SPDR Bloomberg (BIL) ETF inflows are rising as macro risks jump

The SPDR Bloomberg 1-3 Month T-Bill (BIL) ETF is gaining traction as the longer-term bond yields surge. The fund’s stock has jumped to $91.58, the highest level since November 2007. It started the year at $89.

Data shows that investors are adding to the fund to take advantage of the current macro climate. According to this website, it has over $31.5 billion in total assets under management.

The fund has seen inflows in the past three straight months. It added over $2 billion in August followed by $1.1 billion in September. Also, it has now added more than $813 million in the first few days of October.

In all, the BIL ETF has gained over $5.3 billion in 2023. This trend is happening because short-term government bonds are now having better yields than long-term ones. The 2-year note is yielding 5.04% while the 10-year has a 4.7% yield.

Investors are simply concerned about the ability of the American government to pay its bonds in the long term. For one, the country’s budget deficit has jumped to almost $2 trillion while the total government debt has surged to $33.4 trillion. 

Analysts believe that the US debt will rise to $35 trillion in 2024 or early 2025. If this trend continues, we cannot rule out a situation where the debt crosses the $50 trillion level in the next few years.

JUST IN: The US added another $33 billion of debt in one day yesterday, bringing the 2-day total to $308 billion.

Since US debt crossed $33 trillion just 15 days ago, the US has added another ~$500 billion in debt.

That's an average of $1.4 billion per hour for the last 15 days… pic.twitter.com/aOlQTymVOD

— The Kobeissi Letter (@KobeissiLetter) October 5, 2023

At the same time, the cost of servicing this debt is roaring back. The US will spend over $800 billion paying its debt, a figure that is now bigger than defense spending. This figure will continue rising as interest rates remain at an elevated level.

Therefore, investors now believe that it safer to invest in short-term bonds instead of longer ones. This explains why most longer bond ETFs like TLT and VGLT have maintained their bearish trend.

There are benefits for investing in the BIL ETF since the US is not at risk of defaulting in the next few years. Also, the fund, which has an expense ratio of 0.14%, pays its distributions every month and has a yield of ~5%. 

The alternative for investing in BIL is allocating funds to money market funds (MMF), which are highly liquid and a stable NAV. Some money market funds are also tax-exempt, which is another benefit. There are other alternatives to the BIL ETF. For example, think of quality REITs like Realty Income and MLPs like Energy Transfer, which I wrote on here.