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Attached is a chart of the 3-mo T-bill rate (top subgraph), the US Dollar Index
(middle subgraph) and a line (bottom subgraph) calculated as follows:
Tbill_Rate/USD_Index * 95.0. This line attempts to reflect the return seen by
holders of short-term US dollars held outside the US. The value of 95.0 was
chosen as a longer term average (and support level) in the USD index; it is
simply a scaling factor.
As you can see from the chart, in the early 90's the normalized TBill rate was
about 3.0%. During the economic boom, it hovered at 4.5% with a strong run to
7.5% in Q4-2000. Since then, and esp. post 9-11 this has pulled back to levels
not seen before of about 2.0%.
Given that the more normal historical range of the US index is 95-100 and the
IRX is about 3 to 5%, it seems likely that this spread will retrace to those
levels. If you're a futures trader, it looks like a short t-bill, short USD
spread has a big payoff with limited downside, but might take a year/two to
unfold.
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Attachment:
Description: "us_rates_vs_dollar.gif"
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