Treasury Direct for easy investing

Last year I was discussing treasuries with my mother. I’ve never really looked into treasuries since I started investing back in the early days in EE Savings bonds. I stopped investing in savings bonds because the interest rate returned was not compelling considering the average returns of the stock market. That was nearly 20 years ago and I’m happy with my decision.

Today’s environment is different. Interest rates are much higher and long term CD rates are topping out at 4.4% (Discover® Bank Certificate of Deposit Account:4.40% APY – 24 Month Term) where as a long dated T-Bills is returning 4.841%.

Today I decided to setup an account on Treasury Direct and make my first purchase. Treasury Direct is the website run by the Treasury Department for buying and selling bonds, bills, notes, etc. You can also lookup the value of older paper securities using their Savings Bond Value Calculator. The minimum investment for a T-Bill is only $100 making these investments ideal for beginners. The thing I wanted to point out is that T-Bills sell for a variety of durations from just a few weeks out to a year. You can find the latest returns for the various durations here. The thing is the shorter the duration, the higher the interest rate. See below:

Why is that? One reason could be the yield curve is inverted which happens when the Fed intervenes with short term borrowing rates. Another reason is that investors try to predict what actions the Fed will take. In a rate rising environment a long dated debt instrument will lose value as rates go up. And vice versa, the value of the bond goes up as rates go down. Some investors prefer longer dated securities to mitigate the reinvestment risk. As the shorter duration securities mature the proceeds are often reinvested but if the rates decline the returns will lessen. Taking a smaller return in exchange for the long duration might be a suitable outcome given that risk.

Setting up an account took me about 5 minutes. You will need to link your account to a source of funds and answer some identity questions.