Why Investors Flee To T-Bills

Today a three-month U.S. T-bill offers a return of 0.03 percent.  With such a measly return, why are people flocking to them? 

It’s pretty simple: positive 0.03 percent is better than negative anything.

Someone asked me why the rate is so low and wouldn’t it be less trouble to tuck the money away somewhere safe at home.  Here are some reasons why the rates are low and why a T-bill may be worth the trouble:

1.  Treasury rates will always be relatively low. Risk and return are directly related and since the U.S. government is believed to be one of the safest borrowers on the planet, you will not get any major reward for loaning it money.

2. Bond prices and bond rates have an inverse relationship. The demand for T-bills is so high that it is making the bills more expensive.  More expensive bills will pay lower rates of return since prices and yields move in opposite directions.

3. It is not that hard to buy a T-bill. You can buy bills directly from the Treasury, no broker necessary. www.treasurydirect.gov

4. A T-bill is safer than the safest place in your house. If you get robbed or your house burns down, so long to your stash.  The government will protect your stash and give you 0.03 percent!