Warren Buffett Has Been Buying T-Bills. Here’s Why That’s a Smart Strategy.

Text size

Warren Buffett parks most of

Berkshire Hathaway
’s
cash in ultrasafe U.S. Treasury bills, and individual investors may want to consider following Buffett’s lead now that the yields are as high as 3%.

Treasury bills, which are U.S. government securities maturing in less than a year, are a good alternative to money-market funds and bank certificates of deposits. Interest is exempt from state and local taxes, unlike CDs. Investors can buy them through the government’s TreasuryDirect program or through banks and brokers.

Buffett, the longtime CEO of Berkshire Hathaway, prefers T-bills to other short-term debt such as commercial paper (a corporate IOU) because he never wants to worry about the safety of Berkshire’s cash trove, which totaled $105 billion on June 30.

T-Bills are sold with maturities of three, six, and 12 months as well as four and eight weeks. The three-month bill now yields 2.5%; the six-month bill, 3.05%; and the one-year bill, 3.2%, according to Bloomberg. Yields have risen from just above zero a year ago as the Federal Reserve has lifted short rates, with the key Federal fund rate now at 2.25% to 2.5%.

Another way to get exposure to T-bills is through exchange-traded funds like the $20 billion

iShares Short Treasury Bond
ETF, now yielding 2.1%. It has an average maturity of about four months and holds U.S. Treasuries maturing in a year or less.

For more yield, and a little rate risk, there’s the

iShares 1-3 Treasury Bond
ETF, now yielding close to 3% with an average maturity of about two years.

Last Week

Winning, Interrupted

Federal Open Market Committee meeting minutes and speeches by several Federal Reserve presidents emphasized that the hawks remain in the majority at the central bank. That interrupted four-week winning streaks for the

S&P 500,

Nasdaq Composite,
and

Russell 2000.
Earnings from

Walmart

and

Home Depot

boosted both retailers’ stocks, helping to lift the

Dow Jones Industrial Average
on Tuesday. On the week, the Dow ticked down 0.2%, to 33,706.74; the S&P 500 slid 1.2%, to 4228.48; and the Nasdaq lost 2.6%, to 12,705.21.

The Law of the Land

President Biden signed into law the Inflation Reduction Act. The legislation, which narrowly passed both houses of Congress with the sole support of Democrats, includes spending hundreds of billions of dollars on climate and healthcare programs—and raises taxes on large companies. It also includes a 1% excise tax on stock buybacks starting on Jan. 1, 2023.

More Housing Woes

Existing-home sales in the U.S. fell in July for the sixth straight month, another sign of a weakening housing market. Those sales dropped to a seasonally adjusted annual rate of 4.81 million, falling 5.9% from June and 20.2% from a year ago, according to the National Association of Realtors. The inventory of unsold existing sales, meanwhile, climbed to 1.31 million as of July 31.

Still Shopping

U.S. retail spending in July was unchanged from June levels. Although that fell short of the previous month’s result, when spending rose by 0.8%, there were some encouraging signs. Excluding gasoline and auto sales, retail sales rose by 0.7%.

Missing the Target

National retailer Target reported disappointing second-quarter results. The company, based in Minneapolis, blamed the result primarily on reducing inventory. On a GAAP basis, the company earned 39 cents a share in the quarter, down sharply from $3.65 in the corresponding period a year earlier.

China Slowdown

Economic growth in China slowed in July, triggering an interest-rate cut. China, which has the world’s second-largest economy, has suffered in part due to strict Covid-19 lockdowns. In response to the slowdown, the People’s Bank of China slashed the rate on two key interest rates by 0.1 percentage point, according to The Wall Street Journal.

Sonic Boom

American Airlines Group

is planning to buy up to 20 supersonic jets to speed up air travel. Boom Supersonic is developing the plane, called Overture and which is being designed to carry 65 to 80 passengers. American said that supersonic flights from Los Angeles to Honolulu—one of more than 600 routes globally—would take three hours, or “as little as half the time” of a standard jet, according to a news release this week.

Write to Andrew Bary at [email protected]