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Rates soar at weekly US Treasury bill auction; reach highest levels since March 2009

WASHINGTON – Interest rates on short-term Treasury bills soared in Monday’s auction to their highest levels since March 2009, as investors expect that the Federal Reserve will soon start raising interest rates.

The Treasury Department auctioned $28 billion in three-month bills at a discount rate of 0.215 per cent, up from 0.140 per cent last week. Another $26 billion in six-month bills was auctioned at a discount rate of 0.415 per cent, up from 0.350 per cent last week.

Rates on government bonds have climbed in recent weeks amid investors’ expectations that the Fed will raise its key short-term interest rate at a policymaking meeting on Dec. 16. A series of U.S. economic reports this week, culminating with Friday’s jobs survey for November, could cement expectations for an increase in the rate from a record low near zero. The Fed hasn’t raised rates since June 2006.

The three-month rate at Monday’s auction was the highest since three-month bills averaged 0.225 per cent on March 23, 2009. The six-month rate was the highest since those bills averaged 0.420 per cent on March 30, 2009.

The discount rates reflect that the bills sell for less than face value. For a $10,000 bill, the three-month price was $9,994.57, while a six-month bill sold for $9,979.02. That would equal an annualized rate of 0.219 per cent for the three-month bills and 0.423 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, rose to 0.51 per cent last week from 0.49 per cent the previous week.