decline at weekly Treasury auction

Interest rates on short-term Treasury bills fell in Monday's auction with rates on six-month bills dropping to the lowest level since mid-January. The Treasury Department auctioned $31 billion in three-month bills at a discount rate of 0.190 percent, down from 0.195 percent last week. Another $29 billion in six-month bills was auctioned at a discount rate of 0.305 percent, down from 0.330 percent last week. The three-month rate was the lowest since these bills averaged 0.135 percent on April 27. The six-month rate was the lowest since 0.290 percent on Jan. 12. The discount rates reflect that the bills sell for less than face value. For a $10,000 bill, the three-month price was $9,995.20, while a six-month bill sold for $9,984.58. That would equal an annualized rate of 0.193 percent for the three-month bills, and 0.310 percent for the six-month bills. Separately, the Federal Reserve said Monday that the average yield for one-year Treasury bills, a popular index for making changes in adjustable rate mortgages, rose to 0.53 percent last week from 0.50 percent the previous week. The White House released revised budget estimates on Monday, showing the administration now projects the deficit for the current budget year will hit $1.84 trillion, up from the $1.75 trillion estimated less than two months ago and four times more than last year's record imbalance. The deficit is ballooning because of the impact of the billions of dollars the government is spending on a bailout of the financial system amid the recession, which has cut sharply into revenues and raised the cost of unemployment insurance, food stamps and other programs. There are concerns that the government's huge borrowing needs could trigger steep increases in interest rates if domestic and foreign investors start demanding a larger return for holding Treasury debt. But so far, the big increase in the supply of Treasury securities has occurred at a time when interest rates have been pushed lower by heavy demand for what investors see as super-safe investments during a time of high anxiety about other types of debt.