I assume that under stable economy, US bonds with longer maturities should yield more.

However, the current 3 month bill yields 0.07%( 0.23% for 6 months bills), which is below the overnight interest rate(federal fund rate, 0.25%).

I think I have some misunderstandings here.Thank for helping.

Data source:



  • 1
    It is not typical but can happen: its called an "inverted yield curve" investopedia.com/terms/i/invertedyieldcurve.asp
    – user662852
    Nov 23, 2015 at 11:30
  • This seems to be more an economics question than a personal finance question. Could you clarify how this is related to your personal finance? Nov 23, 2015 at 13:12
  • 5
    @ChrisInEdmonton all they have to do is say there were considering buying one and were weighing the pros and cons, lol
    – CQM
    Nov 23, 2015 at 16:19
  • 1
    Fed funds rate is constantly changing and is not actually 0.25 ie it can easily be less than that by several bp
    – von Mises
    Nov 24, 2015 at 16:36
  • (@vonMises) since 2008 the funds 'rate' is actually a target range for the overnight-repo market, acknowledging that SOMA operates indirectly and cannot and never could set an exact rate; remember before the 1990s FOMC didn't even disclose their current target. So far this range is always 25bp, with the point target considered to be the middle of the range, but news reports often cite only the high end. In Nov 2015 the range was 0 to .25%, thus the point target .125% -- still higher than .07, but not hugely. Jan 8 at 6:53

3 Answers 3


Maybe someone will have more details, but a couple of things come to mind immediately:

  1. The T-Bills are tax-exempt at the state and local level, where as overnight interest is taxable. That will impact the rates.
  2. The T-Bills appeal to a different set of investors. The average individual in the US is not frequently moving in and out of T-Bills but probably has some bank account. Large institutional investors and especially foreign governments are the other way around.

Im not sure if its normal/sensical/healthy, and that is kind of opinion based. But there is a reason for it. Certain rules and regulations passed recently are causing companies or institutions to shift to bonds from cash. Fidelity, for example, is completely converting its $100 billion dollar cash fund to short term bills. Its estimated that over $2 trillion that is now in cash may be converted to bills, and that will obviously put upward preasure on the price of them. The treasury is trying to issue more short term debt to balance out the demand. read more here: http://www.wsj.com/articles/money-funds-clamor-for-short-term-treasurys-1445300813


I have been charting the CPI reported inflation rate vs . the yeald on the 10-year T-note. Usually, the two like to keep pace with each other. Sometimes the T-note is a bit higher than the inflation rate, sometimes the inflation rate is a bit higher than the T-note yeald. One does not appear to follow the other, but (until recently) the two do not diverge from each other by much.

But all that changed recently and I am without an explanation as to why. Inflation dropped to zero (or a bit negative) yet the yeald on the 10-year T-note seemed to seek 2%.

Edit: If you give this response a downvote then please be kind enough to explain why in a comment.

Edit-2: CPI and 10-year T-note are what I have tracked, and continue to track. If you do not like my answer then provide a better one, yourself.

  • Your answer doesn't really answer the question about whether the situation of one being lower than the other is normal - especially because you talk about CPI inflation versus 10-year Treasuries, whereas the question is about overnight federal funds rate versus 3-month Treasuries. Nov 24, 2015 at 12:45

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