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Will someone help understand the 'economics' of falling rates of return on short term treasuries?

For securities already out, there is no effect, unless you wish to sell one which you hold. They'll continue to pay the rate listed on the face of the security at maturity, along with your principal.

You think anyone would buy a bill where the rate could change willy-nilly? Now, once you get your funds and want to buy a new bill, you'll have to pay the going rate.

What I cannot see is why anyone with capital to invest would invest in an instrument whose interest rate seems to be falling to 0% or into 'negative territory.'

Because they want safety. And although I understand rates did fall to zero briefly during the Depression, I doubt that will happen again.

True, with the Bush inflation factored in, you don't get much (any?)of a return.

Take a look at TIPS. Inflation protection there, though they are longer term, as I understand it.
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