Why are US T-bills on everybody's lips? Why are US T-bills on everybody's lips? Why are US T-bills on everybody's lips?

Why are US T-bills on everybody's lips?

Althea Spinozzi

Head of Fixed Income Strategy

Summary:  US T-bills offer an average yield of 5%, the highest in over fifteen years. In other words, amid a highly uncertain market context, you get paid to stay on the sidelines and wait for more favorable market conditions. As the Federal Reserve hiking cycle peaks, T-bills are preferable to US-Treasury floaters. Investing in short-term government bonds in the Saxo Platform is straightforward and compelling as they are one of the safest investments available to USD investors. Yet, you should know that they carry significant interest rate risk and are exposed to the debt ceiling problem.

Whether or not you have been an active investor, paying attention to the bond market has become necessary. The US yield curve is inverted; therefore, short-term US government bonds offer a higher yield than long-term bonds, providing an opportunity not seen in markets for more than fifteen years.

Simply put, investors are getting paid to park money while an overvalued market builds up for another crisis. Besides, T-bills offer an alternative to deposit interest rates, as they continue to be below the yield provided by money markets.

Investing in short-term US government bonds is compelling even for active traders. When looking at the Saxo universe, bonds can be used as collateral for margin trading. That means that professional clients can put cash at work in US government bonds, receive interest payments, and use collateral to trade other products.

T Bills: what are they, and how do they work?

  • T-bills are short-term government bonds issued by the United States with four, eight, 13, 26, and 52 weeks of maturity.
  • T-bills do not pay regular interest payments, as do coupon bonds. T-bills are issued at a discount, and investors are paid par value when the bill matures.

What are the risks involved?

T-bills are one of the safest investments available to USD investors. Yet, you should know that they carry interest rate risk and move substantially around the debt ceiling issue.

T-bills' interest rate risk derives mainly from the Federal Reserve monetary policies. If the central bank hikes interest rate, existing T-bills will drop in value since their rates are less enticing than those available in markets. Given that the Fed interest rate hiking cycle is peaking, T-bills become a preferable investment compared to US-Treasury floaters, which coupon rises as the rates increase.

At the same time, the recurring debt ceiling turmoil increases volatility in certain T-bills because the market fears the federal government will run out of money to pay its bills if it’s not allowed to issue new debt. The market is currently pricing the debt ceiling to become a problem in summer, pushing yields of those T-bills maturing between June and September higher. That’s the reason behind a yield above 5% for summer maturities, while longer T-Bills maturities offer less than 5% in yield. Nonetheless, the market understands that a default by the US Treasury is very unlikely as it could prove devastating economically for the entire world. Therefore, politicians are reluctant to end up in such a situation, and the premium investors are getting for T-bills maturing in summer does not reflect the worst-case scenario.

Interestingly, the yield offered by one-month and three-month T-bills is the highest offered since 2000, breaking even above the peak of February 2007 (Image 1).

Source: Bloomberg and Saxo Bank.

How to find tradable T-bills in the Saxo Platform?

You can use the instrument screener to search for T-Bills on the Saxo platform (see picture below).

Product: Bonds
Issuer type: Government
Country: USA
Keyword: Tbill

You will find 19 T-bill securities, which you will be able to trade straight away by clicking on them.

Source: Saxo Bank.

The Saxo Group entities each provide execution-only service and access to Analysis permitting a person to view and/or use content available on or via the website is not intended to and does not change or expand on this. Such access and use are at all times subject to (i) The Terms of Use; (ii) Full Disclaimer; (iii) The Risk Warning; (iv) the Rules of Engagement and (v) Notices applying to Saxo News & Research and/or its content in addition (where relevant) to the terms governing the use of hyperlinks on the website of a member of the Saxo Group by which access to Saxo News & Research is gained. Such content is therefore provided as no more than information. In particular no advice is intended to be provided or to be relied on as provided nor endorsed by any Saxo Group entity; nor is it to be construed as solicitation or an incentive provided to subscribe for or sell or purchase any financial instrument. All trading or investments you make must be pursuant to your own unprompted and informed self-directed decision. As such no Saxo Group entity will have or be liable for any losses that you may sustain as a result of any investment decision made in reliance on information which is available on Saxo News & Research or as a result of the use of the Saxo News & Research. Orders given and trades effected are deemed intended to be given or effected for the account of the customer with the Saxo Group entity operating in the jurisdiction in which the customer resides and/or with whom the customer opened and maintains his/her trading account. Saxo News & Research does not contain (and should not be construed as containing) financial, investment, tax or trading advice or advice of any sort offered, recommended or endorsed by Saxo Group and should not be construed as a record of our trading prices, or as an offer, incentive or solicitation for the subscription, sale or purchase in any financial instrument. To the extent that any content is construed as investment research, you must note and accept that the content was not intended to and has not been prepared in accordance with legal requirements designed to promote the independence of investment research and as such, would be considered as a marketing communication under relevant laws.

Please read our disclaimers:
- Notification on Non-Independent Investment Research (https://www.home.saxo/legal/niird/notification)
- Full disclaimer (https://www.home.saxo/en-hk/legal/disclaimer/saxo-disclaimer)

None of the information contained here constitutes an offer to purchase or sell a financial instrument, or to make any investments. Saxo does not take into account your personal investment objectives or financial situation and makes no representation and assumes no liability as to the accuracy or completeness of the information nor for any loss arising from any investment made in reliance of this presentation. Any opinions made are subject to change and may be personal to the author. These may not necessarily reflect the opinion of Saxo or its affiliates.

Saxo Capital Markets HK Limited
19th Floor
Shanghai Commercial Bank Tower
12 Queen’s Road Central
Hong Kong

Contact Saxo

Select region

Hong Kong S.A.R
Hong Kong S.A.R

Saxo Capital Markets HK Limited (“Saxo”) is a company authorised and regulated by the Securities and Futures Commission of Hong Kong. Saxo holds a Type 1 Regulated Activity (Dealing in Securities); Type 2 Regulated Activity (Dealing in Futures Contract); Type 3 Regulated Activity (Leveraged Foreign Exchange Trading); Type 4 Regulated Activity (Advising on Securities) and Type 9 Regulated Activity (Asset Management) licenses (CE No. AVD061). Registered address: 19th Floor, Shanghai Commercial Bank Tower, 12 Queen’s Road Central, Hong Kong.

Trading in financial instruments carries various risks, and is not suitable for all investors. Please seek expert advice, and always ensure that you fully understand these risks before trading. Trading in leveraged products may result in your losses exceeding your initial deposits. Saxo does not provide financial advice, any information available on this website is ‘general’ in nature and for informational purposes only. Saxo does not take into account an individual’s needs, objectives or financial situation. Please click here to view the relevant risk disclosure statements.

The Saxo trading platform has received numerous awards and recognition. For details of these awards and information on awards visit www.home.saxo/en-hk/about-us/awards.

The information or the products and services referred to on this site may be accessed worldwide, however is only intended for distribution to and use by recipients located in countries where such use does not constitute a violation of applicable legislation or regulations. Products and services offered on this website are not directed at, or intended for distribution to or use by, any person or entity residing in the United States and Japan. Please click here to view our full disclaimer.

Apple, iPad and iPhone are trademarks of Apple Inc., registered in the US and other countries. AppStore is a service mark of Apple Inc. Android is a trademark of Google Inc.