Management or Manipulation: The TIO Story

By: Bart | Mon, Sep 18, 2006
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A TIO is an abbreviation for Term Investment Option, and is a way for the Treasury to make extra income. From the treasury site here, the "Treasury will periodically auction excess operating funds to participants for a fixed term at a rate determined through a competitive bidding process." Another view of TIOs from the St. Louis Fed is here.

Now for some interesting quotes, with our comments and simplications, from a few Federal Reserve members over the last 17 years:

The running TIO total pool and the S&P 500, since early 2006

Just simply notice the very high correlations between the dates a TIO transaction starts and ends with the up and down moves of the S&P 500. Also note that TIOs aren't the only tool in the Fed's toolbox.

Management or Manipulation: You decide

Securities lending, bonds & Fed intentions and hopes

Another little known tool of the Fed used in managing interest rates is Securities lending, and it can be helpful to see what the Fed wants to have happen on the shorter term with bonds and interest rates. It's also quite illustrative of the strong effect that the Fed has and can have on those markets. Notice how Securities Lending operations have always led changes in interest rates since 2000.

Currently, it appears to us that the Fed want rates to go back up some, probably due to the yield curve inversion.

Web site:

TIO daily chart:
SecLend weekly chart:



Author: Bart


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