This Day On The Street
Continue to site
This account is pending registration confirmation. Please click on the link within the confirmation email previously sent you to complete registration.
Need a new registration confirmation email? Click here

How Does the Fed Funds Rate Affect Treasury Bills?

Second, demand for Treasury bills is much more rigid than demand for notes and bonds. Treasury bills are the quintessential risk-free asset. Like all Treasury securities, they are free of credit risk. And as short-term instruments, they also are free of interest rate risk. Investors who want a totally risk-free asset -- or institutional investors that have internal requirements regarding totally risk-free assets -- have no choice but to buy Treasury bills.

"Treasury bill yields in general tend to be artificially low because a few accounts will sacrifice a good deal of yield for a legally risk-free instrument," Wrightsom & Associates chief economist Lou Crandall explains.

In other words, the mechanism that keeps Treasury note and bond yields from dropping too low -- people will resist buying them -- isn't present to the same degree in the bill market. Accordingly, a shortage of bills can cause their yields to drop sharply, regardless of where the fed funds rate stands.


3 of 3

Check Out Our Best Services for Investors

Action Alerts PLUS

Portfolio Manager Jim Cramer and Director of Research Jack Mohr reveal their investment tactics while giving advanced notice before every trade.

Product Features:
  • $2.5+ million portfolio
  • Large-cap and dividend focus
  • Intraday trade alerts from Cramer
Quant Ratings

Access the tool that DOMINATES the Russell 2000 and the S&P 500.

Product Features:
  • Buy, hold, or sell recommendations for over 4,300 stocks
  • Unlimited research reports on your favorite stocks
  • A custom stock screener
Stocks Under $10

David Peltier uncovers low dollar stocks with serious upside potential that are flying under Wall Street's radar.

Product Features:
  • Model portfolio
  • Stocks trading below $10
  • Intraday trade alerts
14-Days Free
Only $9.95
14-Days Free
Dividend Stock Advisor

David Peltier identifies the best of breed dividend stocks that will pay a reliable AND significant income stream.

Product Features:
  • Diversified model portfolio of dividend stocks
  • Updates with exact steps to take - BUY, HOLD, SELL
Trifecta Stocks

Every recommendation goes through 3 layers of intense scrutiny—quantitative, fundamental and technical analysis—to maximize profit potential and minimize risk.

Product Features:
  • Model Portfolio
  • Intra Day Trade alerts
  • Access to Quant Ratings
Real Money

More than 30 investing pros with skin in the game give you actionable insight and investment ideas.

Product Features:
  • Access to Jim Cramer's daily blog
  • Intraday commentary and news
  • Real-time trading forums
Only $49.95
14-Days Free
14-Days Free
AAPL $118.30 0.00%
FB $104.24 0.00%
GOOG $742.60 0.00%
TSLA $230.26 0.00%
YHOO $33.81 0.00%


Chart of I:DJI
DOW 17,719.92 -78.57 -0.44%
S&P 500 2,080.41 -9.70 -0.46%
NASDAQ 5,108.6660 -18.8590 -0.37%

Free Reports

Top Rated Stocks Top Rated Funds Top Rated ETFs