We’ve been getting a lot of questions lately about Treasury Bills (T-Bills), and for good reason. With markets volatile and inflation running hot, some investors are looking for a safe place to stash cash. Due to the rapid rate increases by the Federal Reserve this year, short-term treasuries are paying rates of return not seen in years.

As of this writing (November 2022) we are in a particularly interesting situation in that short term treasuries are paying better rates of return than longer-dated treasuries, due to the expectation that rates will continue to rise in the future. This, combined with the safety and liquidity offered by treasury bills, make short-term treasuries a great option for the nervous investor wanting an alternative to investing in the stock market.

Below is the yield curve as of 11/14/2022, showing shorter-duration treasury bills paying north of 4%.

Yield curve showing short term treasury bills paying north of 4%

Source: www.ustreasuryyieldcurve.com, accessed 11/14/22

What Risks are Associated with Investing in T-Bills?

If you’re thinking about investing in T-Bills, it’s important to have a clear understanding of the risks involved. While T-Bills are considered to be one of the safest investment options available, they do carry some risk. Below are a few risks to watch out for.

  • Opportunity Cost – Since T-Bills have very low risk, they often provide low returns. And although T-Bills are relatively short term, having your money tied up in T-Bills means it can’t be somewhere else potentially providing a higher return on investment.
  • Inflation – If inflation is running at levels higher than the return on the T-Bills, it erodes the value of the interest and if high enough, will eat into the principal. While this is a risk, keep in mind that most cash savings typically return close to 0%.
  • Interest Rate Risk – If new treasury bills are issued at higher interest rates, the value of existing treasuries will decline.
  • Default Risk – In a highly unlikely, but possible scenario, the U.S. could default on its debt and decline to repay bond holders at maturity.

What are the Benefits of Investing in T-Bills

Investing in T-bills can be a great way to build wealth over time and hedge against down markets. Here are some of the key benefits of investing in T-bills.

  • Treasury Bills are backed by the full faith and credit of the US government, so you can be confident that your investment is safe.
  • They offer a fixed rate of return, so you know exactly how much your investment will grow over time.
  • Treasuries are very liquid, meaning you can cash them in at any time without penalty (but will be subject to market pricing if redeemed prior to maturity).
  • They are exempt from state and local taxes, which can help to reduce your tax liability.

If you are interested in purchasing T-Bills or are sitting on a large amount of cash, you should speak with a Morgan Rosel investment advisor. They will be able to provide you with more information about how T-Bills can fit into your overall investment strategy and provide expert guidance on preserving, protecting, and growing your wealth.

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