Limbo Party

Do you remember Chubby Checker exhorting everyone to “limbo lower now” as we all partied in our stocking feet to a stack of 45’s in someone’s basement?  No?  Well, you should have been there, but I digress.  To keep up with its demands for spending money, our government conducts frequent auctions, selling Treasury Bills, Notes, and Bonds.  Despite the size of these offerings, demand continues to be strong, thereby preventing rates from rising.  In fact, given the concerns about economic health both here and (especially) abroad, huge amounts of money crowd onto the auction floor seeking the safety and liquidity our currency currently offers.  We are seen as the ultimate refuge in uncertain times.  Still, again echoing Mr. Checker, one must ask of interest rates, “How low can you go?”  Recently the Treasury Department completed a series of auctions that realized extremely low rates.  For instance, 3-year notes went off at 1.055%, the lowest yield in history, in the face of strong demand.  Three-month bills sold at auction to yield .15%.  That means if you invested $10,000 in one, at maturity you would bring home an extra $3.75!  Of course that’s taxable.  Six-month bills fared not much better, yielding .2%.  Ten-year bond yields fell below 3% at times this July and 30-year paper sank below 4%.  Imagine earning less than 4% for thirty years and apparently anxious to do so.  Many folks ask us here at Atlas Indicators when we think rates may move back up, when do we think inflation will take hold.  With rates where they are now and continuing to drop, perhaps our focus should be on deflation instead.