Fed Rate Hike Has No Impact on Treasury Auctions

The Federal Reserve's increase in the federal-funds rate by 0.75 points now puts the rate band at 3.75-4 percent. The effective rate is the middle of the band, 3.83 percent. 

This rise was not at all reflected in the auction yields this morning, where the 4-week Treasury bill sold at 3.56 percent, and the 8-week at 3.845 percent. The 4-week yield is almost identical to last week's, up microscopically from 3.55 percent. The 8-week yield is up from 3.78 percent last week. This is the smallest yield hike in at least four weeks for this maturity class.

Both auctions raised their T/A ratios: 

• The 4-week bill tendered $166.1 billion, accepting $66.8 billion for a T/A of 2.49, up from 2.43 last week and 2.31 two weeks ago;
• The 8-week bill tendered $152.7 billion, accepting $56.5 billion for a T/A of 2.7, up from 2.62 last week, 2.52 two weeks ago and 2.42 three weeks ago. 

Notably, the volume accepted in both auctions are higher than the volume replaced: the expiring batch of 4-week bills was worth $52.2 billion at auction, while the expiring 8-week batch was worth $47.1 billion. 

This is contradictory to the policy that the Treasury ought to be pursuing, namely to shift more of its debt toward long-term securities. In total, Treasury bills currently account for an estimated 15.8 percent of total debt, up from 15.1-15.2 percent mid-October. 

Due to the rising volume of debt under the shortest maturities, our model estimates that the average interest rate on the total U.S. debt is currently 2.01 percent. This up from 1.87 percent a month ago. 

---

We do not give investment advice. 

This blog provides analytical information solely for the purposes of 1) predicting the cost of the federal debt, and 2) for assessing the risk for a U.S. fiscal crisis. All information published here, forecasting and other, is based on publicly available data from the U.S. Treasury, including but not limited to approximately 65 percent of the current debt; on macroeconomic data, including but not limited to monetary policy decisions by the Federal Reserve; and on macroeconomic theory.