About Treasuries
Translated from Russian with the help of AI. Original: Russian version
The author advises placing foreign-currency savings in US Treasury bonds through brokers rather than in low-yielding dollar deposits at second-tier banks.
In any foreign bank, balances in a current or brokerage account earn interest at a rate close to the base rate. It does not matter whether you keep your money in Dubai, the US or Europe: on dollars you will be paid a rate close to, and correlated with, the Fed rate, because banks and investment companies then redeploy these funds in the market into securities yielding more than the Fed rate.
In Kazakhstan, an artificial arbitrage has been created in favor of the banks. Interest on current accounts is prohibited, and foreign-currency deposits are subject to a rate cap of 1%. As a result, second-tier banks obtain foreign-currency balances at practically zero cost and then place them either in foreign-currency securities or in correspondent accounts at the NBK, which pays the banks interest that is also correlated with the Fed rate. All of this was done to combat dollarization, but in practice it allowed the banks to earn risk-free profits on our money when central banks raised rates to fight inflation.
That is why I would like to write about how to stop "gifting" interest to the banks and earn interest income yourself. There are not many ways to save fairly, but they exist. Opening an account abroad has become very difficult and expensive, but our brokers have access to international markets, so the best way to place foreign-currency savings is through brokers.
Brokerage companies can offer a variety of foreign-currency instruments, but the closest and safest option is US Treasury bonds. They carry an AA rating and can be sold at any time without losing yield. US Treasuries come with different maturities. I would recommend short-dated securities with maturities of 6 months to 1 year, since because of their very short life they are practically insensitive to changes in interest rates.
Among US dollar financial instruments, these securities are considered the most reliable, and certainly more reliable than US dollar deposits at Kazakhstani second-tier banks.
The yield on such securities can currently exceed 5% per annum.
US Treasuries are genuinely comparable to deposits, since their main purpose is, after all, capital preservation. In other words, this type of financial asset is the safest compared with corporate bonds or other financial instruments.
There are, however, certain drawbacks. Brokerage companies do not work for free and charge their own commissions. They also pay various fees to the exchange, the central depository and custodians, and they have their own margin. For this reason, the minimum amount to invest in such an instrument should be USD 10 thousand or more. The optimal amount is USD 200 thousand or more.
Any broker in Kazakhstan can buy these bonds for you. Below I leave a link to a landing page where you can read about this financial instrument in detail. At Teniz Capital Investments Banking, we specially developed this page to make it easy to understand.