Thursday , August 22 2019
Home / David Stockman's Contra Corner / Treasury Bill Interest Rates Stay Sticky Near the Highs

Treasury Bill Interest Rates Stay Sticky Near the Highs

Summary:
Short term Treasury Bill interest rates have remained near their highs. That's despite the Fed announcing a less tight monetary policy, and despite a big reduction in Treasury supply. These are real, actively traded markets, so direct manipulation of phony rates like the Fed Funds rate are less of an issue here. We can see the reality of the stickyness of high rates, that are likely to go even higher in a few months. Note: This report is an excerpt from Here’s How Light Treasury Supply In April and May Create Selling Opportunities in Bonds and Stocks. Get 15% off if you subscribe today.    T-bill rates have been rangebound near the highs since December. The market hasn’t budged despite the

Topics:
Lee Adler considers the following as important: , ,

This could be interesting, too:

David Stockman writes Hey, Donald, Make America Competitive Again (MACA): Eliminate The Tax Wedge On Domestic Labor & Offset With Spending Cuts/More Benign Revenue Sources

David Stockman writes Inside Washington’s Low-Inflation Scam: How The BLS Disappears Housing Inflation

David Stockman writes Study This And Be Afraid, Very Afraid

David Stockman writes Draghi To German Savers: Spend You Foolish Bastards!

Short term Treasury Bill interest rates have remained near their highs. That's despite the Fed announcing a less tight monetary policy, and despite a big reduction in Treasury supply.

These are real, actively traded markets, so direct manipulation of phony rates like the Fed Funds rate are less of an issue here. We can see the reality of the stickyness of high rates, that are likely to go even higher in a few months.

Note: This report is an excerpt from Here’s How Light Treasury Supply In April and May Create Selling Opportunities in Bonds and Stocks. Get 15% off if you subscribe today.   

T-bill rates have been rangebound near the highs since December. The market hasn’t budged despite the widespread belief that the Fed will cut rates. The Fed will reduce its bloodletting rate from $50 billion to $35 billion per month in May, and will end the program in September.

"Bloodletting" is my name for the Fed's balance sheet "normalization" program. It's like medieval bloodletting because it drains cash, the lifeblood of the markets, from the financial system.

Conditions Were Ripe for Lower T-Bill Interest Rates But They Stayed High

In addition to the expectation that the end of normalization will ease financial conditions, Treasury supply has been lighter than usual in March and April. That should have taken some pressure off the money markets, allowing rates to fall. But it hasn't.

Treasury Bill Interest Rates Stay Sticky Near the Highs

Despite the reduction in Treasury supply and the Fed telegraphing its move to a less tight policy, T-bill interest rates have not come down. The money markets remain under upward pressure. In recent weeks there have even been T-bill paydowns, pushing cash into the market. That includes paydowns of $10 billion on April 2, and another $10 billion on April 9. Then on April 11, $26 billion will be paid down. Another $10 billion will be paid down on April 16.

Those paydowns should goose all the markets for a day or two. When the Treasury pays down maturing bills, the erstwhile holders of the bills get cash back, in lieu of rolling over the bills. The paydown of the bills creates a temporary shortage of them in the market. There's more money chasing few T-bills. The interest rates on the T-bills should come down. But they have not, at least not materially.

Instead, Money Has Rolled Into Stocks and Bonds

Instead, some of the money has been rolled into longer term notes and bonds. They have rallied and yields have come down a tad. And some of the money has rolled into stocks. That's likely to prove temporary. When more Treasury supply hits the market starting in June, that money is likely to come right back out of stocks.

The TBAC forecast optimistically calls for more paydowns through the end of May. The forecast expects $23 billion of bill paydowns in the last 2 weeks of April, then $102 billion in paydowns in May. That will be countered by the expected $39 billion in net coupon supply at the end of April and $99 billion in May.

Meanwhile, the TBAC forecasts relatively light supply in June as well. There's no third quarter forecast yet. Normally the rubber hits the road in the third quarter. That's when Treasury supply usually explodes to its highest levels of the year. It's when the markets will be most vulnerable. In the full report at Lee Adler's Liquidity Trader, I tell you what to do about it.

Get the full report right now and read Lee Adler’s Liquidity Trader risk free for 90 days! Satisfaction guaranteed or your money back. Subscribe by 11:59 PM Pacific Time, April 11 and get 15% off the published price. Applies to the initial price and all renewals. Price will be adjusted after order completion.

About Lee Adler
Lee Adler
Editor and publisher of the Wall Street Examiner- http://wallstreetexaminer.com and The Wall Street Examiner Professional Edition, a proprietary service for professional investors and sophisticated individual investors.

Leave a Reply

Your email address will not be published. Required fields are marked *