Yields are going higher, and short term money rates are going higher. The Fed must either rubber stamp the move in the 13 week bill, or appear to have no control over rates.
The Fed doesn’t control rates directly, by waving a magic wand and pronouncing, “Abra cadabra, rates go up!” And poof, rates go up. The Fed controls rates by increasing or decreasing the supply of money, relative to the demand for credit.
The 700 pound gorilla of credit demand is the US Treasury. When it demands mass quantities, the Fed must either supply it, or the price of money, whose foundation is T-bill rates, rises.
The Fed has been cutting QE, its purchases of Treasuries, and is reducing those purchases to zero in a few weeks. It is reducing the supply of money. The US Treasury is still demanding money. T-bill rates have been rising for two months already as a result.
The Fed will follow the trend of T-bill rates, and rubber stamp the market as it trends higher. When the Fed announces these rubber stampings, the market will zoom along as if following the Fed, but in fact, the trend has already begun. It is the egg, and the Fed is the chicken. Cluck cluck cluck.
Primary Dealers Are STILL Positioned WRONG!
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