A scramble for safe, short-term debt left some investors on Tuesday paying for the privilege of lending to the U.S. government.
The demand, which intensified following the Federal Reserve's decision this month to curb a popular overnight-lending program, pushed up bond prices and drove down yields. The yield on the U.S. Treasury bill maturing on Oct. 2 traded at negative-0.01%, according to Tradeweb, the first negative yield in eight months. Yields on other Treasury bills due in three months or less hovered around zero.
Short-term debt trading at negative yields was essentially unheard of before the 2008 financial crisis. But since then, the condition has cropped up at times of market stress, reflecting extraordinarily expansive central-bank policy and anemic growth in much of the world. Yields on some U.S. bills traded below zero at the end of each of the past three years amid strong demand for liquid assets, according to analysts.
In Germany, the yield on the two-year government bond has traded below zero in recent weeks. Investors there were seeking safety amid Europe's latest brush with slowing growth and dangerously low inflation, even as many global stock-market indexes trade near record highs.
A broader flight to safety on Tuesday also pushed up prices for longer-dated Treasury debt. The U.S.'s benchmark 10-year note rose 9/32 in price, and its yield fell to 2.535%, down from 3% at the start of 2014.