Is Now a Good Time to Lock in Short Duration Yields?

With the continued inversion of the yield curve, we believe short duration securities have become an attractive place to capitalize on rising rates. Historically, investors looking for more liquid, short-term investments have chosen money market funds. The yields on these funds are directly tied to the Federal Funds rate, which for much of 2023 has been higher than other short duration securities (i.e., 2 year U.S. Treasury (UST)). However, with the yield difference between money market funds and short duration securities now diminished, the relative value of 2 year Treasuries is becoming more compelling. Is now a good time to lock in today’s short duration yields?

The current yield difference between money market funds and the 2 year UST has narrowed to approximately 10 basis points.

_{Source: Bloomberg as of 9/21/23.}

The yield on a 2 year UST is now over 5.10%, its highest yield since 2006.
The yield difference between money market funds and the 2 year UST was as wide as 1.10% in May of this year with an average difference of 0.47% since March.
The current yield difference between money market funds and the 2 year UST has narrowed to approximately 10 basis points.

Learn more about SBH’s Fixed Income Strategies .

Archive

8/23: Who’s Going to Step in for the Largest Buyers of U.S. Treasuries?

7/23: Corporate Spreads and Default Rates are Telling Different Stories

6/23: Bank Failures Put Additional Pressure on Mortgage-Backed Securities

4/23: What Does Interest Rate Volatility Mean for Bond Investors?

3/23: “Dude, Where’s My Yield?”

2/23: The Rise of Passive Bond Investments

1/23: End of a (Negative) Era: Negative Yields Reach Positive Territory Globally

12/22: Will the Upcoming Fed Interest Rates Projections Match the Current Market Expectations?

11/22: The “Sweet Spot” for Liability-Driven Investing (LDI)

10/22: The Credit Risk You May Not Realize You’re Taking

9/22: How Higher Yields Can Protect Fixed Income Investments

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