Why did a fund paying 97 cents on the dollar drive three-month T-bill yields to three basis points in a single week?
Loading…
The September 2008 yield moves, read as prices
Record the three-month bill's move from 3 to 49 basis points and the thirty-year's from 4.08% to 4.40%, state each as a price move, and note the inflation-premium reading of the long end.
A price as expectations; the Treasury's real risk
State that a price reflects what all market participants currently expect rather than a true value, then write the argument that Treasuries carry no nominal default risk and name the risk they do carry.
The Reserve Fund episode and the prime-fund run
Define breaking the buck with the Reserve Fund's roughly $0.97 per dollar, then trace the $310 billion flow out of prime funds into cash, government-only funds and T-bills to the collapsed bill yield.
Historical yield levels and annualized quoting
Record that Treasury yields across maturities largely move together, that the three-month bill has spent long stretches near 4% or higher, and that every quoted yield is annualized.