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Skip NavigationMarketsBusinessInvestingTechPolitics & PolicyVideoWatchlistInvesting ClubPROLivestreamMenuYields are ripping higher, but there’s a silver lining for income-focused investors: They can generate a little more interest on their cash if they ladder short-term Treasurys. Stocks were under pressure on Tuesday as the 10-year Treasury yield topped 5.29% at its session high. The yield on the 30-year bond touched its highest level since 2002. US10Y 1M mountain The U.S. 10-year Treasury yield in the past month But the news isn’t all that bad for investors. “Today’s Treasury rate environment presents an excellent opportunity for investors to boost their portfolio income by building a T-bill ladder,” said Vince DeCrow, founder of Rise Investments in Chicago. Diversifying interest rate risk Building a ladder of Treasury bills, which have a maturity of a year and less, involves snapping up several issues of different maturities, holding them in a portfolio and then as near-dated issues mature, reinvesting the proceeds into a new T-bill at the “bottom” of the ladder. The three-month T-bill was trading around 4.2% on Tuesday, while the 12-month T-bill yield touched a high exceeding 4.5%. For short-term purposes, a T-bill ladder can involve buying three-, six- and 12-month T-bills, which creates natural cash flow and can be useful for individuals in retirement or for individuals with a set date in mind for when they’ll need the money. “Like in two to three years they might be saving for a house down payment, and in a case like that, they need the certainty of the money being there in two years, but they also want to earn interest,” said DeCrow. Since the Federal Reserve has also kicked off a rate-hiking cycle, ladders are also looking appealing as they allow you to spread interest rate risk. In a rising rate environment, you’re picking up higher yielding issues — and you can sit tight through price fluctuations because your plan is to hold to maturity and reinvest. “Investors know what they’re going to get and when they’ll get it, assuming they hold to maturity,” said Cooper Howard, director of fixed income research and strategy, Schwab Center for Financial Research. Investors can also build ladders that combine T-bills and notes, going out one to five years, but they should be aware that going beyond that five-year mark may court interest rate risk. “The strategy and the length [of the ladder] depend on your risk tolerance and time horizon,” Howard said. There’s an additional kicker for tax-conscious investors. Interest on Treasury bills and notes are subject to federal income taxes, but avoid state and local levies. That’s a bonus for investors residing in high-tax locales like California and New Jersey. Bills and notes aren’t the only instruments investors can use to generate a little more interest while managing interest rate risk. A portfolio of Treasury-inflation protected securities, or TIPS, can also offer some inflation protection for investors building out a stream of cash flow. Municipal bonds can also work in concert with Treasurys, said Howard. Munis provide income that’s free of federal income taxes, and investors who reside in the issuing state may also collect income that’s exempt from state and local tax. “You can take advantage of high Treasury yields on the short end and high municipal bond yields on the long end,” he said. Caveats Investors building a ladder will need to be deliberate as they pick out which issues work best for their circumstances. For starters, that means being mindful of interest rate risk. Longer-dated issues have greater duration – meaning that their prices are especially sensitive to fluctuations in rates. Investors should also be aware of when each of their issues mature so they can be sure to roll the money into a longer-dated issue. “You have to be a little more hands-on but there’s technology and tools that can take some of that work out of your hands, and that can make it a little easier to accomplish,” said Howard.Read More