Interest rates paid on government-backed three-month Treasury bills dropped more today than in the wake of the September 11th terror attacks, and just under the plunge during the stock market crash of 1987.

T-bill yields have been falling for five straight days. Scared investors have been pouring money into the ultra-safe government-backed debt instead of mortgage-backed securities. The three-month T-bill fell 82 basis points (100 basis points equals 1%) to 2.94%, the largest drop since October, 1987, when the T-bill fell 85 basis points on the day the market crashed. By comparison, the T-bill dropped only 39 basis points on September 13, 2001. Today’s decline brought the yield to its lowest point since May of 2005.

A majority of insiders now expect the Fed to cut rates in the next 30 days, even after they cut the Fed Funds rate from 5.75% to 5.25% last week, between meetings. Interest rate futures traders predict a 100% chance that the Fed will lower rates by its next meeting on September 18th. 86% of those bets are for rates to drop to 4.75%, while the balance is for a cut to 5%.

Some experts predict this quick 1% drop in Fed Funds rates will precipitate lower mortgage rates as well.

Wouldn’t that be great news?