Barron's: T-Bills Best Place to Park
Barron's writes, "Treasury Bills Are the Best Place to Park Your Cash. Just Ask Warren Buffett." They explain, "Investors large and small are gravitating to Treasury bills, thanks to yields of 5.4%, tax benefits, and sleep-at-night security -- and there's no reason for them to stop. For a while now, Treasuries with maturities of a year or less, known as T-bills, have offered more yield than other U.S. debt offerings. That's due to the so-called inverted yield curve, with short rates higher than long ones. The 10-year Treasury, for instance, yields 4.45%, while the three-month yields 5.39%. Bills have also offered positive returns -- about 2% this year, based on popular exchange-traded funds -- while long-term Treasuries are in the red." The piece continues, "Berkshire Hathaway CEO Warren Buffett is a leading proponent of short-term Treasuries. Berkshire is one of the largest T-bill investors in the world, holding $153 billion at the end of the first quarter, the bulk of its $182 billion in cash and equivalents. At Berkshire's annual meeting, Buffett called T-bills 'the safest investment there is,' saying he takes no chances with Berkshire's cash. Buffett has long favored T-bills with Berkshire's cash, even when they yielded close to zero from 2020 through 2022. Individual investors have been following Buffett's lead. Retail demand has been strong at the Treasury's regular auctions of T-bills, of which there are $6 trillion outstanding." Barron's says, "T-bills aren't the only place to earn a nice yield on cash. Investors also have access to certificates of deposit, money-market funds, and high-yield savings accounts. But bills are superior in many respects to those alternatives. For one, T-bills yield more, with online savings accounts offering interest rates of 4.4% and Marcus, a leading online bank, offering a six-month CD at 5.1%. Bills have a tax advantage, too. Their interest is exempt from state and local taxes -- a nice plus in high-tax states like New York and California, where marginal income-tax rates can top 10%. Interest on bank accounts and most money funds is subject to state and local taxes. Even investors holding government money funds can be hit with these taxes because they often hold repurchase agreements -- short-term loans backed by government securities -- and not Treasuries." It adds, "ETFs focused on Treasury bills are also a popular option. They simplify ownership, offer easy liquidity, and pay monthly income. The two largest ETFs are the $32.6 billion SPDR Bloomberg 1-3 Month T-Bill (BIL) and the $21 billion iShares 0-3 Month Treasury Bond (SGOV). Both yield about 5.25% and have little rate risk, given average maturities on their portfolios of about a month. Buffett favors three-month and six-month T-bills.... In addition to the SPDR Bloomberg 1-3 Month and iShares 0-3 Month ETFs, there are the $18.8 billion iShares Short Treasury Bond (SHV) and the $5.3 billion Goldman Sachs Access Treasury 0-1 Year (GBIL). Many financial advisors use these ETFs as an alternative to money-market funds for their tax benefits."
