Rate Cut will Help ?

I don't think so. I think bonds think so too. U.S. Treasurys rose today ahead of an anticipated rate cut by the Fed, as investors worried that the government's intervention may not be enough to stave off a recession.

Fed cuts its key funds rate by a half percentage point to 1%. Real funds rate is negative in U.S.

Treasurys usually sell off when rate cuts are expected, as they tend to be inflationary. But commodity prices moving down so pressure is decreasing about inflation.

Of course we cant be sure how bonds are going to react to the Fed decision. The yield on the 3-month bill fell to 0.68% from 0.74% yesterday. 10-year note rose 2/32 to 101-12/32, and its yield fell to 3.83% from 3.84. Bond prices and yields move in opposite directions.

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The yield on the 3-month Treasury bill is closely watched as an immediate reading on investor confidence. Investors and money-market funds shuffle money into and out of the 3-month bill frequently, as they assess risk in the rest of the marketplace. A higher yield indicates that investors are slightly more optimistic. Thats why 3 months yield is my indicator of credit crisis.


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Another indicator, the TED spread, measures the difference between the 3-month Libor and the 3-month Treasury bill, and is a key indicator of risk. The higher the spread, the less willing investors are to take risks.

Fed cuts rate today but i dont think it will help markets. But im gonna follow these indicators about confidince and risks for investors.