The Treasury Bill Vigilantes Are Alive and Well

They just aren't doing what most people expect them to be doing.


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The Fed raised rates to 6.5% in 2000. What did the treasury bill vigilantes say?

"Oh no you didn't!"


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The Fed attempted to maintain 5.25% in 2007. What did the treasury bill vigilantes say?

"Oh no you didn't!"


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The Fed attempted to once again reach the "lofty" goal of just 0.2% in 2012. What did the treasury bill vigilantes say?

"Oh no you didn't!"

The following chart shows ZIRP in all its grandeur. The Fed is frozen near 0%. The treasury bill vigilantes are too. So is the spread between them. That's deer in headlights kind of frozen and there's long-term death of real yields written all over it.


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Things are going to get really interesting and/or terrifying if we enter the next recession with this as our starting point. Why can't more people seem to understand this? I am more bearish right now than I have ever been (and I've been a permabear since 2004). In my opinion, this is an awful time to be swinging for the fences.

And lastly, the Fed really dropped the ball on the housing bubble. Just look at that 1% spike in the last chart. Apparently Ben "There Is No Housing Bubble to Go Bust" Bernanke was dwelling on the wrong things as the treasury bill vigilantes ran for the relative safety of the bunkers. Go frickin' figure.

This is not investment advice.

Source Data:
St. Louis Fed: Effective Federal Funds Rate
St. Louis Fed: 3-Month Treasury Bill: Secondary Market Rate