Yields on short-term Treasuries are soaring to new highs, making risk-free bonds more attractive to investors seeking safety and income at a time when markets are scarce. profit. Yields on two-year Treasury notes rose to 4% on Wednesday, the highest for bonds since 2007. Bond yields are inversely proportional to their prices. The 2-year bond sits at the point on the Treasury yield curve that is most sensitive to Federal Reserve rate hikes. Central bank leaders are expected to raise interest rates by 0.75 percentage points on Wednesday afternoon in a bid to curb inflation. In August, the consumer price index increased 0.1%. Economists surveyed by Dow Jones predicted a 0.1% drop. With an inverted yield curve, short-term bonds now offer higher yields than long-term bonds. These short-term bonds are also more attractive now considering the lackluster performance of stocks this year. The S&P 500 Index is down nearly 19% in 2022. Bond king Jeffrey Gundlach, CEO of DoubleLine Capital, said in a recent webcast that after a brutal few years, the fixed-income market is now is the place to be. “Opportunities are more exciting now than at any time, in my opinion, in the last 10 years,” he said. Gundlach’s company recently purchased Long Term Treasures. On the other hand, CNBC’s Jim Cramer bought a 2-year Treasury note for his personal portfolio. For the first time in a long time, yields are more competitive with stock yields, he said. With short-term notes, investors can get high returns without long-term commitment. For those looking to get a piece of the action, here’s what you need to know. Buy Directly from the Government You can buy Treasurys directly from the US government through their website, TreasuryDirect.gov. You will need to set up an account and link your bank to the website. The bills are sold in the amount of $100 and are usually issued within a week of auction date. Auctions for the 2, 3, 5, and 7 Year Treasures take place every 4 weeks, while the 10 year auction takes place quarterly. Buy notes that make income planning easy. “If you buy an individual Treasury and hold it to maturity, you know what your interest rate is and you know what your maturity value is,” said chartered financial analyst Tim Utecht, investment director at Life Planning Partners, based in Jacksonville, Florida. “You know exactly what you’re going to get.” You will be paid interest twice a year. If you hold Treasury until it matures, you are not exposed to market risk. The downside to owning stocks instead of investing in Treasury funds is the lack of diversification, unless you’re buying the bonds yourself. You’ll also have to make sure to buy the right Treasures based on your goals and timing. Investments are also separate from your other accounts, says certified financial planner Diahann Lassus, principal manager at Peapack Private Wealth Management in New Providence, New Jersey. “For those who want to see everything together, it’s going to be a little harder,” she said. You also can’t buy them in your IRA or Roth IRA, which Lassus considers the biggest downside. If you want to sell a bond before it matures, you can’t do that on the government website. Instead, you will have to pass it on to your bank, broker or dealer. Buying Treasuries from a Broker You can also buy Treasuries on the secondary market, through a brokerage firm. You will still get all the benefits of owning the security directly. For Utech, this is the easiest way to buy bonds, calling the government’s website “a bit cumbersome”. Online brokerages like Fidelity and Charles Schwab have yield lists on different Treasuries, so you can compare products, he said. In addition to offering secondary market bonds, both Fidelity and Schwab sell newly issued Treasuries. It’s also important to note that you may not receive an exact time on the note for any secondary treasury purchases, Utech said. Be sure to check any minimum purchase requirements and associated fees. For example, at Schwab and Fidelity you can buy Treasures online for free, but broker-assisted trading is $25 and $19.95 respectively. At Fidelity, the minimum purchase is $1,000 for Treasury bills. What Lassus likes about going through a brokerage is the fact that you have the ability to aggregate your investments and you can even add them to an IRA or Roth IRA, she says. Exposure through bond funds You can also gain exposure to the bond market through mutual funds and exchange-traded funds. “It provides immediate diversification,” says Lassus. For example, a short-term Treasury bond fund may have problems with maturities ranging from one to three years. You can buy them through your brokerage firm, which can also make it easier for you to track performance along with the rest of your holdings. See below for four short-term Treasury funds. However, funds can be inflated in a year like this and you could end up at a loss. Also, income payments can fluctuate because you have different bonds in the fund. Be aware of any fees involved, which can cost your profits. Funds also have turnover and are therefore subject to capital gains tax, unlike individual bonds.
