For many years, the stock market was the only realistic location to invest your money for a decent return. With the Federal Reserve raising interest rates, now there are other options.
Throw in the debt ceiling crisis, and even treasuries are looking attractive.
A short-term, risk-free return above 5%, what’s not to love?
Brief Background on the Debt Ceiling Crisis
Before getting into Treasury bills, it’s helpful to understand the ramification of the debt ceiling crisis.
So much of the world’s trade is done in US dollars; there are many reasons, but one is the trust in the dollar, especially since the US has never defaulted on its debt. If it were to do so, there would be terrible consequences.
Because of the United States’ history of always paying back its debt, it is regarded as a risk-free investment. Less risk = less reward. But with that lack of risk comes the guarantee of knowing you will get at least some yield in a world where positive returns are not guaranteed.
If the US defaulted, its debt would no longer be considered risk-free, increasing the rate the US has to pay on its. And with the US in $30 trillion of debt, that number would grow even faster at a higher rate.
How Treasuries are Performing
This past month, as the impending debt ceiling crisis was getting closer and closer, the treasury market started getting exciting.
Yields for every duration have increased since the beginning of May. And the shorter time until the maturity, the greater the increase.
What stands out to me the most is the one month. It increased by more than 1.5%. It’s worth noting that these are annual yields — so if you put $100 into a 1-mo bill, you wouldn’t end up with $106.20. It would be the one-month equivalent of it.
The 1-mo is up the most because if the US did indeed default, those would be the bills impacted first, and it’s assumed the US would raise its debt ceiling shortly after that to be able to pay later maturing debt.
Should You Invest?
With the Fed raising interest rates and my savings account now offering me a decent return on my money, I was curious if now was finally the time to invest in Treasuries.
If you have cash lying around, you can put it to use for a short time period. My savings account offers for ~4% interest rate. The government is offering a 6% rate on one-month or 5.25% on one-year bills. Both of those are more attractive and come with less risk.
Two things are stopping me from investing:
There are two things stopping me from pulling the trigger.
Navigating the Treasury Direct website to invest
Timing
Timing any market is impossible. The same goes for a market as vanilla as Treasuries. After waiting and waiting for rates to go up, they finally hit levels on Friday that I was willing to invest.
And then, Sunday the news came out that a deal was reached to raise the debt ceiling. With a new deal, rates will likely go down on Tuesday when markets open back up.
Although there is always the outside chance the deal does not get approved.
Whenever the ceiling is raised, and regardless of its impact on Treasury rates, it is still worth one’s time to consider investing in them.
I compare it to my savings account with a ~4% interest rate and the CDs they have at my bank. I could get a slightly better yield and rely less on keeping most of my money with one intuition.
I also compare it to the stock market. How much confidence do I have that in the next year, the S&P 500 will give me a 5% return? Personally, I think we are due for a small pullback in the coming months, and don’t know how long it will take to recover from that.
At the end of the day, it comes down to whether you have extra cash lying around and how keen you are to diversify your investments.
$Micro 10-Year Yield - main 2305(10Ymain)$ $Micro 2-Year Yield - main 2305(2YYmain)$ $Micro 10-Year Yield - Jun 2023(10Y2306)$ $Micro 2-Year Yield - May 2023(2YY2305)$
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