Considering Moving Out of T-bills? A Guide to Determine What’s Next in Your Portfolio

T-Bill Key Points

Since mid-2022, when the Federal Reserve was in the midst of its aggressive hiking cycle, investors piled over $1.6 trillion into money market funds, which include Treasury bills (T-bills) and other short term instruments1 with more than $6.22 trillion in money market funds as of August 15, 2024.2

The combination of competitive yields and low risk — because T-bills are issued by the U.S. government — attracted investors. Since late 2022, the relative yield offered by T-bills and money market instruments has been attractive versus longer maturity Treasurys because of the inverted yield curve, where short-term yields were higher than long-term yields.

As a result, T-bills and other money market instruments have been more attractive to investors than longer dated Treasurys, which are more sensitive to interest rate movements. A feature magnified in recent years as bond returns broke historical inverse relationships with equities as inflation surprises resulted in both equities and bond prices moving in the same direction — undermining diversification benefits of longer dated fixed income instruments.

Today, this trend is likely to reverse as the Federal Reserve embarks on a likely rate cutting cycle which will impact T-bill rates, and potentially deploy T-bill assets out the fixed income curve. In doing so, the big questions are when to start moving, and where to go next.