For the first time in more than two decades, some of the world's most risk-free securities are delivering bigger payouts than a 60/40 portfolio of stocks and bonds.
The yield on six-month U.S. Treasury bills rose as high as 5.14% Tuesday, the most since 2007.
That pushed it above the 5.07% yield on the classic mix of U.S. equities and fixed-income securities for the first time since 2001, based on the weighted average earnings yield of the S&P 500 Index and the Bloomberg U.S. Aggregate Index of bonds.
The shift underscores how much the Federal Reserve's most aggressive monetary tightening since the 1980s has upended the investing world by steadily driving up the "risk-free" interest rates — such as those on short-term Treasuries — that are used as a baseline in world financial markets.
The steep jump in those payouts has reduced the incentive for investors to take risks, marking a break from the post-financial crisis era when persistently low interest rates drove investors into increasingly speculative investments to generate bigger returns. Such short-term securities are typically referred to as cash in investing parlance.
"After a 15-year period often defined by the intense cost of holding cash and not participating in markets, hawkish policy is rewarding caution," Morgan Stanley strategists led by Andrew Sheets said in a note to clients.
The yield on six-month bills rose above 5% on Feb. 14, making it the first U.S. government obligation to reach that threshold in 16 years. That yield is slightly higher than those on 4-month and one-year bills, reflecting the risk of a political skirmish over the federal debt limit when it comes due.
