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W ith a positively sloped U.S. Treasury bill curve, an investor receives additional yield for holding a bill with extended maturity. This additional yield is compensation for the additional risk of the longer security or the market's implicit forecast of a rise in interest rates. Investors who seek to profit from the tendency for yields to fall relative to this forecast as bills age are said to be pursuing a strategy of "riding the yield curve." We examine the effectiveness of this strategy using a comprehensive sample of U.S. Treasury bills.The strategy is as simple as it is well-known. Suppose an investor has a three-month holding period and considers two potential strategies. First, buy a three-month bill and mature it. Second, buy a sixmonth bill (or longer), and sell it after three months. If the yield curve is upward-sloping and does not change over the next three months, the six-month bill will earn a higher return because of the increase in price due to the decrease in yield relative to the forecast at which it is priced. McEnally [1981] refers to this effect as the price change due to maturity shift. Accordingly, investors will collect an additional return.For example, suppose that a 91-day bill and a 182day bill are yielding 5% and 5.25% on a discount basis, respectively (5.06% and 5.39% as money market yields). Buying and maturing the 91-day bill will generate a 91day return of 1.28%. Buying the 182-day bill and selling after 91 days will generate a 1.43% return over the same 91-day period if the yield curve remains unchanged. ROBIN GRIEVES is with HSBCSecurities in New York (NY 10005).

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