All articles tagged with #treasury bills
Jim Grant warns that the US stock market may be overheated, highlighting Warren Buffett's shift towards safer assets like Treasury bills, with Berkshire Hathaway holding over $234 billion in T-bills, suggesting caution for investors amid a bullish market. Grant emphasizes the importance of considering safer investment options such as high-yield savings accounts and platforms like Public for uninvested funds.
Berkshire Hathaway, led by Warren Buffett, sold significant shares of Apple and Bank of America in the third quarter, indicating a view that the market is overvalued. Instead, Berkshire increased its holdings in short-term U.S. Treasury bills, which are considered ultra-safe assets. This move aligns with a broader trend of Buffett reducing stock investments, possibly signaling caution about current market valuations.
Certificates of deposit (CDs) and Treasury bills offer high annual percentage yields (APYs) of 5.00% or better, making them excellent options to maximize savings. Treasury bills are backed by the U.S. government and offer higher APYs than many other savings options, while CDs are backed by FDIC insurance and offer fixed interest rates. Both are taxable as income, but CDs are subject to federal, state, and local taxes, while T-bills are only subject to federal income taxes. The choice between the two depends on factors such as investment amount, time horizon, and liquidity needs.
The US Treasury is set to reduce the supply of Treasury bills, coinciding with the Federal Reserve's plans to taper its balance sheet unwind, which is seen as favorable for investors who have been heavily investing in the debt. The reduction in bill sales is expected to exceed $250 billion between April and June, reflecting a decrease in appetite for short-dated government debt. This move comes as the gap between money-market fund assets and total bills outstanding narrows, and the usage of a key Fed facility declines. The Treasury's efforts to term out the debt through larger coupon auctions are viewed as prudent in this context, as the market may soon reach a turning point in absorbing bill supply.
As the Federal Reserve anticipates interest rate cuts in 2024, financial experts recommend four savings options for investors seeking short-term places to park their cash. These include certificates of deposit (CDs) to lock in current higher yields, penalty-free CDs for flexibility without sacrificing interest, Treasury bills (T-bills) for a tax-advantaged and government-backed investment, and money market mutual funds for ease of access and competitive rates. However, yields on these products are expected to decrease following the Fed's rate cuts, so investors should consider acting soon to secure better returns.
Federal Reserve Chairman Jerome Powell's comments signaling a potential pivot to interest rate cuts next year have caused investors to reconsider their investments in short-term Treasury bills earning yields above 5%. The risk is that rate cuts could come suddenly, erasing these high yields. The market has reacted positively to Powell's comments, with stocks reaching record territory and benchmark 10-year Treasury yields dropping. However, experts caution that the Fed will remain cautious before implementing rate cuts, and economic data will continue to play a crucial role in determining the timing of the first rate cut.
Investors who have poured cash into money market mutual funds may face higher tax bills in 2023 due to rising interest rates. Money market fund yields are currently higher than any year since the Great Recession, resulting in taxable income for most investors. However, there are other investment options that can help minimize the tax burden. Tax-friendly options for cash include Treasury bills, which offer no state or local taxes on earnings, and tax-exempt municipal money market funds, which allow investors to avoid federal income taxes on earnings. The best option ultimately depends on an individual's risk tolerance and goals.
Billionaire hedge fund manager Bill Ackman has covered his short position in long-term Treasury bills, citing too much risk in the world and a fast-deteriorating economy. Ackman had previously bet on elevated yields due to higher levels of long-term inflation, but with bond yields surging and the benchmark 10-year rate surpassing 5%, he believes the economy is slowing faster than recent data suggests. The Federal Reserve's decision to keep benchmark rates higher for longer to combat inflation has contributed to the rise in bond yields.
Warren Buffett, CEO of Berkshire Hathaway, is unfazed by the Fitch downgrade of the U.S. government's credit rating, stating that his company is still purchasing $10 billion worth of Treasury bills every week.
Interest rates on I bonds have decreased since inflation has eased below 5%, making other short-term investments more attractive. While I bonds protect against inflation, they may not be the best investment option currently available. Online savings accounts, short-term Treasury bills, and floating rate ETFs are suggested alternatives. Holding I bonds to maturity guarantees no loss of principal, but if rates drop significantly, it may not be worth it.
The US debt ceiling is expected to be lifted this week, but investors are now pricing in the likelihood of higher Federal Reserve interest rates and the evaporation of any 2023 easing hopes. Futures markets see a 60% chance the Fed will lift rates by another quarter point to the 5.25-5.50% range at its June 14 meeting. With the debt deal set to tighten fiscal policy further out and fears of credit rate downgrades and default receding, U.S. 2- and 10-year Treasury yields fell about 5 bps on Tuesday compared with Friday's close.
The recent surge in Bitcoin and Ethereum prices has been attributed to the U.S. debt ceiling deal, but markets are now nervously eyeing the issuance of nearly $1.1 trillion in new Treasury bills, potentially sucking hundreds of billions of dollars from the market. Analysts warn that this could create an environment where markets are crash-prone. Additionally, economic data out this week could cue up further Federal Reserve interest rate hikes, which may hinder Bitcoin's weekend rally.
Yields on Treasury bills due in early June surged as investors avoided more at-risk bills, with rates on at least one instrument topping 7%. The bills maturing in that time frame are seen as most at risk of non-payment if the US government exhausts its borrowing capacity. The deadlock in debt-ceiling negotiations is adding to default concern around a number of soon-to-mature Treasury bills and also starting to dent investors' appetite for risk more broadly. The cost of insuring US sovereign debt against default with derivatives has also risen, signaling heightened risk, and attention is also beginning to turn to the major credit-rating agencies to see how they might react if the standoff goes down to the wire.
The resolution of the US debt-ceiling fight is expected to lead to a flood of Treasury bill issuance, with new bill issuance estimated to reach about $1.4tn through the end of 2023. Money-market funds, which have climbed to nearly $5.4tn in assets managed since the regional banking crisis erupted in March, are expected to be a key buyer of the bill supply. However, the bills may need to exceed the roughly 5% rate offered by the Federal Reserve's reverse repo facility by about 10-20 basis points to attract buyers. The 1-month Treasury yield rose to almost 5.6% on Tuesday, while the 3-month yield was 5.3%, according to FactSet.
Continued uncertainty about a debt-ceiling resolution pushed yields on Treasury bills maturing between early and mid-June toward 6%. The Treasury bill market is in a state of dislocation, with yields ranging from as little as 2.924% to as high as 6.141%. Investors and traders are factoring in at least some risk that the government could cross the X-date without a debt-ceiling resolution. The broader financial market appears relatively more confident that a debt-ceiling agreement can be reached by June 1.