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Large Drops in Short-Term Treasury Bill Yields


As this Bloomberg article describes, the yields on short-term US Treasury bills have dropped significantly over the last 5 days due to increased demand for safety. Three-month yields dropped the most since the stock market crash of 1987. Fear continues that money market funds may have invested in risky collateralized debt obligations backed by subprime mortgage loans. You can see in this Yahoo table how much the 3-month and 6-month yields dropped since last week. More historical rate data is available at this Federal Reserve page.

The Bloomberg article also mentions the growing expectations that the Fed will cut the funds rate next month. Some are even predicting a 50 basis point cut to 4.75%. Savings account yields often change with the fed funds rate, so the 5-percent-plus savings account yields that we have now may not last too much longer.

Thanks to the reader who emailed me the link to the Bloomberg article.

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Metroplexual   |     |   Comment #1
So what to do? Put the money in a 60 month cd @ 5.5%. Is the fed move a short term move, is it needed or is propping the dollar up the priority? I am confused as to where to put my money ($120K) short and long term.
SVG   |     |   Comment #2

Timing the CD terms, with an eye on what the FEDs might/might-not do is not too easy. You might want to consider timing bonds / currencies, as it is considerably less difficult.

However, please note that principal one uses to trade bonds/currencies has no insurance and there is no assurance that one will get any profit at all.

David   |     |   Comment #3
A factor that will play in todays yields may be directly related to the internet. For instance, http://www.dealace.com has begun a sales factor which will decrease yields abnormally. Great deals are good for the buyers; but bad for the economy.
Banking Guy
Banking Guy   |     |   Comment #4
According to this article, the rate cut next month may not be a sure bet. From the article:
Richmond Federal Reserve Bank President Jeffrey Lacker poured some cold water on hopes for an imminent interest rate cut, saying market turmoil only warrants a change in rates if it affects the outlook for inflation or growth.
Anonymous   |     |   Comment #5
I agree with SVG - figuring what the Fed may or may not do is difficult. Not only that, but they have several governors who don't always agree, so their public comments can give conflicting signals. Poole said on bloomberg TV they wouldn't cut short of a calamity, so I was thinking, ok, no major emergency cuts. Then next day Bernanke cut a rate (discount, not Fed funds). So there was a calamity, or not really, because they didn't cut "the" rate, rather an unused rate that no one cares about ... who knows?
You can usually find an equal number of articles and statements saying they will cut or hold (and probably a couple saying they'll raise).
What to do? Ah heck, I don't know ... try to spread out your money to diversify across long terms and short terms ...
SVG   |     |   Comment #6
Banking Guy,

>>According to this article, the rate cut next month may not be a sure bet.

I agree with 'anon'. Usually one can find lots of articles for/against sure-rate-cut/no-rate-cut on the internet, on the (so called) reputable web-sites.

Use of such articles to time one's decision about one's own (hard earned ?) money perhaps is quite questionable.

Lots of times these authors are paid to write such articles, not necessarily by the readers, therefore one wonders how much sense of duty these authors have towards the likely readers who might read such articles and might base their financial decisions on what they read.