3-Month Bill Rates Fall to Lowest Since 1950s

March 17 (Bloomberg) -- Treasuries rose and the three-month bill rate plunged to the lowest since the 1950s as the Federal Reserve cut the discount rate at an emergency weekend meeting and backed JPMorgan Chase & Co.'s deal to buy Bear Stearns Cos.

Gains in two-year securities drove yields to the lowest level in almost five years as the Fed reduced the rate on direct loans to banks by a quarter-percentage point to 3.25 percent. Futures contracts on the Chicago Board of Trade show traders are betting the central bank will slash its target interest rate by at least 1 percentage point tomorrow from 3 percent.

``It's very easy to see it's a flight to quality,'' said Daniel Fuss, 74, the Boston-based vice chairman at Loomis Sayles & Co., who oversees $22 billion and whose firm's Bond Fund has returned 11 percent annually over the past five years, beating 99 percent of its peers, according to Bloomberg data. ``We're in new territory now. Even Alan Greenspan hasn't seen this.''

The two-year note's yield fell 13 basis points, or 0.13 percentage point, to 1.35 percent at 4:33 p.m. in New York, according to bond broker Cantor Fitzgerald LP. It touched 1.24 percent, the lowest level since July 2003. The price of the 2 percent security due in February 2010 rose 1/4, or $2.50 per $1,000 face amount, to 101 1/4.

Investor demand for the relative safety of short-term government debt sent the three-month bill rate down 16 basis points to 1 percent, according to Bloomberg's market average. It touched 0.652 percent, the lowest level since May 1958, when the U.S. was emerging from a recession. The yield on the benchmark 10-year note dropped 15 basis points to 3.32 percent.

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