The yield on one-month Treasury bills has fallen 128 basis points today to
2.79%. Two weeks ago, the rate stood at almost 5%. I cited a number of
factors Wednesday behind the plunge, including bets on Fed rate cuts, flight-to-quality, yield-curve bets related to expectations for a Fed rate cut and surplus fed funds.
In addition to those, many other factors are driving bill rates lower. The root of these factors is the deterioration in credit conditions, of course. A key factor is inflow into money market funds. Recent data from the Investment Company Institute indicate that money market funds are seeing substantial inflows of money. The inflows are boosting demand for T-Bills, a staple of money market funds.
Demand for bills is being accentuated by shifts out of commercial paper,
securities that account for the largest share of the holdings of money
market mutual funds. Another factor was yesterday's $28.4 billion Treasury
interest payment, and the paydown of roughly $41 billion of the Treasury debt
following the quarterly refunding.
In general, the shrinking size of the U.S. budget deficit is reducing the supply of Treasuries, including T-bills, which have shrunk roughly 10% to $892.1 billion since the supply of bills peaked in March 2005.
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Tony Crescenzi Blog Fed Has Not Cut Yet 8/16/2007 10:05 AM EDT The fact that the fed funds rate has remained so low has some thinking the Fed has already lowered its target.
Tony Crescenzi Blog T-Bill Rates Plunge 8/15/2007 4:35 PM EDT The chatter of rate-cut odds hit the Treasury bill market today.
Tony Crescenzi is the chief bond market strategist at Miller Tabak + Co., LLC, and advises many of the nation's top institutional investors on issues related to the bond market, the economy and other macro-related issues. At the request of the Federal Reserve, Crescenzi is a regular participant in the board's Livingston Survey of economic forecasters. He is also the author of the revised investment classic, The Money Market,
first published in 1978 by Marcia Stigum, and The Strategic Bond Investor. At the time of publication, Crescenzi or Miller Tabak had no positions in the securities mentioned in this column, although holdings can change at any time. Under no circumstances does the information in this column represent a recommendation to buy or sell stocks. Crescenzi also is the founder of Bondtalk.com, a popular Web site covering the bond market and the economy. Crescenzi appreciates your feedback; click here to send him an email.
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