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Buy T-bills instead of having cash in brokerage account


LongHaul
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I would highly recommend buying Tbills for a short term cash equivalent instead of the low interest rate your broker is paying you.  IB is currently ~41 bps for example. 

 

3 Month Tbills yield ~1% currently.

https://www.treasury.gov/resource-center/data-chart-center/interest-rates/Pages/TextView.aspx?data=yield

 

IB currently has ~$44 billion in customer cash currently that they are earning a spread on which is pretty amazing from a customer lost opportunity. 

 

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  • 1 month later...

Thank you for bringing this topic up.  We tend to hold more cash than most.  Any suggestion as to the maturity ladder?  Tax consequences?  Mechanically, what happens when the securities mature?  Does cash just show up in your account?  Any issues with fund accounting and accrued interest etc?  How do the securities get priced at month/year end. 

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An interesting fact in the super-exciting world of T-bills:

 

The 3 mo T-bill now yields more than the 6 month, I think to the tune of 10 basis points last time I checked. This is a pretty big anomaly as the yield curve is usually upward sloping.

 

Apparently this week there were some pretty large accounts selling 3mo T-bills amid low volumes which probably exaggerated the move. There is some investor concern around the debt ceiling which is set to have a deadline somewhere around mid October - three months away. If the U.S. Government were to enter into a technical (yet temporary) default, these securities would not get their principal+interest back in time.

 

Of course this is a very unlikely scenario given the widespread consequences it would have for the US and globally, but looking at the last debt ceiling episodes, congress has a terrible track record and they usually resolve this at the eleventh hour. This is the main reason S&P downgraded the US credit rating a couple of years ago.

 

Anyway, if you think it's a 0% chance of this happening you can also go long the 3 month and short the 6 month (curve steepener), lever it up and make some money. :P

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