Income Investors Rejoice

The 15-year highs in Treasury yields we're seeing today are a pain for the U.S. government, which needs to pay more to borrow. But they're a benefit for savers and companies that hold money-market funds and short-term bonds.

That includes companies with net cash on their balance sheets. The richest include Apple, Berkshire Hathaway, Alphabet, and Microsoft.

Andrew writes:

Berkshire, for instance, was sitting on more than $100 billion in cash and equivalents, including about $76 billion in Treasury bills, at the end of June. A risk-averse Berkshire CEO Warren Buffett prefers to keep the bulk of Berkshire’s cash in T-bills.

The income from Berkshire’s cash holdings now is running at a $3 billion-plus annual rate, up from nearly nothing in 2021 when T-bill rates hovered just above zero. Apple had $179 billion of cash and equivalents on June 30 while Microsoft had $105 billion and Alphabet, $125 billion (including marketable securities).

For individual investors, banks and brokerage firms sell Treasuries to clients. Or you can go direct, and participate in auctions through the U.S. Treasury’s TreasuryDirect program. Short-term Treasuries including three- and six-month bills are auctioned weekly on Mondays, while one-year bills are sold every four weeks.

And the interest that individuals earn on T-bills is exempt from state and local taxes. Their current yields all top the rates that individuals can earn on bank savings accounts and even most CDs.

There are also exchange-traded funds to choose from, including the iShares Short Treasury Bond ETF or the SPDR Bloomberg 1-3 Month T-Bill ETF. Those yield 2.5% and 2.0%, respectively. 

Remember, however, that with inflation running above 8% on an annual basis, the real yields on all of those securities remain deeply negative. There's no such thing as a free lunch.

Read the rest of Andrew's report here.