Treasury Bill Rates at 5%
The rate on some US Treasury bills, considered the safest investment in the world and just as good as cash, rose above 5% this week, a level not seen since early 2007.
The question investors should be asking is, why only 5%?
Break-even rates on Treasuries, which are taken as a measure of what traders expect the rate of inflation to be over the life of the securities. For 10-year notes, that rate is 2.31%.
It seems optimistic to expect that to be the average rate of inflation over the next decade, especially without further aggressive actions by the Fed and a recession.
The 20 years from 1986 to 2006 were designated the “ Great Moderation.” It seemed that rapid economic growth was possible with central bankers keeping inflation firmly under control without actions that might cause deep or long-lasting recessions.
The subsequent financial crisis in which central banks seemed to have little power smashed that idea, as did following events such as the European sovereign debt crisis.
The one evil the world was spared from 2006 to 2021 was inflation, but that reappeared in 2022 and central banks have not proven they can control it, much less control it without triggering long and deep recessions.
Locking in 3.85% for 10 years seems to have a lot more downside than upside.
Aaron Brown Bloomberg 17 februari 2023
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