Lowly T-Bills Are Suddenly Sexy. Yes, Treasury Bills!
If a long, ugly recession is in fact going to happen later this year, many investors will want to shift some additional money into cash. There’s good news: In July, yields on many cash-like investments, which means they're virtually risk-free and liquid, started soaring.
The best play right now may be short-term US Treasury bills, or T-bills, which have been touted by the likes of Warren Buffett and Bill Gross. They're government bonds that mature in a year or less and are auctioned off periodically by the Department of Treasury. You can buy them directly at TreasuryDirect.gov, through a bank or broker, or you can invest in them more broadly using an ETF, such as the iShares Short Treasury Bond ETF.
The shortest-term T-bill lasts just a month and is offering a rate of 2.6%, according to Bloomberg data. Three-month bills are paying 3.2% and one-year bills a generous 4.1%. It was 0.04% on a one-month T-bill just a year ago, 0.02% on a three-month and 0.07% on a one-year.
Overall, T-bill yields are likely to respond faster to rate increases by the Federal Reserve compared to online savings accounts or CDs.
Notably, the yield on a one-year T-bill is higher than the yield on a 10-year Treasury note, which is 3.9%. That means investors are getting paid more interest for locking up their money for a much shorter period of time.