How is this a better option than just holding the cash?

@xenth: +1 on that question. I'm sure there's a reason (maybe they can't convert their investments to cash, only other investments?), but it sure seems dumb to me.

@xenth: You can be sure that there's some manner of trick behind it. The rich (and those that manage the rich's capital) don't get that way by losing money.

@xenth: Holding cash assumes that your bank does not go belly up. Trusting Treasury may be safer than trusting a private bank.

@xenth: Well I know mutual fund managers and the sort get a ton of flack for holding large amounts of cash, and in some cases it may be against the rules of the mutal fund prospectus/organizing rules to do so, so they have to put it into something.

Stocks right now are so unstable they don't want to risk the money in those so a slight guaranteed loss is better than a possibly huge loss. Also it appears on paper safe to the investors.

This is also why extremely large mutual funds have a hard time performing as good as smaller ones. They have more money they have to find places to invest in, and it takes longer to get out of a position should things go south.

Probably something to do with taxes and trying to get rid of it by the end of the year. Just my guess.

@xenth: think of why we have the FDIC. Govt guarantees up to $250k now I think? what happens to the amount over this cap? you buy short term govt notes which guarantees principal protection.

@xenth: @xenth: Holding cash in what form? In a bank account? Investors must be deciding that the perceived guarantee of repayment by the U.S. government is safer than other short-term places to park their money.

@xenth: i'm by no means positive, but i have a feeling that it might have to do with taxes... i think you need to pay income tax when you cash out investments, but possibly not if you are selling investments with the plan to re-invest (someone would have to back me up on this)

@Tmoney02: mutual fund managers are paid well to buy and sell securities. how much are you willing to pay someone to hold cash in a fund that is earning negative interest? most managers stay fully invested as this is what they're hired to do. i am sure there are managers that can tactically move into large cash positions, but the market has yet to prove easy to time. this is why you should keep asset allocation decisions out of the money manager's hands.

Also, one should clarify your large/small comparison. Large funds defined by assets under management (AUM) suffer from the higher probability to owning large portions of a company. therefore if they flooded the market by selling their position, they would hurt themselves by lowering the market price. large managers tend to have risk control measures to trim the portfolio gradually avoiding this issue.

large funds defined as by the capitalization of the stocks they own actually have an easier time trading the market relative to small cap fund managers. keep in mind that large cap stocks typically have more outstanding shares. this is why small cap funds tend to cap out quickly.

it means they're so scared of putting their money somewhere else. where they may lose a lot of money.. including in a bank that only insures up to $200,000 that may go out of business, that they will give it to the government like this.

@Gstein: you are taxed two ways: on the incoming you garner from owning the note (coupon payments) and any profit you made when selling it on the open market. the former is dinged on your income tax rate and the latter is dinged depending on how long you held the security.

a $30B interday move into cash equivalent instruments tends to portray large institutional investors trying to preserve capital. not sure there are any tax benefits here, but i am not a CPA.

@redclear55: "the income you garner"

I'm waiting for the Federal Funds rate to go negative so that banks begin paying other banks to borrow money from them.

Inflation makes T-bills a negative investment right out of box. The herd mentality that has driven T-bills rates into the dust is the same thinking that created the real estate bubble. The madness of crowds strikes again. Yeah, USA, welcome to 1990s Japan, the lost decade. Bailout mania killed the Japanese economy. Super low interest rates are not good long term. Someone needs to notify congress bailouts don't work, neither.

Why not invest in tax advantaged municipal bonds?

@xenth: To give a bit of clarity to what redclear said:

Cash has to be kept. if you have five million dollars in cash it has to be guarded from theft fire, etc. Easier to keep it as digits on a banks balance sheet, but of course banks aren't reliable for major holdings, you can of course insure against that. But that isn't free. If you own the electronic treasury, well that means you get paid without fail.

What this more or less means is that no bank is offering interest rates high enough to tempt short term money over the risk of their collapse.

This is likely because a bunch of people don't really want to trade over the holidays, and just want to idle their money for a bit.

@sonneillon: safety.

@xenth:

The amounts are just too great - if you want to hold $1k in cash, you can keep it in your pocket. If you want to hold $1BN in cash (as many major corporations do), you can't really just have huge stacks of bills.

The devil you know (99 cents on the dollar), versus the devil you don't (potentially unlimited losses on volatile stocks).

@m4ximusprim3: It's 100% protected and with few viable alternatives, 0% (or less) isn't that bad when everything else is plummeting.

@sonneillon:

Because with the revenue downturn and the increased demand for services, a lot of municipalities are on shaky ground too.

I wouldn't invest in any CA or NY bonds right now.

@sonneillon:

I don't know about your local municipality, but mine is screwed. During the housing bubble, municipalities increased their spending to match the increased property taxes. I would think that muni bonds would be a very risky bet right now.

they should have scrapped the bailout, and let the market sort itself out...

Can we somehow use this to refinance the national debt? 11 Trilion (that is 11,000 billion) at even 3% becomes a lot more manageable at 0%.

Is this also not just some kind of stealth baliout of our insolvent government and monetary system? Just as workouts are preferrable to foreclosures for banks China can not let the USD collapse while it holds over a trillion dollars of US backed securities. A few billion dollars in the short term could be preventing a huge collapse of the currency.

They say that if you borrow a million dollars from the bank and can't pay it back that the bank owns you; but if you borrow a billion dollars from the bank and can't pay it back you own the bank.

only institutions buy 3 year bills for the most part. an individual would likely go to the local bank and buy a 3 month CD for 2.5%-2.75%. a lot of time institutions are required to hold a certain amount of short term, secure debt, so their hands are tired, and if they have several million to keep there, it doesnt make sense to deal with the FDIC restrictions on CDs

@BertinaAsina: I don't see how the rates for the national debt can get much lower considering how low treasury bonds return.