2-Year Treasuries Yield 3.8%, Refuting the "Cash is Trash" Theory

Cash is Back

For several years, many investors have been operating under the theory that "cash was trash." The thinking goes that it is better to invest that cash elsewhere when cash doesn't earn a yield commensurate with dividends in equities, real estate, or other financial assets.

However, the recent surge in 2-year treasury yields proves that cash is starting to look much more attractive. This week, the yield on 2-year treasury notes hit 3.75%, its highest level since 2007 and a significant move higher from the 1.0% yield seen at the start of the year.

Why Yields Matter

When you buy a treasury note, you are lending money to the U.S. government for a specified period. In exchange for using your money, the issuer agrees to pay you interest at specified intervals and to return your principal when the note matures. Treasury bonds are issued by the federal government and are considered among the safest investments.

Benefits and Risks

You will earn interest on your two-year treasury notes at the rate locked in on the day of purchase through maturity. Presently, 24-month bank Certificates of Deposit are averaging a return of 2.9%, which is notably lower than two-year Treasury notes. While they are both paid at par if held until maturity, treasuries fluctuate with interest rates and are liquid securities that can be sold before maturity at a discount, where you receive less than you paid.?Early withdrawals from CDs may incur penalties or fees.

Why Treasuries??

Treasury bonds offer a higher yield than cash investments such as savings accounts and money market funds. They are backed by the full faith and credit of the U.S. government. As a result, treasuries are an attractive option for investors who want to earn a higher return without taking on too much risk.

It's time to reconsider the "cash is trash" theory, with 2-year Treasury yields reaching 3.75 percent. It looks to be a promising period to start investing in shorter-duration treasuries, as interest rates are on the rise.

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