Holding cash, in other words, was an explicitly defensive decision for much of the last 12 years. Of course it offered a worse return than anything else in the market. That was the point. Holding cash was the price of security, an insurance policy against that prevailing gloom. And like insurance, it could be expensive. USD cash underperformed both the S&P 500 and the US 10-year every year from 2010 to 2020 except two (2013 and 2018).
But the idea that holding cash means paying for insurance is no longer accurate. US 6-month T-bill yields (3.1%) are the highest since late 2007 and offer 157bp more than the dividends of the S&P 500, 21bp more than US 10-year Treasuries and just 60bp less than the US Aggregate Bond index . For USD investors, cash has ceased to be a material drag on a portfolio’s current yield.
Thank you. I had no idea that new issue Treasuries were available thru brokerages. Thanks to your post, I was able to participate in the last auction without transferring funds to my bank so that TreasuryDirect could pull them. I owe you a beer.
Now that the Tbills are in your brokerage account you can easily sell them if you need to raise cash. You can also buy treasury securities at auction in an IRA.
Harry Sit has a lot of other good stuff at his website and it is worth going through it.
The U.S. Treasury’s reopening auction today of CUSIP 912810TE8 — creating a 29-year, 6-month Treasury Inflation-Protected Security — got a real yield to maturity of 0.92%. This was the highest yield for any auction of this term in more than 2 years.
With the 0.92% real rate and the 3.22% interest rate on the 30 year nominal bond, this implies a breakeven inflation of 2.3%. This is ridiculously low given our huge national debt and the continuing out of control spending.
But even given that mispricing, the tipswatch columnist says this is not for small scale investors who should stick to shorter terms.
I’m still hanging out with the ten year TIPS, and will be watching the Sept re-opening. I would like to say that if the yield gets high enough, I might look at a 30, but I don’t see that until late next year, at best.
Zerohedge says there were “ugly” two and five year auctions and this has driven the 10 year bond price lower and therefore interest up. So I think ugly means the demand for the bonds was lower than usual. The 10 year interest is approaching the highs from last June.
Yes, the 5 year bonds went out at 3.23%. I picked up some that I hope to sell next spring/summer. It is also, hopefully, a good sign for today and Mondays auctions of bills.
I’m not clear on the arcane monetary manipulations of the Fed but I think tightening involves getting rid of bonds on the Fed balance sheet and selling them to the market. This will probably drive up interest rates even more. With major impact on both the stock and bond market.
You’re right about the maturation, and as @shinobi pointed out, it’s relatively miniscule. However, I don’t think they’ve ever sold bonds. They’re just not buying as many.
I think a 75 BP increase in the fed rate at the coming meeting is almost certain. The bond market seems to agree. As of today, the six month T bill rate is 3.32% while the 10 year note is 3.11%.
For the TIPS fans, the five-year real yield is 0.58%
Between Feb and Aug, I expect rates to drop below today’s rates. They will go back up, I think before the end of the year, but don’t have a ton of confidence in that regard.
The real yields for all maturities of TIPS from Jan. 2023 to July 2052 are all greater than 1% as of today Sep 16, 2022. The shorter maturities are much higher. I’m going to be buying tips as my Tbills mature.
