U.S. Treasury Bill Forward and Futures Prices

Joel Fried

Journal of Money, Credit and Banking, 1994, vol. 26, issue 1, 55-71

Abstract: For the period 1976-87 forward rates on U.S. T-bills averaged more than 30 basis points above the comparable futures market rates. Since risk is common to both rates, I argue that this difference can be explained by the substitutability of different maturity T-bills for money. Consistent with this hypothesis, I find that this difference depends positively on interest rates and the spread between the Federal Funds and 3 month T-bill rates, and negatively on the ratio of short term governments to broadly defined money. Also, significant shifts occurred in the relationship in October 1979 and August 1982, coinciding with changes in Federal Reserve operating procedures. Copyright 1994 by Ohio State University Press.

Date: 1994
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