T-Bills Headed for 0% May Force the Fed’s Hand
While all the focus has been on long-term yields, the front end of the curve is nearing the danger zone.
It will probably be up to them.
Photographer: Elijah Nouvelage/Bloomberg
The Federal Reserve decided not to extend the weighted average maturity of its asset purchases at its meeting this week, with Chair Jerome Powell arguing that longer-term interest rates are already plenty low enough to bolster the economy through what are hopefully the final months of the coronavirus pandemic.
While many in financial markets were scrutinizing the potential implications of lowering 10- and 30-year yields, those who closely watch front-end interest rates were asking a much different question: What will the Fed do to keep short-dated Treasuries from hitting zero? That is to say, they had fewer qualms about the central bank buying a greater share of long bonds and bigger concerns about it not easing up on purchases of short-term securities.