Will T-bill continue to 'chill' with rate cuts?

It has been the ultimate no-brainer for more than a year: park your money in super-safe Treasury bills (T-bills), earn yields of more than 5 per cent, rinse and repeat.

Or as billionaire bond investor Jeffrey Gundlach put it: "T-bill and chill." Even now, with officials at the Federal Reserve poised to ease benchmark interest rates from a two-decade high a move that would instantly push down yields on bills and other short-term debt -money-market funds are thriving. They raked in US$106 billion (S$140 billion) in August alone and their balances, at US$6.24 trillion, have never been higher.

Investors in cash equivalents appear perfectly happy to stay where they are for now, despite repeated advice to add exposure to longerterm bonds from the likes of Pimco and BlackRock - admittedly bond managers themselves. But their point is that while cash returns have nowhere to go but down, debt with longer maturities stands to benefit from capital gains in an environment of deep rate cuts.

"Logically speaking, it doesn't make a whole lot of sense for US$6 trillion plus to be sitting in money market funds if the yield is going to go down," said Ms Kathy Jones, chief fixed-income strategist at Charles Schwab.

"We had a lot of talk about rate cuts, and they haven't happened, so there may be a lot of people who are just actually waiting to see it happen." During the bouts of bond volatility in 2024, cash has been a good place to be. Money-market rates, which are keyed off of the Fed's current 5.25 per cent to 5.5 per cent policy band, have held steady and offered no surprises.

That is about to change. Fed chairman Jerome Powell has signalled that rate cuts are coming in September. With inflation ebbing, "the time has come for policy to adjust", he said, adding that "the direction of travel is clear, and the timing and pace of rate cuts will depend on incoming data, the evolving outlook and the balance of risks".