Stocks rallied today but were unable to recoup losses posted Friday which ended the worst-performing week of 2023. Despite ups and downs, stocks have historically been one of the best long-term investments. However, the rocky performance of stocks over the last year and rising interest rates make U. S. Treasury Bills more appealing than just a year ago.
“I think Treasury bills are a great option for the short term,” says Stephen Scott, a certified financial planner in Tampa, FL with Abacus Planning Group. “There are a lot of options in cash right now from money markets to I-bonds. You just have to be nimble.”
Stock Declines Worst Since 2008
All three major Wall Street indexes posted losses last year. That was the first time that happened since 2018. In addition, it was the largest decline since 2008.
The Dow Jones Industrial (DLI) Average skid 8.9 percent in 2022. While the S&P 500 dropped by 19.4 percent and the Nasdaq fell by 33.1 percent. The Nasdaq is loaded with far more tech stocks than the other indexes.
Treasury Bills Explained
Similar to Treasury bonds and notes, T-bills are a loan to the federal government that is paid back with a profit. The difference between these Treasury securities is that bonds and notes have a longer maternity period than bills.
Treasury bills are bought at a discount for a specified period of time. At the end of that time, you redeem the bills at full price (par value). Your profit is the difference between the discount purchase price and the full value price.
Maturities for T-bills range from four, eight, 13, 17, 26, and 52 weeks. They are purchased in increments of $100 up to $10 million.
You can buy Treasury bills through TreasuryDirect.gov or a broker.
Safety has always been a big attraction of T-bills because they are guaranteed by the government. The downside has always been a low rate of return. However, the Federal Reserve Bank’s (Fed) rate hikes have made T-bill yields more attractive.
Rapid T-Bill Rate Rise
A year ago in January, the one-year Treasury bill only paid 1.8 percent. Today it is above 5 percent. The 4-week Treasury bill is 4.55 percent.
The speedy rise of T-bill rates is a direct result of the Fed’s push for higher interest rates to combat inflation.
The Fed raised rates seven times last year. That included four .75 increases in a row. The central bank let off the throttle in December with a .50 rate hike. In addition, this month saw another increase with the federal funds rate rising to 4.65 percent.
Though more Fed increases are expected, Scott sounds a note of moderation.
“You might not do as well with Treasury bills long-term,” says Scott. “No one has a crystal ball for interest rates, but over a month or several months there is certainly an opportunity to earn a good return.”
Read More:
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Max K. Erkiletian began writing for newspapers while still in high school. He went on to become an award-winning journalist and co-founder of the print magazine Free Bird. He has written for a wide range of regional and national publications as well as many on-line publications. That has afforded him the opportunity to interview a variety of prominent figures from former Chairman of the Federal Reserve Bank Paul Volker to Blues musicians Muddy Waters and B. B. King. Max lives in Springfield, MO with his wife Karen and their cat – Pudge. He spends as much time as possible with his kids, grandchildren, and great-grandchildren.
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