Treasury bills are right up there in the competition for the dullest of asset classes. But right now, some investors might think dull is good, especially when it yields close to 4%. Just like their longer duration brethren, the yields on short-term Treasury bills have been ripping higher. The yield on the 3-month Treasury bill, for example, stood at 3.99% Thursday, the highest since 2007. It had crossed above 1% in May for the first time since the pandemic broke out in March, 2020.
Bond yields move opposite to price, so if investors buy a bond or bill, and interest rates rise, they could lose principal. But in the case of short-term Treasury bills, an investor can use them as a parking lot for cash they do not need for a month, six months or even a year. As a cash alternative, it makes sense to hold a short-term bill as opposed to a longer duration bond, in case the direction of interest rates changes.