US t-bills as a stress indicator

1-year track^IRX&t=1y

3-month track^IRX&t=3m&l=on&z=m&q=l&c=
I’m a little worried by the trajectory of the 13 week t-bill in the US since the start of September.

Having started the month a little down on the previous range of 0.16-0.18%, it has today hit 0.055%.

This was a reliable stress indicator this time last year (see the one-year chart).

Know I know this trespasses on the fanciful (otherwise known as technical analysis), but is this anything other than ‘anniversary-nervousness’? Or is it history rhyming?

Few things probably, not really fear - TED spread is getting lower.

Coming up to some large turns for big US banks.

Sept Futures matured in Sept, always casues a wee jump.

Main thing is the weaking dollar, the FED buying long dated Treasuires as inflation fears grow and the value of long dated bonds, incl treasuires drop.

FED wants the yield curve to steepen, as do banks so they can go back to carrying the yield and extract some profitability.

Nothing really to see…no implicit market fear over and above the norm of late…

The unwind of the spoof and bluster trade?

Yeah, I was expecting that, but I was expecting it to creep (or bounce really) back up this month. It hasn’t.

Okay, that makes sense, I think. What you’re saying is that if inflation fears grow, then interest rates will rise, so it doesn’t make sense to be long, so money is moving increasingly short? !

Does this have any readover for euribor? Is the same worry about rates rising shifting money long–>short?

Year end is coming, people want to reduce duration and IR exposure and yet invest the cash somewhere safe if and when it is needed over the turn - money gets tight as the end of the year approaches.

But main reason is that people are starting to demand more of a yield to take long dated govt bonds, especially when the deficit is growing all the time. So they are away out thinking of where to put it. The safest place until they decide what to do is to place it in T-bills.

The may lose yield but they are risk adverse and its better not to lose PnL plus at the moment, the OAS spread, or should i say, the cost of doing IR swaps to hedge the fixed risk doesn’t justify entering into large long dated positions.

FED is trying to free up the money markets, push people back into CP and CD’s and at the same time inflation fears and long term hedging costs, (along with the FED manipulations) is pushing up the long end of the yield curve…

Is the Fed’s arm getting tired of playing whack-a-mole on the yield curve?

Thanks for that.

I don’t buy any of this.

When the markets were tanking, commodities plummeting, the dollar strengthening and the price of bonds soared during the first few months of this year, analysts correctly assumed it was the flight to safety, or fear trade.

Now that the dollar is retreating, bond prices are falling and the markets are roaring ahead, suddenly it’s the fear of inflation? Suddenly the rise in commodities is a hedge against inflation? Bullshit. It’s nothing more than a reversal of the flight to safety, as hot money chases riskier assets outside of the US and bids up commodities in anticipation of economic recovery. It’s a bull market trade. Nothing more.

Fear trade = Long dollar, long bonds, short commodities, short equity indices

Bull trade = Short dollar, short bonds, long commodities, long equity indices

That’s how you’ve made money in the last two years, and it’s still working like a dream.

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If you print more dollars and add a certain opaqueness to the future, you will have to pay a premium for this.

Yes, there is a certain return to the normal bull market if compared from earlier this year and this period last year.

But that wasnt a normal time.

At the moment, the value of the dollar has diminshed, and is continuing to diminish, if compared to a basket of good and fgn ccy’s. Inflation is being feared as we can see uture wage expectations rising as taxes will have to rise to pay all this money.

Trading munis, we are looking at current account deficits, forecasted cashflows and future dollar expectations along with the tax benift implied from tax free muni bonds and their associated MMD bonds. Taxes will rise, the dollar will weaken as more is printed and inflation will definitely be in the fore.

Wether i agree with the inflation expectations matters not, as I dont move the market and nor do i want to. I make money of realizing the market expectations and as such i am factoring in inflation expectations and the resulting affect on long dated bonds.

Money has left these, yields are being manipulated by open market FED operations and a recovery yield curve is being put in place to arrive at this end.

I believe that this is temp bounce and we will see a real dollar measured drop in the near term, but until then you ride the wave…

The TED spread is up again-> … EDSP%3AIND