Treasury Bills Yields: Why Has the 4-Week Bill Rate Fallen

First, let’s take a glance at the current conditions surrounding the Treasury yield curve. Here are two points in time – March 1, 2023 and April 21, 2023. We compare the spread of the various Treasury maturities vs. the 10-year Treasury

Date	1 Mo	2 Mo	3 Mo	4 Mo	6 Mo	1 Yr	2 Yr	3 Yr	5 Yr	7 Yr
4/21/2023	0.21	(1.41)	(1.57)	(1.62)	(1.50)	(1.21)	(0.60)	(0.32)	(0.09)	(0.05)
3/1/2023	(0.66)	(0.81)	(0.89)	(1.01)	(1.19)	(1.05)	(0.88)	(0.60)	(0.26)	(0.16)

Source: https://home.treasury.gov/resource-center/data-chart-center/interest-rates/TextView?type=daily_treasury_yield_curve&field_tdr_date_value=2023

On March 1^st, the 4-week Treasury Bill rate was 0.66% higher than the 10-year Treasury rate. As of April 21^st, the 4-week Treasury Bill rate was 0.21% lower than the 10-year Treasury rate.

Now, let’s take a look at the trend of the 4-week Treasury Bill rate since March 1, 2023:

 

We can clearly see that after March 31, the trend has been clearly on a downward path.  

Fundamentally all prices follow the law of supply and demand all things being equal, the higher the demand, the higher the price; conversely, the lower the demand, the lower the price. Incorporating the supply side of the analysis, the same demand outcome will occur if supply is either held constant or increased at a slower pace than demand.

At a basic level, what we have seen for the 4-week Treasury Bills is that the demand of loanable fund from the government has declined, but the amount of money that the public has supplied hasn’t fallen at an equal or higher rate. Put another way, while the offering amount (supply) to sell Treasury Bills has fallen, the demand to purchase hasn’t fallen as much. That is, demand exceeds supply. And in the context of Bills (or any fixed income security for that matter), higher Bill prices means lower interest rates. You can see this by looking at the auction amounts from 4/20 and 3/2:

Auction Date	Offering Amount	% Change In Offering Amount	Total Tendered	% Change In Total Tendered
4/20/2023	50,000,000,000	-33.33%	150,597,577,600	-20.56%
3/2/2023	75,000,000,000	-	189,563,268,500	-

In the broader context of total government debt, the total debt held by the public has declined by approximately $24 billion since March 1, 2023; and the total government debt has increased only by approximately $1 billion, which is low, say if you compare the Feb 1 to March 1 period when total debt held by the public and the total government debt increased by approximately $23 billion and $4.5 billion respectively. Currently (4/20) total government debt stands at $31.45 Trillion.

The question then becomes why the decline? The answer lies in the current “debt limit”. By law the government is only able to borrow a maximum of approximately $31.4 Trillion. Currently (4/20) total government debt stands at $31.45 Trillion. The way the government is getting around to continue to borrow is to use what’s called “extraordinary measures”, which it can only legally do for a certain period of time. Right now the government can only borrow those funds that mature. For example, if only $50 billion of 4-Week Treasury Bills are due to mature, that’s the maximum the government can offer to purchase. That is ultimately the reason why the interest rate of Treasury bills have declined (i.e., higher demand and lower supply of T-bills).