http://stockcharts.com/h-sc/ui?s=$ust1m&p=D&b=5&g=0&id=0
What does this mean? thank you.




http://stockcharts.com/h-sc/ui?s=$ust1m&p=D&b=5&g=0&id=0
What does this mean? thank you.



Pretty simple.
You know the famous Feds Funds Rate? which is currently at 2.0%?
If you own a 1 month T-Bill, of say $100 you'll get 2% interest on that
Lets say you purchase this 1 Month T-Bill (Think of it as a CD) for $100 T-Bill for 1 Month
Assume the following story plays out in 1 single day, say Sep 16th 9:00am
After 1-month, Uncle Sam will return you $100 + 2% interest (0.17% per month)
i.e After 1 month Uncle Sam will give you $100.17
Now, I can buy this 1-month T-Bill from you at any point of time before the month.
Lets say its' 4:00pm on the same Sep 16th
Normally I'd pay $100 to you to get this $100 Bill. After all you can always use that $100 and purchase another $100 T-Bill and everyone is indifferent
Lets say there is huge shortage of 1 month T-Bills (usually during credit crisis). Now, you will not be willing to part with that precious $100 T-Bill for $100 face value, you will demand more.
I say Adelina, you know the $100 T-Bill that you have, I'll pay $100.10 for that. Depending on how much you want that T-Bill, you'd either give me the middle finger or be very happy to book a profit of 0.1% for one day or 36.5% annualized
So 1 Month T-Bills, instead of trading at $100, is now trading at $100.10
What happens to the interest rate that I get if I pay $100.10 instead of $100?
Since I paid $100.10, the actual Interest Rate I get is ($100.17-$100.10)*12 or 0.56%. In extreme cases I may pay $100.16 for that 1 month T-Bill which means I only get ($100.17-$100.16)*12 or 0.12% (which is what happened in the chart one fine day)
i.e Bond Prices go up, Yields go down.
So, when people run towards US Treasuries its yield drops down. Nothing to worry.
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