The inverted T-bill curve - an anomaly or a signal for another downturn?

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The 3-month T-bill consent has collapsed to newborn lows, yielding half a foundation point.




That effectuation if you locomote a meg dollars into 3-month bills correct now, in 3 months you module walk away with your meg nonnegative about 13 dollars. After inflation is taken into account, you are downbound about $3,000 (depending on the assumptions). Why would anybody do this?

Trading desks everyplace are told - we are done for the year. We've made out money for the year; let's alter it home. Unwind as such venture as you crapper before year-end. And every that cash is flowing into T-bills. Except that grouping don't poverty the 1-month bill because it module mature before year-end. There is such less liquidity at the 2-month point. That effectuation the 3-month bills are the only game in town for short-term liquid safe paper, even if the consent is set (negative real rates).

That bid for the 3-month essay has created an turned T-bill consent curve.



It's a strange phenomena because this flex implies perverse nervy rates (so such for the so-called "arbitrage-free" interest evaluate models). This effectuation the market sees short term yields going perverse before the end of the assemblage (this happened in Nihon a few years ago). One artefact to interpret this is the market is anticipating the frugalness to get worsened before it gets better - possibly anaemic holiday sales. Another is only a sudden modify in venture appetite finished year-end.


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