As you're considering an attractive yield to maturity, remember a key assumption is that those funds are unavailable until maturity.įor example, assume you buy a one-year T-bill with a $1 million par value and a 2% yield to maturity. When considering a Treasury strategy, don't lose sight of absolute dollars involved. Of course, this works both ways: if the Federal Reserve cuts interest rates, buyers will pay a premium for outstanding bonds. So if interest rates go up, your bond is worth less (all else equal). Interest rates and bond prices have an inverse relationship. So, there's little risk that you couldn't sell a Treasury before maturity if you wanted to. Sounds good, and it is, but it doesn't mean this approach makes sense for everyone. government defaulting is at or near zero and you hold to maturity, Treasuries are a sure thing. Yes, assuming you believe the likelihood of the U.S. Guaranteed Return?! Why Wouldn't Everyone Buy Treasuries? You can reinvest the cash (at the prevailing interest rate) to keep the latter going, take the money to supplement income, or match liabilities to cover certain expenses, like college tuition bills.Īs an added bonus, interest from Treasuries isn't subject to state taxes. In doing so, you can structure a ladder, where Treasuries automatically mature (at par) on a rolling basis. Perhaps every six months, year, or whatever matches your needs. With a ladder, the investor would buy Treasuries with different maturity dates. It's also possible to create an income stream by laddering T-bills and notes. With Treasury rates where they are, in some situations, it may be worth considering buying some for your portfolio as a cash-like holding. (Note: both figures are annualized, so if you only hold for six months, your actual rate of return would be half). two year Treasury is 3.05%.¹ In comparison, Nerdwallet reports the national average rate on a high-yield savings account is. With interest rates rising, government bonds have become a lot more attractive for investors searching for a return on cash.
0 Comments
Leave a Reply. |
AuthorWrite something about yourself. No need to be fancy, just an overview. ArchivesCategories |