I featured the 3-month T-Bill Rate ($IRX) near zero last Wednesday and Mark Hulbert wrote about this phenomenon in is commentary for Tuesday. Based on my analysis, low short-term rates reflect Fed policy and put downward pressure on the Dollar. Chicago Fed President Evans suggested no-change in Fed policy until well into 2010. Low short-term rates and a weak Dollar have benefited stocks since March.
Hulbert suggest a potential disconnect between the stock market and the 3-month T-Bill Rate. The stock market is rallying like there's no tomorrow, but the 3-month T-Bill Rate is back at the crisis levels of November-December 2008. Investors were scared at the end of 2008, which explains why investors were will to receive almost no return (.20%) on their T-Bills. It is disconcerting that investors are again willing receive almost no return on T-Bills when the stock market is in a clear uptrend. It smacks of a flight to safety.
The chart above shows the 3-month T-Bill Rate with the main events of 2008. Bear Stearns was taken over in mid March, the Feds took over Fannie Mae and Freddie Mac in early September, Merrill Lynch was taken over in mid September, Lehman filed for bankruptcy on September 15th and the TARP was signed by Bush in early October. The 3-month T-Bill Rate was quite volatile from early September to mid November, but then moved to zero percent in late November. After a bounce in January-February, the rate peaked in March and declined over the last nine months. The 3-month T-Bill Rate hit .05% over the last few days, which is about as close to zero percent as it can get.
About the author:
Arthur Hill, CMT, is the Chief Technical Strategist at TrendInvestorPro.com. Focusing predominantly on US equities and ETFs, his systematic approach of identifying trend, finding signals within the trend, and setting key price levels has made him an esteemed market technician. Arthur has written articles for numerous financial publications including Barrons and Stocks & Commodities Magazine. In addition to his Chartered Market Technician (CMT) designation, he holds an MBA from the Cass Business School at City University in London.
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