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Rates soar at weekly auction of 3-month and 6-month Treasury bills; 3-month highest since 2011

WASHINGTON – Interest rates on short-term Treasury bills soared in Monday’s auction. The rate on the three-month bill reached its highest level since early 2011, while the six-month rate was the highest it’s been since mid-2009.

The Treasury Department auctioned $29 billion in three-month bills at a discount rate of 0.135 per cent, up from 0.11 per cent last week. Another $27 billion in six-month bills was auctioned at a discount rate of 0.340 per cent, up from 0.280 per cent last week.

Rates on government bonds have been climbing amid expectations that the Federal Reserve may soon raise its key short-term interest rate. While it kept the rate at a record low near zero, the Fed recently signalled the possibility a rate hike could come at its next meeting in December. An unexpectedly strong employment report for October, released by the government Friday, amplified those expectations.

The market speculation on rates has brought plunging government bond prices and soaring yields, which rise as prices fall.

The three-month rate at Monday’s auction was the highest since the bills averaged 0.145 per cent in February 2011. The six-month rate was the highest since those bills averaged 0.350 per cent in June 2009.

The discount rates reflect that the bills sell for less than face value. For a $10,000 bill, the three-month price was $9,996.59, while a six-month bill sold for $9,982.81 That would equal an annualized rate of 0.137 per cent for the three-month bills and 0.346 per cent 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, jumped to 0.41 per cent last week from 0.31 per cent in the previous week.