The Treasury Bill Yield That Just Hit 5%

The yield on the U. S. Treasury’s 13-week bill hit 5% this week and a day later backed off to 4.9% as the Philadelphia Fed reported what some could interpret as a softer kind of U. S. economy. Their manufacturing index came in at a -25% level, the sort of level usually associated with recessions.

Investors are looking for a “pivot” from the Fed to lower rates and the Philly data seem to make that more likely to some.

Nonetheless, even at 4.9% these yields are much higher than T-bills have paid in the recent past.

The other piece of this puzzle is that initial jobless claims climbed to 245,000 when most experts were expecting 240,000. It’s a sad fact that to money managers, fewer people with jobs also tends to reflect the much-anticipated softer economy and it’s thought that the pivot is lower rates is close.

(It’s uncertain that any “pivot” is close or that a date for its arrival can be correctly guessed but enough investors are convinced that stocks like Apple
AAPL
keep finding buyers. Are they getting too far ahead of the curve?)

Here’s what the chart looks like for 13-week T-bills:

Note that just 3 years ago, during the pandemic scare, these 3- month yields “paid” a negative 2.25% and that as recently as early 2021, they paid -.06%. The steady, relentless rise in rates hasn’t been seen like this since the Paul Volcker days. It’s not clear yet that the rising is about to stop and go the other way.

Here’s the chart for the yield on the 10-Year Treasury “offering:”

Typically – and by that, I mean year after year for years — the 10-year yield has been higher than the 13-week yield, but we live in interesting times. This “inverted yield curve” has economists worried about the likelihood of a recession. That’s what it’s indicated during other periods.

The 10-year yield appears to have peaked a few months ago at 4.30% (the chart shows basis points) and has dropped to 3.53%. That the shorter-term yield is significantly greater than this is remarkable and troubling: investors of bonds don’t want to go long-term?

Here’s the chart for the 30-year Treasury yield:

Similar to the 10-Year yield chart, this one seems to have peaked a few months ago but maintains a persistently high level for a longer-term bond. Again, it’s odd to see a 30-Year yield that comes in consistently higher than a 13-week yield, but that situation continues.

The benchmark iShares 20+ Year Treasury Bond ETF looks like this:

Is that a bottom in mid to late October, 2022? The rally off of that level appears to have stalled below 110 so it’s hard to say with certainty. Note that the 200-week moving average (the red line) has begun to turn downward, not a bullish sign to trend followers.