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Does it make any sense to invest in Treasury Bills?

timeMar 27, 2020 | 01:00 pmYuval Bar-Or

It probably doesn't make much sense to invest in Treasury Bills at this time. 

On March 25, 2020, the US Treasury posted slightly negative rates of -0.03% or -0.04% for T-Bill maturities up to 13 weeks (effectively 3 months).

The reason rates are so low (by March 26, 2020, the 4- and 8-week Bill rates eased just slightly back into positive territory), is that desperate investors are piling cash into Treasury securities, viewed as one of the few available safe havens during times of market turmoil. As these investors buy massive amounts of T-Bills, their demand is forcing prices up, and that simultaneously forces the yields on those securities down.

When investors are less fearful, they will sell T-Bills and use the resulting cash to invest in other securities. That selling pressure will force prices down, moving yields higher.

My thinking about T-Bills is best explained by describing the actions I've taken in recent years:

Over the past two years I've been gradually building up cash reserves, in anticipation of a slowdown in equity markets. 

I stored most of that cash in one month (4-week) maturity T-Bills. This meant I could have access to the cash very quickly, if needed. For convenience, I provided instructions to have maturing T-Bills reinvested automatically in the newest T-Bills issues. With interest rates gradually declining, the returns on these yields gradually came down over this period. 

When I began this cash accumulation phase those T-Bills were offering over 2% annually. But even before the coronavirus pandemic yields were steadily declining. As already noted, pandemic-related desperation drove yields down even further, into negative territory. 

Last week I removed all my automatic reinvestment instructions, to ensure my money is not tied up in negative yelding instruments. 

Over the next few weeks the proceeds of these maturing T-Bills will appear in my investment accounts, where they will be available for equity or other investments. 

If markets quickly regain their pre-panic heights, I may decide instead to invest those funds in real estate.