marctomarket.com / by Marc Chandler / May 11, 2015
US government debt managers may be envious of many European countries that are able to sell debt with a negative yield. The Federal Reserve has made it clear that it intends to begin normalizing interest rates when it becomes more confident that its mandates will be achieved. Fed officials think such an opportunity will present itself later this year while a number of market participants doubt that it will hike rates this year.
Nevertheless, US T-bill yields are near zero. Today the four-week and three-month bill rates are a single basis point. The six month bill is yielding 7 bp. The yield on the shorter dated bills turned negative at the end of April.
The low yields are not a reflection of expectations of Fed policy. Rather they can be explained through simple supply and demand functions. Essentially, supply is limited, and demand is robust. In fact, with last week’s quarterly refunding, the US Treasury indicated it would boost bill supply. It did not provide details of amounts or timing.
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