T-Bill Rates Are Creeping Up. The Fed Is Still Cutting. Something Has to Give.

Treasury bill rates rose to 3.87% in September, up from 3.79% in August and the fourth consecutive monthly increase. The puzzle: the Federal Reserve has been in a rate-cutting cycle, yet the rate the government pays on its shortest-term debt keeps climbing.

That divergence is worth watching carefully. When short-term market rates drift upward while the Fed is easing, it often signals that the bond market is doing its own math on inflation, fiscal supply, or both. The Treasury has been issuing enormous volumes of short-term debt to fund a deficit that shows no sign of shrinking. More supply means buyers demand better terms. The market clears at a higher rate regardless of what the Fed wants.

The year-over-year picture is still favorable on paper: T-bill rates are down 0.113 percentage points from a year ago, which means the government’s short-term borrowing costs are technically lower than they were in late 2025. But the six-month trend tells a different story. Rates have climbed steadily from 3.69% in May to 3.87% in September, a move of nearly 0.18 percentage points. Trends matter more than single prints, and this trend is pointing the wrong direction for anyone hoping that fiscal borrowing costs are coming down.

Historically, periods where short-term borrowing costs rise against a backdrop of high long-term rates and still-elevated inflation have increased the government’s interest expense faster than most budget projections anticipated. That compounds the fiscal math problem: higher costs require more borrowing, which pushes rates higher still. Business operators who borrow on floating rates or roll short-term commercial paper will recognize the mechanism immediately.

Bottom Line: The Fed may be cutting, but the market is repricing government borrowing costs upward anyway. The question worth asking is whether fiscal supply, not monetary policy, is now the dominant force setting the price of short-term money.

Source: US Treasury Fiscal Data

ON1010 Research is an independent publisher of economic education and is not a registered investment adviser, broker-dealer, or investment company. This content is for educational and informational purposes only and is not investment advice or a recommendation to buy, sell, or hold any security. Published under the publisher exemption recognized by Section 202(a)(11)(D) of the Investment Advisers Act of 1940 (Lowe v. SEC). Always consult a qualified financial professional before making any financial decision.