Three Month Treasury Bills and The Variables That Affect the Rates
Three Month Treasury Bills and
The Variables That Affect the Rates
Abstract
This paper attempts to create two models that can predict fluctuations in three-month US Treasury Bill yields. Using both simple and multiple regression analysis, we analyze the independent variables traditionally associated with risk free U.S. money market interest rates including the Consumer Price Index, the Industrial Production Index, and the Unemployment rate over two periods, July 1990-March 2001 and March 2001-December 2012. In our analysis, we take into account the economic context during the time periods specifically, periods of recession that may alternatively affect the statistical models and outcomes.
OVERVIEW
The United States Treasury bill dates back to World War I when it was originally known as the Liberty Bond. The Liberty Bond was created to help finance the war effort. When the war ended, the bonds were converted into Treasury Bills. Short-term money market securities, namely, Treasury Bills, are considered to be the lowest risk investment because the security is backed by the full faith of the U.S. Government. Treasury bills are typically purchased at a discount. No interest payments are made to the investor and gains are realized at maturity when the bill is paid out at its face value. There are a number of variables that commonly affect short-term money market interest rates. According to The Federal Reserve of Bank of San Francisco, there are five major contributing factors including supply, demand, economic conditions, monetary policy and inflation. Specifically, we explore the effects of the Consumer Price Index (CPI), the U.S. Unemployment rate (UNRATE), and the Industrial Production Index (IPI) on the three-month U.S. Treasury Bill Constant Maturity Rate (GS3M). The Consumer Price Index measures the average change over time in the prices paid by urban consumers for a market basket of consumer goods and services. More specifically relating to
The Variables That Affect the Rates
Abstract
This paper attempts to create two models that can predict fluctuations in three-month US Treasury Bill yields. Using both simple and multiple regression analysis, we analyze the independent variables traditionally associated with risk free U.S. money market interest rates including the Consumer Price Index, the Industrial Production Index, and the Unemployment rate over two periods, July 1990-March 2001 and March 2001-December 2012. In our analysis, we take into account the economic context during the time periods specifically, periods of recession that may alternatively affect the statistical models and outcomes.
OVERVIEW
The United States Treasury bill dates back to World War I when it was originally known as the Liberty Bond. The Liberty Bond was created to help finance the war effort. When the war ended, the bonds were converted into Treasury Bills. Short-term money market securities, namely, Treasury Bills, are considered to be the lowest risk investment because the security is backed by the full faith of the U.S. Government. Treasury bills are typically purchased at a discount. No interest payments are made to the investor and gains are realized at maturity when the bill is paid out at its face value. There are a number of variables that commonly affect short-term money market interest rates. According to The Federal Reserve of Bank of San Francisco, there are five major contributing factors including supply, demand, economic conditions, monetary policy and inflation. Specifically, we explore the effects of the Consumer Price Index (CPI), the U.S. Unemployment rate (UNRATE), and the Industrial Production Index (IPI) on the three-month U.S. Treasury Bill Constant Maturity Rate (GS3M). The Consumer Price Index measures the average change over time in the prices paid by urban consumers for a market basket of consumer goods and services. More specifically relating to