Time To Consider Short-Term Treasurys? Yields Have Hit An 8-Year High

by: Tipswatch


A 26-week Treasury just auctioned with an investment yield of 1.036%.

13-week yields are closing in on the 1% mark and may outperform your cash holdings.

These short-term Treasurys can be purchased without commissions or fees and are ultra-safe and ultra-liquid.

An interesting thing happened Monday and nobody noticed. The U.S. Treasury auctioned a 26-week bill, CUSIP 912796KX6, with an investment yield of 1.034%, the first 6-month Treasury to yield higher than 1% since October 2008.

Also Monday, the Treasury auctioned a 13-week bill with a yield of 0.915%, closing in on the 1% mark. And today, the Treasury auctioned a 4-week bill with a yield of 0.720%.

Short-term Treasurys - ultra-safe and ultra-liquid investments - are suddenly becoming competitive, and I am sure the nation's bankers are hoping you won't notice. Here's an 8-year view of the yields on 3- and 6-month Treasurys, showing the very sharp recent rise:

To put this in perspective, let's compare short-term Treasury rates from a year ago to today, based on the Treasury's daily estimates:

  • 4-week Treasury. 0.73% today versus 0.21% in May 2016.
  • 13-week Treasury. 0.91% today versus 0.24% in May 2016.
  • 26-week Treasury. 1.02% today versus 0.38% in May 2016.

The 26-week Treasury is now yielding very close to the best-in-the-nation rates (about 1.1%) for 6-month bank CDs. The 4-week Treasury - pretty much the equivalent of cash - is out-performing the 0.63% yield on Vanguard's Federal Money Market Fund, a classic cash account for many investors.

Investing in these short-term Treasurys is very simple. You can do it through a broker or just open an account at TreasuryDirect and invest with zero commissions or fees. Investments can be as small as $100.

Treasury bills are sold at a discount from the par amount, and the difference between the purchase price and the par amount is your interest. The Treasury auctions 4-week, 13-week, and 26-week bills every week. And TreasuryDirect allows you to schedule reinvestments so you can simply roll these short-term investments in a new issue, if you desire.

If you are holding a lot of cash, I think these short-term Treasurys are worth a look. They are more likely to react quickly to interest rate increases than a bank CD, as we have seen in recent weeks.

Disclosure: I/we have no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours.

I wrote this article myself, and it expresses my own opinions. I am not receiving compensation for it (other than from Seeking Alpha). I have no business relationship with any company whose stock is mentioned in this article.