Short Term Rates Turn Negative -- Again

I have been discussing the decline in very short-term rates, especially those for the 1-month and 3-month t-bills. As of class today, those rates had fallen to 4 bp for the 1-month t-bill and 2pb for the 3-month, indicating an inversion for the 3-month relative to the 1-month rate. I noted that this may well signal the possibly that something will be occurring shortly, perhaps an upcoming equity market correction (although not necessarily a large correction).

Something did occur later today -- short-term t-bill rates went negative! Here is an article from FT discussing this fact. The article attributes the negative interest rates to a very strong demand by banks to have "pristine" assets on their balance sheets at the end of the year. While I have no doubt this is correct, does this explain the whole story? Consider the explanation above to be a hypothesis, not necessarily "the" fact about negative short-term rates.

My question is whether this appetite for short-term treasury debt is the cause or effect of other things occurring in the financial sector? In other words, the effect of shaky financial fundamentals or upcoming risk could be the year-end appetite for short-term treasuries. This is certainly something to think about. While the appetite for quality assets on bank balance sheets at year end certainly could be expected to put downward pressure on these short-term rates, would it be sufficient to move them all the way to negative values? I'm not so sure.

We'll have to wait to see how this plays out. Let me say, though, that I never expected to see negative short-term rates this soon after the economic free-fall of last fall!

POST SCRIPT: As of the next morning (Friday, 11/20), short-term t-bill rates have returned to positive, with the 1-month at 5.5 bp and the 3-month at 1.5 bp. Note the short-term rate inversion has been sustained. I continue to believe that this rate behavior signals underlying problems with the strength of our financial system that has in part, at least, been picked up by the stock market (recent pull backs). Here is another article written about this in Barrons, the more informative of the two to read.