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What's the T-Bill Market Saying?

There have been some odd happenings in the T-Bill space recently.
Security yields can tell you a lot about what's happening in a market. And sometimes, what's about to happen.

Back at the beginning of April, an upward breakout in U.S. commercial paper yields suggested traders were sensing trouble and dumping these securities. A few weeks later, the Greek sovereign debt problem broke full force, pulling down stock markets.

In a perhaps similar signal of "something wicked this way coming", T-Bill yields have been plunging the last two weeks.

The shortest-dated bills have been falling fastest. The 4-week security yield was down as much as 88% since the end of May. The 13-week bill dropped 59%. And the 26-week bill is down 35%.

US Treasury Bill rates

US T Bills

This is a sudden and rapid fall. During the financial troubles late in 2008, short-dated T-Bills were in high demand as nervous investors cashed out of a risky assets and looked for somewhere safe to park their money.

T-Bills gave them the ability to earn a little interest without locking up their money for a long time. Just in case things turned around and better investment opportunities presented.

The drop in yields over the last two weeks suggests investors are once again heading for safety. Not totally surprising, given the still-lingering concerns over European debt.

But the interesting thing is the timing. Europe's problems came to light six weeks ago. And most of the panic selling seems to be behind us. In fact, over the last week the Dow is up 5%.

So why are investors jumping ship into T-Bills even as stock markets seem to be recovering? Are they seeing something else on the horizon?

By. Dave Forest of Notela Resources




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Leave a comment
  • Anonymous on June 17 2010 said:
    Fearsome people would rather lose money, than take risks.
  • Anonymous on June 17 2010 said:
    What people sense is a monetary change from the threat of rising inflation to a protracted period of deflation. All the signs of the latter are clearly visible: massive defaults at all levels, falling wages and hours, a shrinking money supply (M1), collapsing commercial real estate prices, further weakness in home prices, the imploding euro, slashed commodity prices, and a dozen other indicators. Wake up boyz and grls, this is a whole new outlook -- and it requires a whole new survival strategy. Cash will be king. Get all of it you can, while you can.

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