Don’t look now, but the 6-month U.S. T-bill is yielding 4%[1] for the first time in 15 years. The current interest rate environment offers unique opportunities for investors currently holding cash: yields on CDs and money market funds are currently only averaging 1% APY[2]. Clarendon Private’s customized cash solutions offer yields of 4% or more, while maintaining liquidity and preserving capital.
One could be forgiven for having forgotten about Treasury bills. The last time short maturity yields were at these levels was in 2007: Apple had just introduced the first iPhone, Netflix was a DVD rental company, and Tom Brady had only won three Super Bowls (versus 7 today).
Soon thereafter, markets entered the Quantitative Easing-era of accommodative monetary policies to help the global economy in the wake of the Great Financial Crisis followed by the COVID-19 Pandemic in 2020. One of the byproducts of this policy regime was historically low yields (and thus returns) on U.S. Treasuries. Now, the U.S. Federal Reserve is committed to hiking rates “until the job is done” to curtail inflation.
Prospective returns have improved for quality stocks and investment grade bonds in recent months. Importantly, inflation expectations have declined significantly since the spring. The 1-year breakeven rate is the bond market’s embedded expectation for inflation in the coming year, which is currently down to 2.6% from 5-6% in April (left chart)[3].
The increase in short-term Treasury rates is providing us with opportunities to create attractive customized yield solutions for clients, while maintaining liquidity and preserving capital. In addition, our approach provides optionality and flexibility to reassess (and take advantage of) opportunities that present themselves amid a volatile backdrop. Our customized cash solutions provide yields of 4% or more, which compares quite favorably to National CD rates at 1%.
[1] FactSet as of September 27, 2022
[2] FDIC as of August 31, 2022
[3] The Leuthold Group, September 2022
Clarendon is a registered investment advisor. Advisory services are only offered to clients or prospective clients where Clarendon and its representatives are properly licensed or exempt from licensure. For additional information, please visit our website at www.clarendonprivate.com.
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Although bonds generally present less short-term risk and volatility risk than stocks, bonds contain interest rate risks; the risk of issuer default; issuer credit risk; liquidity risk; and inflation risk.