US politicians often make the news for their stock trading. Their moves aren’t just scrutinized but have also resulted in the creation of instruments like ETFs that track their trades.
While some trades raise suspicion, others are simply a reflection of good investment strategies. Finding out which is which is often the tricky part.
Take Nancy Pelosi for instance. Her trades are often to the tune of millions of dollars.
They not only generate headlines but also influence stock price movements to an extent. The Republican Representative Michael McCaul is another, who takes months to initiate large positions in stocks, selling them at huge profits.
Others like Ro Khanna trade every week and it can be hard to track their results.
What is not hard to notice or track, however, is the recent trend of buying US treasury bills in large quantities and then just sitting back and enjoying the returns.
Commonly known as ‘T-Bill and Chill’, this strategy works well when interest rates continue to remain elevated for extended periods.
As has happened in the US, the interest rates have stayed at elevated levels for two years now, making Treasury Bills a hot commodity and a popular investment choice.
Politicians piling into treasuries
In the last year, a total of $46.11 million was invested into Treasury Bills by sitting US politicians.
In the year before that, $56 million was pumped into the same instrument. This was the period when interest rates started climbing as the Fed was considered late in raising the interest rates.
In these two years, rates have climbed from 2.5% to 5.5%, making T-Bill and Chill the right strategy in hindsight. The rates are well ahead of inflation and have helped these politicians make money with no risk.
For comparison, going back just one more year when the rates had only just started rising, the same politicians had only invested $3.97 million into Treasury Bills.
The looming interest rate cuts
According to JPMorgan, T-Bill and Chill may not be the best strategy moving forward.
Investors need to be ready for rates to drop as a possible rate cut may happen in a few weeks.
If the economy slows down, the decline in yields could accelerate.
Watching the politicians move their money could give an idea of the state of the economy well in advance. If inflation is lowered without any economic downturn, it won’t matter much where you invest.
However, if the economy slows down, it is usually advisable to invest in large caps, as small-cap stocks tend to suffer.
According to some estimates, the interest rates are likely to fall to 3.5% in the next 18 months. It will be interesting to see how these politicians move their money in the next year and a half.
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