The Attraction Of Treasury Bills
A bad sign for investors is when the risk-free asset returns more than riskier assets. When that happens, investors buy the risk-free asset until the riskier assets appear to have higher potential returns. In other words, there can be a bear market. That’s why the action in short-term treasury interest rates is important. As this article describes, the yield on short-term government debt exceeds the yield on the S&P 500. Risk-free assets are looking more and more attractive compared to riskier assets, such as stocks. The Fed’s tighter monetary policy is having an effect on the markets.
Short-term yields have spiked as the U.S. ramps up sales of bills to fund fiscal stimulus planned over the next two years. For money managers, the Treasury’s tilt to the short end has delivered a smorgasbord of cash-like assets, and encouraged guilt-free gorging on instruments untainted by credit risk and exposure to a sudden downturn in stocks.
One-month Treasury bills pay 1.84 percent versus 1.24 percent at the start of the year, while the trailing 12-month dividend yield on the S&P 500 looks relatively modest at 1.89 percent.
On a forward basis, the spread between U.S. stock payouts and the one-month government bill is approaching zero for the first time in a decade.
