[lbo-talk] Krugman on interest rate weirdness

[Tim Francis-Wright]

Doug Henwood wrote:
> On Mar 24, 2008, at 10:24 PM, Michael Pollak wrote:
> 
>> I'm not sure I follow this -- the 1 month T-bill is at 0.5% because  
>> the
>> market expects the Fed funds rate to come down 1.75% in the next  
>> month?
> 
> It's in the calculations - the assumption that the Fed will be  
> pushing short rates down.

I think the 1 month T-bill has been so low because some money managers
have nowhere else to park their funds right now:

Here is the Treasury yield curve for the last 5 trading days:
1 month:  1.16, 0.71, 0.26, 0.37, 0.67
3 month:  1.11, 0.92, 0.61, 0.63, 1.24
6 month:  1.31, 1.32, 1.22, 1.20, 1.60
12 month: 1.32, 1.40, 1.33, 1.33, 1.68
(http://www.treas.gov/offices/domestic-finance/debt-management/interest-rate/yield.shtml)

It seems clear enough that the Fed Funds rate is not the only determining
factor in what the 1-month T-bill does.

--tim francis-wright