Treasury Bills Yielding 5% Are a Big Hit with Retail Investors  

• Everyone — from moms and pops to corporate treasurers and the mega asset managers — is piling in, won over by a unique opportunity: To lock in a 5% yield, and protect themselves from uncertainty over the US economy.
• With rates on cash and cash-like instruments at the highest in more than two decades and offering more income than benchmark US debt or stocks, assets in money-market funds have swelled to a record. But nowhere is that appetite for liquid, high-yielding instruments more apparent than in the market for T-bills where investors have snapped up more than $1 trillion of new notes in just the last three months.
• Demand has been so robust, that the number of bills sitting on balance sheets of primary dealers, the first port of call for Treasury debt sales, plummeted to about $45 billion last month after touching an all-time high of $116 billion in July. It has also made the paper more expensive, driving the difference between bill yields and so-called overnight index swaps — which investors use to measure the Fed’s path — back toward zero after climbing into positive territory for the first time since 2020.
• The narrowing trend has prompted some money-market funds that aren’t required to buy only T-bills to take a more cautious view as they await better entry levels and more clarity on the economy and the Fed’s policy path.
• With US central bank officials entering a quiet period ahead of their policy meeting Sept. 19-20, the monthly inflation report Wednesday will be closely watched for clues to how much still needs to be done to rein in price growth. While there’s little expectation of a hike this month, swaps traders are pricing in about even odds of a quarter-point increase in November.

  (Source: Bloomberg)