2023 Theme: The Power Of US Treasury Bills & Why Own Them
One of our most deeply held financial convictions for 2023 does not, funnily enough, involve our core business.
At least not yet.
This may change in the year ahead but, for now, we would instead like to direct your attention to one of traditionally the sleepiest and most boring parts of the financial system:
Namely, the short term US Treasury Bill market.
It is true that we have made a push for esoteric parts of the US bond market before. Specifically, we have pointed out an even more neglected corner of the financial world that our present environment has suddenly made very popular, the I-Bond market.
We wrote about I-Bonds here and here. They are cool and if you were not yet a subscriber you should truly read a bit and find out more about a small way to protect some of your savings.
The Treasury Bill market is slightly different.
Treasury Bills are very short term debt obligations sold by the US government. These bonds range from 1 to 12 months and you typically hold onto these securities to maturity (the end of its lifespan).
The virtues of US T Bills are many, such as:
They are very short term. You will get your funds back in a few months or perhaps a year and then have the optionality to do what you wish.
They are sold in reasonably small denominations (typically $1000).
They are incredibly safe. They are backed by the full faith and credit of the US government and have next to no default risk. All jokes aside, that is about as good as it gets.
Longer maturity dates typically have higher yields etc but you can buy as many of whatever duration of bond that you want.
It is a bit strange to think of them this way but they are sold at a discount to par. So, you pay $960 for a 3 month Bill, for example, and after 3 months you receive $1000 from the US government. Money is still money though!
Here is the most important part:
At the time of writing the 6 month US Treasury Bill earns over 4.8% on an annual basis.
See here:
4.8%+ is a very decent return for something that has essentially zero default risk and a guaranteed return provided you hold it for half a year.
Compare that to the S&P 500 which currently has a very low dividend yield (in aggregate across all the index's companies) of around 1.7% and very low growth projections for 2023 and beyond.
There is also the fact that, as the Federal Reserve continues to raise interest rates, these yields should only go higher in the months to come.
Now those projections could always be wrong. As we covered above, the US economy has already proven to be more resilient and it is perfectly possible that the main US stock market indexes could have a decent 2023 but that doesn't mean buying and holding some Treasury Bills doesn't also make sense.
Most importantly, here is how to buy and hold US Treasury Bills:
Depending on your brokerage you may be able to buy them directly. You could either call them up the old fashioned way or do it online.
You can also buy them directly from the US Government, which is sort of wild. There is a website (of a sort) called Treasury Direct.
As we mentioned when it came to I Bonds, the Treasury Direct website is, frankly, a pain.
In many respects, the site is a throwback to a bygone age of the internet and not a well functioning one. It could almost be an advertisement for the technical fluency and ability of the government to put out a great website and should stay out of the game entirely.
So, there is no denying that Treasury Direct is a pain to use, a pain to look at, a pain to rely on but it does work!
It certainly doesn't have to be this way either. Perhaps one day Team Pebble will get a chance to build a better version and bring the power of I Bonds, Treasury Bills and more to your easy doorstep.
One last thought:
A thought experiment that it is sort of better not to do but is interesting to think about is the fact that you have to pay federal taxes on the money you make by lending your hard earned savings to the US Government.
This has always struck us as sort of bizarre. It might even be beyond screwy and be a rather ruder term we won't print. You are lending your funds to the government to help them fund projects and programs and in return they pay YOU (slightly) for the privilege and then you have to turn around and pay THEM a percentage for reasons that are sort of hard to pin down.
It makes your head spin and not in a good way.
Anyway, have a think about your savings and whether you might like to deploy some of it over a short time horizon for a pretty good gain.
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Have questions? Care to find out more? Feel free to reach out at contact@pebble.finance or join our Slack community to meet more like-minded individuals and see what we are talking about today. All are welcome.
