Hacker News Reader

Comment by kingnothing | Hacker News Reader

Serious question: why would anyone buy a 0% T-Bill over keeping cash in a bank account?

> Serious question: why would anyone buy a 0% T-Bill over keeping cash in a bank account?

Because with a bank account you have the risk of bank failure and the risk of the currency failing, with a T-Bill you basically eliminate the first of those risks. [1]

For the vast majority of people, the former risk is pretty fully mitigated (to the extent that it is separate from the latter risk) by deposit insurance, but that has an upper limit.

[1] Not fully, because its theoretically possible that the government could selectively repudiate some of its debts without the currency collapsing, so there is a potential failure that remains distinct from currency collapse.

Aside from risk mitigation there are a few other things that no one has mentioned. First, shorting. If you sell 3 month US Treasuries that you do not have because you think that you are going to be able to buy them later at a lower price, you may have to buy them at 0% if they are called. Second, there are a number of funds that have constrained investment choice. For example, Fidelity has a short term US Treasury fund that must only invest in short term US Treasuries. And, many pension funds and government funds must invest at least a portion of their holdings in a limited set of debt holdings (sometime even further limited by credit rating or in fact by name). Finally, US Treasures can be used as collateral or for hedging as part of certain contracts and/or swap agreements.

FDIC insurance covers $250k, which is basically 0% of billions of dollars. Storing money safely is a hard problem. Cash in a vault has negative interest (due to the overhead cost) and a lot of risk, a balance in an FDIC insured bank also has risk, if the overhead cost of T-Bills is tiny then it's a preferred method. What you're looking at here more than anything is a big vote of no confidence in the stability of the big banks.

Safety guarantees, or deflation expectations. A few years ago France issued (slightly) negative-yield short-term bonds[0] and earlier in the year germany issued pretty seriously negative yield (0.08%) 5 years bonds[1]

[0] http://finance.yahoo.com/news/france-sells-bonds-negative-in...

[1] http://money.cnn.com/2015/02/25/investing/germany-negative-b...

http://www.wsj.com/articles/j-p-morgan-to-start-charging-som...

"The Wall Street Journal reported in early December that J.P. Morgan and several other banks, including Citigroup Inc., HSBC Holdings PLC, Deutsche Bank AG and Bank of America Corp., had spoken privately with clients in recent months that new regulations are making some deposits less profitable, in some cases telling clients they would charge fees or work to find alternatives for some of the deposits."

The government only insures up to $250k. Beyond that, the bank is a lot riskier place to store money than the US Treasury. Maybe you could get four bank accounts if you have $1M, but what if you have $250 million, or a billion? In other words, this is for rich people.

> In other words, this is for rich people.

Or corporations, or pension funds, or mutual funds, or whoever needs to park a lot of cash for a short amount of time. If your $20b pension fund wants to keep a 5% cash position they need to store that $1b somewhere and it would be a risk to keep it in a bank account (the bank may default).

You have more money in banks than you have insured? You trust the credit of US government more than any bank?

Given that a US default would likely cause the collapse of the US financial system and possibly the entire world's financial system, it makes perfect sense to trust the US government's credit over that of any bank.

And the US Government has a big advantage over banks--they can print more USD.

Banks can 'print' more USD so long as they find a counter-party.

If you own the bonds you are the counter party.

Reply on news.ycombinator.com