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.

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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.

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