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HomeMarketThe 6-Month T-Bill Breaches 5%. It Hasn’t Been This High Since 2007.

The 6-Month T-Bill Breaches 5%. It Hasn’t Been This High Since 2007.

Treasury yields reached their highest level in about 16 years.

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Al Drago/Bloomberg

The rate on U.S. six-month Treasury bills surpassed 5% today, reaching its highest level since 2007.

That’s good news for investors looking to earn even more on their short-term cash. It’s still not enough to offset inflation, however, which remains stubbornly high even as the latest government data show it slowing. 

Consumer prices climbed at a 6.4% annual pace in January, marking a slight slowdown from December’s 6.5% pace, according to the U.S. Bureau of Labor Statistics. Annual inflation has now declined for seven straight months.

The Federal Reserve has been increasing interest rates to combat inflation, and rates on bonds and savings accounts have subsequently increased. 

“As far as safety and a place to park your cash, Treasury bills have been king,” says Don Burrows, founder of Burrows Capital Advisors and a financial advisor at Cetera Financial Group. 

Investors can also consider laddering Treasury bills, which have terms ranging from four to 52 weeks and can be purchased directly from the government at TreasuryDirect. As the bills mature, you can either take the proceeds and use them for expenses, or you can roll them into other Treasury bills and take advantage of rising interest rates. 

Burrows says he has been laddering Treasury bills for his clients. Investors uncomfortable with a do-it-yourself approach may want to opt for a short-term bond ETF instead. 

Of course, even with government bonds, investors who don’t plan to hold to maturity have to worry about interest rate risk (Treasury prices move inversely to interest rates). “They’re the safest investment out there, but they are subject to interest-rate risk. So the longer the term, the more interest-rate risk,” Burrows adds.

More options. Banks, credit unions, and online banks have also been increasing interest rates on short-term CDs and high-yield savings accounts. That’s appealing to customers looking for a safe place for their emergency savings. Marcus by
Goldman Sachs,
for instance, offers a high-yield savings account with a 3.5% annual percentage yield and FDIC insurance. 

Investors with dry powder may have additional options. Asset manager Vanguard recently started offering investors the option to put funds in a cash deposit account, in addition to the default choice of a money market fund. Vanguard’s cash deposit account is FDIC insured and offers a 3.1% APY as of Feb. 7, according to the asset manager’s website. “We have begun exploring additional offerings for investors looking to meet everyday spending needs, safeguard for near-term priorities, or provide liquidity for other portfolio strategies,” the company said in a statement.

Money-market funds, which are not FDIC insured, invest in short-term government securities. They may also offer good rates; the Vanguard Federal Money Market Fund (ticker: VMFXX) had a 7-day SEC yield of 4.5% as of Feb. 13.

Write to Andrew Welsch at andrew.welsch@barrons.com

Credit: marketwatch.com

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