‘Bond ladders are cool again,’ says advisor. Here’s how to capture higher Treasury bill yields
If you’re eager to capture higher yields amid rising interest rates, you may consider a Treasury bill ladder, depending on your goals, according to financial experts.
Backed by the U.S. government, Treasury bills, or T-bills, are widely considered a relatively safe asset, with terms of four weeks to 52 weeks. You receive the interest when the T-bill matures.
The ladder strategy includes several T-bills with staggered maturities. When one expires, you can reinvest the funds for a higher yield, which may be appealing as interest rates rise. Or you can allocate the proceeds elsewhere.
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“Bond ladders are cool again,” said Jeremy Keil, a certified financial planner with Keil Financial Partners in Milwaukee, who is currently looking at T-bill ladders of four months, eight months and 12 months.
Over the past year, T-bill yields have increased after a series of interest rate hikes from the Federal Reserve — and there may be more on the horizon. As of Feb. 27, six-month and 1-year Treasury bills were both paying over 5%.
How to earn higher yields in the short term
Keith Singer, a CFP and president of Singer Wealth Advisors in Boca Raton, Florida, said there’s currently an inverted yield curve, meaning some short-term Treasurys have higher yields than longer-term ones.
“The market is expecting rates to go down,” he explained. Based on what’s known today, the yield curve suggests that inflation will cool and the Fed will eventually start cutting rates, he said.
You can buy T-bills through TreasuryDirect, a website managed by the U.S. Department of the Treasury, which allows you to automatically reinvest into the same term. Or you may purchase T-bills through a brokerage account, which offers more liquidity and flexibility.
It’s better than keeping your money in the bank and it’s better than buying a certificate of deposit.
President of Singer Wealth Advisors
“It’s better than keeping your money in the bank and it’s better than buying a certificate of deposit,” Singer said, noting there’s also a $250,000 limit per person, bank and ownership category, for Federal Deposit Insurance Corp. insurance.
Keil also agreed that T-bills currently offer “the best rates around” compared to other relatively safe options for cash.
However, the exact selection of T-bills and the amount invested in each one depends on your goals and when you need the money.
For example, if you’re investing money to buy a house in a year’s time, you may include 1-year T-bills in the ladder. “If interest rates tick up a little bit, you’re not going to take a bath,” Singer said. “Because it’s going to mature pretty quickly.”
While a T-bill ladder may not be a good long-term strategy, it makes sense if you need the money sooner for a short-term goal, he added.