This is actually a good thing.
Longer dated securities should pay more than shorter, unlike most of 2024 when Bills paid far more.
Bills yields on average on Friday match the Daily Federal Funds rate exactly, falling in tandem with it in 2024 from the 5.33 range to 4.33 now. They've been pretty stable at this level for five weeks now.
The fall in Bills yields actually ran in front of the Fed decision to make the first rate cut in September by many months.
The fall commenced after May when the Fed announced it would institute a slight decrease to its tighter money policy through balance sheet operations involving UST beginning in June.
Bills yields fell hard for four months into September even as core inflation year over year remained flat at 2.7% over the period. Investors locked in higher but rapidly disappearing return.
Yields on Notes and Bonds also plunged, but against most predictions they rebounded in the face of the Fed rate cuts, which is quite amusing. Longs got their lunch eaten.
The simplest explanation is that longer dated securities anticipate more inflation, and the Fed simply pushes on a string. Bond vigilantes demanded more return for the rising risk.
People who didn't appreciate fixed income turning into a casino like the stock market hid out in cash and did just fine. VMRXX returned 5.24% last year.
There are over $6 trillion in T-bills outstanding at the end of 2024 vs. $2 trillion to start 2018, out of a total of approximately $28 trillion total UST outstanding.
Unfortunately for buyers of houses and cars, long money is going to cost you more, as yields on Notes and Bonds climb again in anticipation of recalcitrant inflation and increased deficit spending under Trump.
The average four year new auto loan was 9.36% and the 30-year mortgage 6.93% last week.
