Aaron Brown, Columnist

Treasury Bill Rates at 5% Are No Bargain

The safest investment in the world is paying more than anytime since 2007. But you’re still going to lose money unless there’s a historic slowdown in inflation.

February 17, 2023 at 10:00 AM UTC

By Aaron Brown

Aaron Brown is a former head of financial market research at AQR Capital Management. He is also an active crypto investor, and has venture capital investments and advisory ties with crypto firms. He is the author of the soon-to-be-released "Wrong Number."

Cash is king.
Photographer: Andrew Harrer/Bloomberg via Getty Images

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The rate on some US Treasury bills, considered the safest investment in the world and just as good as cash, rose above 5% this week, a level not seen since early 2007. The question investors should be asking is, why only 5%?

To find the answer, let’s start by comparing short-term Treasury rates to yields implied by effective federal fund futures. Loosely speaking, the effective fed funds rate is what the futures market projects the Federal Reserve’s target rate will be in the future. The blue line suggests the Fed will raise its target for the fed funds rate 0.50% to 0.75% by September 2023, followed by a gradual lowering of rates. The orange line plots current rates on various Treasury maturities; It seems to suggest the smaller rate hikes ending earlier.