Munich Personal RePEc Archive

Stigma over T-Bills Persists as Investors Focus on “Sophistication”

Xing, Victor (2018): Stigma over T-Bills Persists as Investors Focus on “Sophistication”.

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Treasury bills outperformed a broad cohort of asset classes following this year’s violent bouts of risk-parity unwind, as rising deficit, retreats from globalization, and waning stimulus favor high quality low duration instruments. At the same time, T-bills provide an effective hedge to a hawkish rate path, for higher short-term rates would improve portfolio carry. Unfortunately, some institutions continue to view cash holdings as signs of inefficient capital allocation due to past decade's "yield-seeking" bias where “sophistication” was needed to counter low rates. As a result, asset managers remain hesitant to hold T-bills in size for fears that perception of “inactivity” would harm prestige; some managers also expressed concerns that “unsophisticated” allocations would raise questions over compensation.

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