How to Build a Treasury Bill Ladder Strategy

Treasury bills laddering involves purchasing T-bills with staggered maturity dates to systematically capture rising interest rates while maintaining regular liquidity. Instead of parking all your cash in a single 4-week T-bill at 5.25%, you'd spread investments across multiple maturities—creating a predictable stream of maturing securities that can be reinvested at prevailing (potentially higher) rates.

This strategy becomes particularly valuable during Fed tightening cycles. From March 2022 to July 2023, the federal funds rate increased from 0.25% to 5.50%—a 2,100% increase. Investors using laddered Treasury bills could systematically capture these rising yields, while those locked into longer-term CDs or bonds missed the opportunity.

What Are Treasury Bills and Why Use Them for Cash Management?

Treasury bills are short-term debt securities issued by the U.S. government with maturities of one year or less. They're sold at a discount to face value and mature at par, with the difference representing your return. For example, a $10,000 13-week T-bill might cost $9,875, providing $125 in interest over three months.

T-bills offer several advantages for cash management:

• Zero default risk: Backed by the full faith and credit of the U.S. government
• High liquidity: Can be sold before maturity in the secondary market
• Tax advantages: Interest is exempt from state and local taxes
• Predictable returns: Known yield at purchase with no interest rate risk if held to maturity
• Low minimums: Available in $100 increments through TreasuryDirect

The current T-bill yield curve shows 4-week bills yielding approximately 5.25%, 13-week bills at 5.20%, 26-week bills at 5.15%, and 52-week bills at 4.95% (as of late 2024). This inverted yield curve reflects market expectations of potential rate cuts ahead.

Recessionist Pro tracks these indicators (and 14 more) daily. See the live dashboard.

How Does a T-Bill Ladder Strategy Work?

A Treasury bill ladder divides your cash allocation across multiple T-bills with different maturity dates, creating regular opportunities to reinvest at current market rates. The strategy works by staggering purchases so that a portion of your holdings matures at regular intervals—weekly, monthly, or quarterly.

Here's how a 13-week ladder works with $50,000:

1. Week 1: Purchase $10,000 in 13-week T-bills
2. Week 2: Purchase another $10,000 in 13-week T-bills
3. Week 3: Purchase another $10,000 in 13-week T-bills
4. Continue pattern: Repeat for weeks 4 and 5
5. Week 14: First T-bill matures, reinvest proceeds in new 13-week T-bill
6. Maintain cycle: Each week thereafter, reinvest maturing proceeds

Once established, you'll have $10,000 maturing every week, providing regular liquidity and reinvestment opportunities. If rates rise from 5.20% to 5.70% during this period, your weekly reinvestments capture the higher yields immediately.

Building Your Treasury Bill Ladder: Step-by-Step Process

Setting up an effective T-bill ladder requires careful planning around your cash flow needs, risk tolerance, and rate expectations. Here's the systematic approach:

Step 1: Determine Your Cash Allocation

Calculate how much of your portfolio should be in short-term, risk-free assets. Financial advisors typically recommend 3-6 months of expenses in emergency funds, plus additional cash for near-term goals or opportunistic investing. During market downturns, maintaining higher cash allocations can provide flexibility for strategic moves.

Step 2: Choose Your Ladder Structure

Select the maturity range and frequency based on your liquidity needs:

Ladder Type	Maturity Range	Best For	Reinvestment Frequency
Short Ladder	4-13 weeks	High liquidity needs	Weekly/Monthly
Medium Ladder	13-26 weeks	Balanced approach	Monthly/Quarterly
Long Ladder	26-52 weeks	Higher yield focus	Quarterly

Step 3: Execute the Initial Purchases

Begin building your ladder systematically. For a monthly 13-week ladder with $60,000:

• Month 1: Buy $20,000 in 13-week T-bills
• Month 2: Buy $20,000 in 13-week T-bills
• Month 3: Buy $20,000 in 13-week T-bills
• Month 4: First purchase matures, reinvest $20,000

Use TreasuryDirect for direct purchases (no fees) or your broker for secondary market access and integration with other holdings.

Step 4: Monitor and Adjust

Track the yield environment and adjust your strategy accordingly. When the yield curve un-inverts, it often signals changing economic conditions that might warrant ladder modifications.

T-Bill Ladder vs. Money Market Funds: Which Is Better?

Both Treasury bill ladders and money market funds serve similar cash management purposes, but they differ significantly in structure, yield, and control:

Treasury Bill Ladders:

• Direct ownership of government securities
• Lock in rates for the full term
• State tax exemption on interest
• Predictable maturity schedule
• Requires active management

Money Market Funds:

• Professional management and diversification
• Daily liquidity with check-writing
• Yields fluctuate with market rates
• Management fees reduce returns
• Convenience and simplicity

The yield difference can be significant. Top-tier money market funds currently yield around 4.80-5.00%, while direct T-bill ownership captures the full 5.20-5.25% yield. Over a $100,000 position, this 20-45 basis point difference represents $200-450 annually.

Optimizing Your Ladder During Rising Rate Environments

Rising rate environments present the ideal conditions for T-bill laddering. The strategy allows you to systematically capture increasing yields without extending duration risk. During the 2022-2023 tightening cycle, investors who maintained short-duration ladders significantly outperformed those locked into longer-term instruments.

Key optimization strategies include:

Shortening Average Maturity

When rates are rising aggressively, bias toward shorter maturities. Instead of a 52-week ladder, consider 13-26 week structures to increase reinvestment frequency. This captures rising rates faster but requires more active management.

Uneven Ladder Weighting

Weight more heavily toward shorter maturities when rate increases are expected. For example, allocate 40% to 4-week bills, 35% to 13-week bills, and 25% to 26-week bills, rather than equal weighting.

Fed Policy Integration

Monitor Federal Reserve communications and recession probability indicators to anticipate rate direction changes. Our recession tracking system at Recessionist Pro monitors 20+ indicators that can signal when rate cycles might reverse, helping time ladder adjustments.

Tax Considerations and Account Placement

Treasury bill interest is subject to federal income tax but exempt from state and local taxes. This tax advantage becomes more valuable in high-tax states like California (13.3% top rate) or New York (10.9% top rate).

For a California resident in the 37% federal bracket earning $10,000 in T-bill interest:

• Federal tax: $3,700
• State tax saved: $1,330
• Net after-tax yield advantage: 13.3% higher than equivalent taxable income

Consider account placement strategies:

• Taxable accounts: Maximize the state tax exemption benefit
• Tax-deferred accounts: Consider only if yields significantly exceed other options
• Roth IRAs: Generally not optimal due to foregone tax-free growth opportunity

During recessions, the combination of temporarily lower income and high T-bill yields might create opportunities for strategic account positioning.

Common Mistakes to Avoid in T-Bill Laddering

Even experienced investors make tactical errors that reduce the effectiveness of their T-bill ladders:

Over-Complicating the Structure

Simple ladders often outperform complex ones. A basic 4-rung quarterly ladder typically provides 80% of the benefits with 20% of the complexity. Avoid creating weekly ladders unless you have substantial assets and sophisticated tracking systems.

Ignoring Opportunity Costs

While T-bills provide safety and liquidity, they may underperform during certain market conditions. During market capitulation events, having too much in T-bills might mean missing significant buying opportunities in undervalued assets.

Poor Timing of Initial Setup

Building a full ladder during peak rate environments can lock in high yields, but starting during rate-cutting cycles provides minimal benefit. Use economic indicators and Fed guidance to time initial ladder construction.

Inadequate Record Keeping

Track purchase dates, maturity dates, and yields systematically. Missing reinvestment dates or losing track of tax basis can reduce returns and create compliance issues.

When to Modify or Exit Your T-Bill Ladder

T-bill ladders aren't permanent structures. Market conditions and personal circumstances may warrant modifications or complete exits:

Consider extending duration when:

• Fed signals end of tightening cycle
• Yield curve steepens significantly
• Recession probability increases substantially

Consider shortening duration when:

• Inflation accelerates beyond Fed targets
• Economic growth exceeds expectations
• Fed adopts more hawkish stance

Consider exiting entirely when:

• Rates fall to near-zero levels
• Alternative investments offer compelling risk-adjusted returns
• Personal liquidity needs change dramatically

The key is maintaining flexibility while capturing the systematic benefits of the laddering approach. Regular portfolio reviews should assess whether your T-bill allocation remains appropriate given current conditions and future expectations.

Treasury bill laddering provides a systematic approach to cash management during uncertain economic times. While past performance doesn't guarantee future results, the strategy's emphasis on capital preservation, liquidity, and rate capture makes it a valuable tool for conservative investors. Consider your individual circumstances, tax situation, and overall portfolio allocation before implementing any cash management strategy.