Now that the debt ceiling issue is resolved, is it still a prudent time to purchase short dated treasuries ?
Yes and no.
Treasury bills are short dated treasuries with durations between 4 weeks and 1 year.
Currently, I’ve been rolling over 3 month, 4 month and 6 month treasuries – just keeping it simple – not bothering with 4 week and 8 week durations. All 3 durations have been yielding around 5.3%.
However, one year treasuries have recently been yielding over 5%. I am including one year treasuries into my short term treasury holdings as long as the most recent bill auction yield remains close to 5%.
check recent auction results @ treasurydirect.gov
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So, why buy a 1 year treasury that yields lower than the shorter duration treasuries ?
It’s a simple hedge against a possible recession. If the economy goes into recession, the FED will have no choice but to start lowering fed funds rates which equates to the 3 month treasury bill. As short term rates start to fall, 1 year treasuries will most likely yield more than the shorter term treasuries since 1 year rate will be locked in for a year. If we get a “soft landing” economy and the FED leaves short term rates the same, then the 1 year 5% rate is still close enough to shorter term rates to take an interest rate hedge.