Suspending my investment in 4- and 13-week T-bills next week


T-bill yields have taken a big hit in the last couple of days. On Thursday, .

Below is a table I pulled from the showing daily yield curve rates for 4-week through 30-year Treasuries:

I’ve been continuing my laddering and buying 4- and 13-week treasuries on a recurring basis for several weeks now since, being a resident of California, I benefit from T-bills’ nice feature of being exempt from state income taxes.

But if the current yield is any indicator of upcoming auction results next week, the 9.6% tax shield on interest that I get is no longer a sufficient enough benefit to overcome the big drop in rates, especially when taxable money market funds and CDs are yielding around 5%.

Using my and the highest federal and state income tax brackets of 35% and 9.6% respectively, today’s 13-week yield of 3.76% has a tax-equivalent yield of 4.41%. (Note that tax-equivalent yields decrease the lower the tax brackets you’re in.)

So, though laddering is supposed to avoid the pitfall of market-timing, I can’t help but feel that I’d be better off locking up my money for 3 months in one of those 5% instruments instead since they are offering higher returns with similar risk.

I plan on monitoring the T-bill yield situation closely in the coming weeks, but I’ve decided to cancel my purchase order for next week’s T-bills. Who knows? I might miss out next week if the panic and fear abates before Monday’s and Tuesday’s auctions, which would show that I should have stuck to laddering. I’m curious to see how things turn out.

I have to praise for allowing me to cancel pending transactions one-by-one and very easily (even ones you set to recur at regular frequency) and thereby allowing me to decide what to do week-by-week. However, if T-bill yields don’t recover, I guess I’ll be looking for some other way to make my cash work harder for me.


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This week’s T-bill auction results - I got schooled | Experiments in Finance

[…] Following up on my post of a few days ago, in which I wrote that I’d decided not to invest in the 4- and 13-week T-bill auctions this week, I present the results of yesterday’s and today’s auctions: […]