Riding the Bill Curve

Abstract

The authors examine the effectiveness of “riding the bill curve” using a comprehensive sample of U.S. Treasury bills over a recent ten-year period. The results suggest that riding the bill curve consistently enhances returns over a buy-and-hold strategy on average. Although the additional return is associated with higher risk, the reward is sufficient for all but the most risk-averse investors. The riding strategy's performance deteriorated substantially during the Federal Reserve tightening cycle of 1994–1995. Riding the bill curve, however, is generally preferable to buying and holding relatively expensive “quarter-end” or “tax” bills.