Shortfall in supply of Treasury bills wreaking havoc in markets

New York

FOR all the anxiety over the global selloff in bonds, the big worry in money markets is the havoc being created by a dearth of US Treasury bills.

The magnitude of the problem was on display last week, when not even the Treasury Department's surprise announcement to boost sales could do much to lift bill rates. Over the past two weeks, some of those rates have turned negative, reaching levels last seen during the financial crisis.

With supply at multi-decade lows, investors are signalling alarm as regulations intended to shore up the banks and prevent a run on money-market funds exacerbate the bill shortfall. JPMorgan Chase & Co expects an extra US$900 billion of demand for government securities over the next 18 months, putting pre…