Today's Major Market Move - 13-Week T-Bill (^IRX) Rate Up .03

Today we're going to move our focus over to the fixed income world, specifically the 13-Week Treasury bill (yahoo ticker: ^IRX). With all of the drama surrounding the raising of the debt ceiling in the U.S, this has created some turmoil in the short term bond market. This is particularly evident with the 13 week T-bill where the interest rate has gone from .005 to .09 in the span of a week and a half.


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The interest rate curve has been flattening out in the past couple of weeks as the short end gets sold and the long end is bought as a safe haven. The 10 year rate is all the way down to 2.80.


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There are competing forces at work in the long term US government bond market: on the one hand you have the default threat hanging over U.S sovereign debt but on the other hand you have the traditional safe haven role of U.S debt securities. So far the flight-to-safety effect has been the stronger of the two. There is also the fact that very few people actually believe that debt payments aren't going to be prioritized.

The 13-Week rate is still a long ways away from causing problems for the Fed. If the rate were to go above .25 (still 16 pips away) then the Fed would have to start seriously considering raising rates. This is the last thing that Bernanke would want to do, especially considering today's GDP data which showed that growth in the U.S. has slowed considerably. From the NY Times:

The three main indexes raced lower by about 1 percent shortly after the market opened, responding to the Commerce Department’s report that gross domestic product grew at an annual rate of 1.3 percent in the second quarter, well below analysts’ forecasts. The department also revised the first-quarter annual rate to 0.4 percent from earlier estimates of 1.7 percent.