T-Bills Reach 16-Year High: What Does It Mean for Investors?”

T-Bills have been moving up, reaching a 16 year high.

The yield curve is now the most inverted it’s been in over 40 years. That is, short-term interest rates (T-Bills) are higher than long-term interest rates (30-year treasury bond rates).

Under normal economic conditions, long-term interest rates are higher than short-term rates because you’re lending money for a longer time. When the opposite happens (as we are seeing now) it’s a sign of a recession coming soon. Inverted yield curves have preceded the last seven recessions.

The T-Bill rate (about 5%) is now higher than the inflation rate (CPI about 4%), so for the first time in a long-time, you are getting a positive real interest rate, that is, an interest rate that exceeds the inflation rate.

Currently iSectors Domestic Fixed Income Allocation has a net SEC 30-day yield of 5.3%. That’s not bad considering an average investment grade quality portfolio of laddered bonds with a duration of 2.1. It is nice to be able to talk to clients about a relatively safe portfolio that is keeping pace with inflation.