The chairman and chief executive officer of Berkshire Hathaway, Warren Buffett, possesses $75 billion in Treasury notes.
Individual investors may want to consider following in the footsteps of Warren Buffett and parking the majority of their capital in ultra-safe U.S. Treasury bills now that they are returning as high as 3%. Buffett parks the majority of Berkshire Hathaway’s cash in U.S. Treasury bills.
Treasury bills, which are short-term debt obligations issued by the United States Treasury and have a maturity of less than one year, are an excellent alternative to money market funds and certificates of deposit issued by banks. In contrast to certificates of deposit (CDs) issued by banks, interest is exempt from state and municipal taxes.
Investors have the option of purchasing them either directly from the Treasury Department through the TreasuryDirect programme or indirectly through financial institutions such as banks and brokers.
Because he never wants to worry about the safety of Berkshire’s cash trove, which totaled $105 billion as of June 30, Buffett, the long-time CEO of Berkshire Hathaway (ticker: BRK.A, BRK.B), favours T-bills over other forms of short-term debt such as commercial paper (a corporate IOU). T-bills are issued by the United States Treasury. Treasury bills account for around $75 billion of the entire amount. In his annual letter to shareholders, Buffett makes frequent references to the company’s Treasury Bill holdings.
T-Bills are available for purchase with maturities of four and eight weeks, as well as three, six, and twelve months. According to Bloomberg, the yield on a bill maturing in three months is currently 2.5%, the yield on a bill maturing in six months is 3.05%, and the yield on a bill maturing in one year is 3.2%. As a result of the Federal Reserve’s decision to raise short rates, the main Federal fund rate has increased to a range of 2.25% to 2.5%. This has caused yields to rise from just around zero a year ago.
The Treasury conducts auctions for three-month and six-month bills every week, while auctions for one-year bills take place every four weeks.
Exchange-traded funds, such as the $20 billion Treasury Bill ETF, are yet another avenue to gain exposure to Treasury Bills.
iShares Short Treasury Bond ETF (SHV), which offers a yield of 2.1% at the moment. It contains U.S. Treasuries that are maturing in less than a year on average and has an average maturity of approximately four months.
Those investors who are looking for a higher yield but are willing to take on some rate risk might purchase the iShares 1-3 Treasury Bond ETF (SHY), which currently yields close to 3% and has an average maturity of approximately two years.
The yields on money market funds have also increased in tandem with the rise in short rates. The Vanguard Federal Money Market Fund (VMFXX), which manages $250 billion, is currently yielding 2.1%.
T-Bills are typically sold for less than their face value of $1,000, with the difference between the two amounts indicating the interest that is paid out to holders. At the time of maturity, investors are given the full face value of $1,000. The bare minimum to invest is one hundred dollars.
T-Bills are highly liquid investments that may be easily sold through financial institutions such as banks and brokerage firms. A significant number of investors plan to hold them till maturity.
Even while the rates on T-bills aren’t anywhere near the inflation rate of 8.5% over the past year, they appear attractive in comparison to other short-term investments, and they provide a tax benefit in the form of an exemption from state and local taxes.