Lengthen Your T-Bill Maturity Schedule
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The US Treasury is changing the rules for primary auctions of T-Bill/T-Notes. The new rules will enable negative yields in the primary market. Currently, that’s only possible in the secondary market.
Clearly, Treasury officials are foreshadowing a period of extended negative rates on T-bills (as we currently see in primary auctions for Swiss and Danish T-bills).
I’m in the process of shifting the maturity profile of my portfolio from 3-month and 6-month bills toward 1-year and 2-year bills. That will safely insulate me from negative nominal rates and ensure large, real positive yields if I decide to sell in the secondary market prior to maturity.
At this point, 1-year and 2-year bills look like the optimum balance of safety and liquidity. If you’re heavily invested in 3-month paper, then you’ll end up getting locked into large negative nominal rates in a panic. Totally predictable and avoidable at this point.
It’s all about the Money Market Mutual funds
They are the Bank.
Consider the enormous multi-trillion $ pressure as money market mutual funds start clamoring, elbowing, and eye-gouging their way up the Treasury market yield curve to avoid negative nominal rates on 1-month, 3-month, and 6-month paper.
They’ll do so in a death struggle to avoid negative nominal rates. Negative nominal rates will mean they need to break the $Buck and that will trigger the recently SEC-instituted systemic withdrawal restrictions as institutions try to move their “safe” money to higher ground.
Folks holding 1-year, 2-year, 5-year Bills/Notes could make out quite well under these conditions.
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