Why is the 6-month T-bill rate so much higher than the 4-week T-bill rate?
Many analysts are concerned about the inversion between the 2-year and 10-year bond rate because such inversions typically foretell a recession. There is a different story at the lower part of the yield curve.
The 6-month T-bill rate was 83 basis points over the 4-week T-bill rate in December 2022. The average spread over 2001 to 2022 period was 17 basis points. The median spread, 10 basis points.
The 6-month to 4-week spread had been elevated throughout 2022.
Why is the 6-month interest rate now so elevated compared to the 4-week rate?
Investors could place 1/6 of their short-term assets in separate 6-month assets purchased at the beginning of each of 6 months. This staggered schedule would allow access, if needed, to 1/6 of short-term assets each month.
The only reason why investors would choose to put all funds in a 4-week asset is the desire for increased liquidity without any price risk from selling an asset. Why are investors now turning down the 83 basis points to put more funds in a 4-week T-Bill rather than staggering investments into 6-month T-bills with purchase and maturity dates in six consecutive months?
The author, an economist in Denver Colorado, has written a 2024 Health Care Proposal, which can be downloaded at Sellwire, https://app.sellwire.net/p/2Uv and at kindle https://www.amazon.co.uk/2024-Health-Care-Reform-Proposal-ebook/dp/B09YPBT7YS