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May 23, 4:05 PM EDT

Interest rates soar at US Treasury weekly auction


WASHINGTON (AP) -- Interest rates on short-term Treasury bills soared in Monday's auction, with rates on three-month bills reaching their highest level in more than seven years.

The Treasury Department auctioned $31 billion in three-month bills at a discount rate of 0.350 percent, up from 0.275 percent last week. Another $26 billion in six-month bills was auctioned at a discount rate of 0.480 percent, up from 0.370 percent last week.

The three-month rate was the highest since those bills averaged 0.355 percent on Nov. 10, 2008, at the height of the financial crisis. The six-month rate was the highest since those bills averaged 0.510 percent on March 14.

The auction followed a clear signal by the Federal Reserve last Wednesday, which caught many investors off guard, that an interest rate increase is likely next month if the economy keeps improving. The disclosure of minutes of the Fed policymakers' most recent meeting in late April tipped bond prices sharply lower, raising long-term interest rates.

The discount rates at Monday's auction reflect that the bills sell for less than face value. For a $10,000 bill, the three-month price was $9,991.1, while a six-month bill sold for $9,975.6. That would equal an annualized rate of 0.355 percent for the three-month bills and 0.488 percent 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 0.62 percent last week from 0.53 percent the previous week.

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