Yes, a five-year Treasury is riskier than a T bill, because a rise in interest rates would hurt its price.
Indeed, using more sophisticated means, including comparing T-bill rates to interest on commercial paper, the authors conclude that default led to a persistent increase in T-bill rates and, therefore, higher borrowing costs for the federal government.
FORBES: The Day the United States Defaulted on Treasury Bills
Easy money will continue to keep real rates (or the T-bill rate less inflation) negative.
Zivney and Marcus examined what happened to T-bill interest rates as a result of this small, temporary default.
FORBES: The Last Time the United States Defaulted on Treasuries
"Obviously, this was not easy news to hear, and I didn't accept Bill's decision right away, " he said.
Doesn't the bill that was vetoed kick adults, parents off the program and, in fact, put them into Medicaid?
Whereas it can indeed, risk free, lend out money at the T-Bill rate.
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Institutions are also nervous, as very short-term T-bill rates have spiked, therefore causing the yield curve to flatten out.
The 100-Minus-Your-Age maxim applied when the 10-year T-bill paid out 9% or 10%, like it did in the 1980s.
Thus, the compensation for having to wait for the money should be that T-Bill rate: the available risk free return.
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T-bill rates spiked upwards four times in the months around the default.
FORBES: The Day the United States Defaulted on Treasury Bills
This volatility is the price we pay for returns above T-Bill rates.
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But that didn't stop Bill Gates from predicting its future Tuesday morning.
Right now, the yield on the 12-month T-bill is .25% and the rate of consumer inflation as purported by the government is about 1%.
As best as they can tell, T-bill interest rates increased about 60 basis points after the first default and remained elevated for at least several months thereafter.
FORBES: The Last Time the United States Defaulted on Treasuries
The most violent contraction in RGDP occurred during 4Q2008, when the average spread between the 90-day T-bill rate and the IOR rate was the greatest, at -0.83 percentage points.
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While the IOR rate has been constant at 0.25% since December 2008, the 90-day T-bill has fallen from an average of 0.14% in November 2010 (when QE2 commenced) to zero today.
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Each security there pays nearly double the benchmark T-bill.
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Consider: the 10-year Treasury pays about 1.9%, less than half what it paid five years ago. 100-Minus-Your-Age applied when the benchmark T-bill paid out 9% or 10%, like it did in the 1980s.
With the IOR rate far above the 90-day T-bill rate, banks had no incentive to do anything with the huge volume of newly created reserves other than to sit on them, and sit on them they did.
FORBES: We Need QE3 Like We Need A (Jackson) Hole In The Head
Neither Prof Martin nor Mr Miles draw explicit conclusions for fiscal policy: they are not among those who are openly calling for Mr Osborne to move to a Plan B (though I don't think Bill Martin would oppose it).
Indeed, except for a few tv loudmouths and self-help salesmen, there's nobody on the list whose day job is to interpret real events. (We dropped a category for public speakers this year--that's why you don't see Bill Clinton--because it's such a static roster.) No matter: Click here to enjoy the names and faces as useful data points of a personality-obsessed era.
And a small business might wonder, I don't know how the energy bill is going to affect me, I don't know how the health care reform bill is going to affect me -- I'd better hold off on hiring.
Gephardt chastised the White House for aggressively pursuing moderate Republicans who have long supported the Norwood bill, portending political arguments if Republicans don't pass a bill before the long August recess.
"I don't mind having 'The Man' around--it's good to have a standard--and I wouldn't have a business if Bill Gates weren't out there getting incredibly rich, " Reeves says.
Cuomo, however, still hasn't released his bill which would require him to detail his position.
Mike is relieved that the Democrats didn't pass a bill before the August recess.
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