Troubled Investors Now Find Thrills in T Bills

Troubled Investors Now Find Thrills in T-Bills

James DiCio has spent much of the past eight years riding cryptocurrency’s double-digit gains and losses. Recently, the 24-year-old has found a hot new investment: short-term government bonds.

Tired of major swings in digital currencies, the Bohemia, NY pilot sold most of his crypto holdings last year, shifting his money from one of the most volatile assets to one of the safest. Now about 20% of his portfolio is invested in four- to 13-week Treasury bills, which are yielding up to 3.3% today, the highest since he was nine.

“I’m here, I’ve made so much money, and now I kind of want to protect it,” Mr. DiCio said. “You don’t really have a lot of other great options in this economy.”

Its shift mirrors the one taking place in the financial markets. The Federal Reserve’s rate hikes have fueled investor fears of a recession, propelling stocks into their worst first three quarters since 2002 and sparking a crypto routine.

Meanwhile, the two-year Treasury yield, which often rises when investors anticipate higher rates, has surged above 4% for the first time since October 2007. Investment managers say their clients are cautious, if not panicking, about the broader market.

Few see much light ahead. Many are expecting October to kick off with a dismal series of company updates. Analysts now expect S&P 500 earnings to rise about 3% year over year in the third quarter, compared to a 10% forecast at the end of June, according to FactSet. Investors will also spend the final months of 2022 scouring data for signs of a recession that many fear is inevitable.

That could inflict even more pain on stocks and longer-dated bonds, and increase the appeal of low-risk, short-dated Treasuries.

Rising interest rates pushed the two-year Treasury yield up to 4.206% on Friday, from 2.925% at the start of the quarter. That capped the biggest gain in the two-year yield in the first nine months of a year since 1981. The 10-year Treasury yield has risen more slowly, closing at 3.802% on Friday, compared to 2.973% at the end of June.

The result was a flood of money into long-ignored short-term government debt. In recent years, T-bills — debt maturing in a year or less — have often yielded next to nothing, serving primarily to grease the gears of financial markets as a close substitute for cash. Instead of receiving regular interest payments, investors buy T-Bills at a discount and receive the full principal amount at maturity.

Over the past month, funds investing in these debt and short-term debt securities have added an average of $4.4 billion per week, according to Refinitiv Lipper. Aside from the early pandemic market crash, this is the fastest recorded clip in data going back to 1993.


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Investors have also been pushing into auctions for newly issued short-dated Treasuries. In each of the Treasury Department’s two-year debt sales since March, individuals have collected more than $600 million in banknotes. Prior to this year, individual accounts hadn’t claimed that much in an auction for more than a decade.

This reversal came after a long period when short-dated Treasury yields largely disappeared. Bond yields, which rise when bond prices fall, fell sharply in 2007 at the onset of the global financial crisis and remained near zero for much of the next 15 years, a stretch of tame inflation and slow economic growth. Two-year yields rose in the mid-2010s as the Fed began raising rates, but peaked below 3% and fell again when the central bank changed course in 2019.

That long string of negligible returns made it easy for individual investors to ignore the Treasury market, said James Kruzan, founder of Michigan-based Kaydan Wealth Management.

In recent months, higher government bond yields have led to more phone calls.

Mr. Kruzan recently helped a client switch $200,000 from a bank’s money market fund into two-year government bonds. “Now they have an opportunity to at least settle north of 3%,” he said. “It’s been a long time since customers received competitive interest rates on cash and cash equivalents.”

Even adjusting for inflation, the attractiveness of short-dated Treasuries has improved.

A year ago, one-year government bonds were offering a yield of around 0.08% at a time when investors were forecasting inflation of just over 3% for about the year ahead. (Inflation was actually much higher at 8.3% for the 12 months through August.) This meant that someone who bought a one-year Treasury bill last September was expecting a real yield of about minus 3% when the bill matured. after considering rising prices.

Now, one-year Treasuries are yielding 4%, while traders are forecasting prices to rise about 2.3% over the next 12 months — a positive 1.7% yield after expected inflation.

Higher nominal yields have also made short-term Treasuries more attractive than other ultra-safe places to park cash. The typical US savings account offered less than a percentage point in interest in September.

Two-year certificates of deposit – which freeze savers’ funds for 24 months against higher interest rates – are doing slightly better but still lag behind government bonds. More generous CDs are now paying about 3.5%, according to

Most investors consider Treasuries ultra-safe because they believe it’s virtually impossible for the federal government to miss a bond payment. This distinguishes them from bonds sold by companies and local governments, which occasionally default under financial stress.

But Treasuries come with other risks. If the Fed hikes more than traders now expect, rates could fall further.

Price declines have plagued investors in government bonds this year. An ICE index, which tracks government bond yields with maturities of two years or less, is down 1.3% in 2022 despite rising interest payments.

Still, many investors are now happy to lock in some of the highest government bond yields in recent memory, said Tom Wilson, head of investment advisory at Brinker Capital Investments, which provides investment portfolios to financial advisors.

“When the Fed Funds rate was 0 to 25 basis points, the only way to get interesting returns without fees was to take on more risk,” Wilson said. “Now these possibilities are becoming more and more interesting.”

– Sam Goldfarb contributed to this article.

Write to Matt Grossman at [email protected]

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