Yield-Hungry Investors Are Feasting on T-Bills

[mahatmakanejeeves]

I don't have a subscription. I took a few pictures of the page, and I'll be typing the text into place.

TREASURIES | FEATURE

Yield-Hungry Investors Are Feasting on T-Bills

By Andrew Bary
May 26, 2023 11:22 am ET

T-bills—Treasuries issued with maturities of one year or less—have become one of the hottest investments around. And why not?

Their yields have risen steadily since early 2022 as the Federal Reserve has lifted its key short-term rate from near zero to 5%, and T-bill rates, at about 5.3% for three- and six-month maturities, easily exceed the inflation rate, which has fun at 3.6% over the past six months, measured by the consumer price index.

Now people are buying record amounts of T-bills, both at regular Treasury auctions and through exchange-traded funds. Individual investor demand surged to $13.4 billion in April, based on noncompetitive bids, a good proxy for individual investor demand, up from $1.6 billion in January 2022.The SPDR Bloomberg 1-3 Month T-Bill ETF (ticker: BIL) has $30 billion in assets, double its January 2022 total, while the iShares 0-3 Month Treasury Bond ETF (SGOV) has nearly doubled, to $10 billion, in the past six months, Morningstar reports. "Amid rising rates, fixed-income securities are back in vogue, and arguably none with as much vengeance as the historically sleepy T-bill," writes Chri Larkin at Morgan Stanley's E*Trade division.

{snip, then more typing}

The Treasury auctions four-week, eight-week, 13-week, 17-week and 26-week T-bills each week and 52-week bills every four weeks. Individuals can buy bills through the TreasuryDirect.gov website, with a $100 minimum, or via regular auctions through brokerage firms such as Fidelity E*Trade, usually without paying a fee. Treasury bills are sold at a discount from face value, with investors paid face value of $100 at maturity. The difference is the interest payment. For example a 17-week bill was sold last at week at $98.26 with investors getting $1.74 at maturity as interest. Conventional bonds typically sell at face value and make cash interest payment.

Many investors reinvest the proceeds of maturing T-bills in newly auctioned ones, a process known as rolling. It's best to hold a T-bill until maturity; a sale prior to the redemption date can be costly, due to fees charged by securities brokers.

{snip}

[multigraincracker]

1. How and where do you buy T Bills?

I bought an 11 month CD that was at 4.5%. Asked the bank about how to buy T bills and all they said was "from the government". So, how do I do that?

[mahatmakanejeeves]

2. Couple ways. The article goes on to explain them. I'll add that text.

I'm reading off the text from a couple of pictures on my smartphone and typing it in. No kidding.

Also, you can buy them directly from TreasuryDirect.gov. Set up an account, if you haven't already.

And good morning.

[multigraincracker]

3. Thanks, my CD

comes due in Sept.

[mahatmakanejeeves]

4. I did some more typing.

Last edited Mon Jun 12, 2023, 01:44 PM - Edit history (1)

T-bills give you a lot of flexibility for maturity. You can ladder them, so that there's one maturing every time you turn around.

[multigraincracker]

5. Looks like, I think it wa,

3 months interest are the highest.

[A HERETIC I AM]

6. Current US Treasury Yields from Bloomberg

Last edited Mon Jun 12, 2023, 02:14 PM - Edit history (1)

https://www.bloomberg.com/markets/rates-bonds/government-bonds/us


Just to make sure this is clear, the yield quoted for paper of less than 12 months maturity is ANNUALIZED yield.

In other words, if you bought $1000 face value of the 3 month Bill, you would have to roll it 3 more times at the same yield in order to realize that 5.24% quoted at the link above. You aren't going to realize $52.40 in 3 months, rather you would gain one quarter of that, or about $13.10. $13.10 X 4 = $52.40 on one thousand dollars face value of this paper.

Here is a page from TreasuryDirect showing the auction results for 91 day T-Bills. Note the price. It says "98.698194". If this is purchased as a $1,000.00 face value bill, then it's easy to figure how much it costs by just moving the decimal over one place to the right. - $986.98. At the end of the 91 days the Treasury will redeem this bond for one thousand dollars, giving you a gain of $13.02. Again, as I said above, roll that 3 more times at the same price and you have a 5.208% yield. Of course the yield can and does change, so there is no guarantee that the next time you go to buy 90 day paper it would have the same yield. It could be less or it could be more.

It's important to remember that these prices are not engraved in stone, and the linked page is an auction result, not a sales contract or retail pricing sheet. Since this paper trades robustly on the secondary market, you can expect to pay either more or less on the day you buy, based on market trends that day.

As far as where these securities can be purchased, other than setting up an account with TreasuryDirect, any retail brokerage firm that has a bond desk (which is most of them) can sell you Treasury Bonds. They may have a purchase minimum however, of perhaps $5,000 or more.


Lastly, this current situation is a classic example of what is called an "inverted yield curve" meaning the shorter maturities have a higher yield than the longer ones.

[mahatmakanejeeves]

7. Thanks for writing. I appreciate your insight.

And good afternoon.

[A HERETIC I AM]

8. You're welcome.

Hope it helps,

[mahatmakanejeeves]

9. I missed this week's auctions.

I’m scrubbing the bathroom floor. Believe me when I say that’s a higher priority.

[A HERETIC I AM]

10. LOL!

Well, it isn't something I am breathlessly waiting for either!

But we all need a clean place to do our business!