We've highlighted before why recent negative treasury bill yields aren't sustainable, aren't reason to panic, and are just due to end of the year window dressing by financial companies.
The excellent fixed income blog takes it further, highlighting commentary from CRT Research that basically supports this view. They interestingly add that the negative yields we're seeing might be partially caused by the fact that we have less investment banks and more 'plain vanilla' financial companies with December 31st year-ends.
It's a great example of how markets can be distorted by the absence of business variety.
Across the Curve: “We instead take our cue from activity in the financing markets, where year end is playing its hand – Jan bills are trading negative. The story here is not a new one as we saw bills negative at the end of the last quarter, but exacerbated by a more intense year end. We say that because 1) it’s clearly the talking point on funding desks, 2) EVERYONE has a Dec 31 year end as we have no investment banks any longer, [emphasis added] and 3) as bank holding companies there’s a likelihood that former IBs, too, need to show cash in something other than a mattress.
analyst whom I read suggested that an exacerbating factor was the maturity of some cash management bills which were not replaced.
Whatever the case, I am certain that the present circumstance is not an indicator of financial stress as plunging bill rates have been in the past.
Check out more from Across the Curve here.
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See Also:
- Post-Lehman Deja Vu As T-Bill Yields Turn Negative
- Swedish Central Bank Tries Negative Interest Rates To Force Banks To Lend
- Why T-Bill Yields Just Returned To Crisis Levels
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