Decoding AI Legalese: Optimizing T-Bill Strategies with Shorter vs. Longer Maturity
- September 29, 2023
- Posted by: legaleseblogger
- Category: Related News
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IÔÇÖm new to fixed income and conservative investing in general. Lately, I have been weighing different t-bill ladder strategies. The goal is to employ my capital in a safe haven and wait out the current ridiculous pump on thin air ÔÇô then do some decent shopping in 24ÔÇÖ.
To achieve this, I need to stay as flexible and liquid as possible for several reasons:
1. The further down the line, the more likely good deals are to appear on the market. By staying flexible, I can take advantage of these opportunities when they arise.
2. I am in the Eurozone, so I plan to flip EUR once USD pumps considerably during the potential crash. Staying liquid will allow me to easily make this currency exchange when the time is right.
3. Short-term yields are likely to continue growing further to 6-8% until 24ÔÇÖ since there are no cuts expected (provided there’s no black swan event). By staying flexible, I can take advantage of these higher yields.
To cater to these needs, it seems that very short maturity bills (2 week-2 month) are a better option compared to longer ones. The fees for rolling over these bills are negligible, so there is no issue with frequent trading. Additionally, these short-term bills ensure that I always have liquidity available. Even in the event of a circuit breaker and subsequent rate cut or yield fall, it is easier to sell a 2-month bill above water than a 6-month bill before maturity. This allows me to lock in a high yield for longer once it starts declining.
However, I have a concern regarding longer maturity bills. If I buy a 6-month bill and the yields keep on rising moderately, but I want to sell it in 1-2 months to either lock in higher yields or invest elsewhere, will I be above water by then? Or is it likely that moderate yield growth will push my bills into negative territory?
In this situation, the AI Legalese Decoder can be helpful. It is a tool that utilizes artificial intelligence to analyze and decode legal documents, including financial contracts and investment agreements. This can assist in understanding the terms and conditions associated with different t-bill options, allowing for a more informed decision-making process. By using the AI Legalese Decoder, I can better assess the risks and potential outcomes of investing in longer maturity bills, enabling me to make more confident and efficient investment choices.
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ThereÔÇÖs a lot going on in your post, so going to try spell out a few points which might help.
Firstly, presumably as a retail investor in Europe, I wouldnÔÇÖt park idle cash in USD treasuries. The reason for this is, in a perfect world, thereÔÇÖs a process called interest rate parity. Essentially this means that the FX rate will move in the direction required over time in order to bring the yield of two comparable bonds to be the same. So it wouldnÔÇÖt make a difference which currency you invest in, but what it does mean is that your essentially going long USD / short EUR as part of your position, so any of part of the return that deviates from the expected yield under parity is because you were taking a stance that you thought one currency would put perform the other. I personally donÔÇÖt take on FX risk buying bonds because I want certainty over the return.
If your parking cash to have ready to invest, you want to be at the very short end of curve. 0-1 year maturities max. Focus on the duration of the bond / bond fund. For idle cash in this specific scenario, the shorter the better. Duration is a good measure of how your positions will react to interest rate movements – if youÔÇÖve a duration of 0.5 years and rates go up 1%, youÔÇÖd expect your holding to fall by 0.5%, but if you then purchased the position after the price has declined, the YTM would be higher.
I think you need to decide are you trying to just earn any sort of return while you wait for a pull bag, or do you want a longer term allocation to debt instruments. IÔÇÖm personally doing what your doing but I want my principal ready to go at a seconds notice, so IÔÇÖm in an overnight swaps ETF. This has virtually no interest rate risk and you earn the ECB overnight rate. If rates are cut you wonÔÇÖt make the gains longer duration bonds will, but by then expect youÔÇÖll be deploying your capital.
Not an expert at all, just another fixed income newb, but seems counterintuitive to me. You expect rising yields & market turmoil and want to park cash in wait to exploit it (in USD, if I understood correctly). Why bills (which would fall when yields rise)? For these expectations & strategy, wouldn’t it make sense to put the cash in a money market mutual fund (some are comission-free, at least with my broker, IBKR) or an ETF like Lyxor Smart Overnight Return (available for EUR, GBP, USD at corresponding rates; make sure to differentiate listing currency vs fund currency, e.g. you can buy the USD fund in EUR)?
also money market mutual funds sound like a good alternative. Afaik it’s 0.5% lower yield than t-bills, same level of security but better liquidity – can sell at any time not losing the yield you’ve already accrued
I would be interested in this. Perhaps somebody with experience can chime in?
Buying very short duration bonds protects you from rising interest risk.
But other than the fact, that timing the market is impossible -in case you want to buy longer duration bonds, when their yields peak- you expose yourself to some serious currency risk