Traders work on the floor of the New York Stock Exchange (NYSE) in New York City, U.S., March 3, 2023.
Brendan Mcdermid | Reuters
The latest spike in bond yields was enough to spook the stock market into a sell-off Tuesday, but there’s a silver lining for fixed income investors: Short-term Treasurys are now touting a risk-free return of 5%.
The latest action follows comments from Federal Reserve Chair Jerome Powell, who said Tuesday that interest rates are “likely to be higher” than previously expected. “If the totality of the data were to indicate that faster tightening is warranted, we would be prepared to increase the pace of rate hikes,” he said.
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The yield on the 3-month Treasury touched a high of 5.015% on Tuesday, the highest level since 2007. (Note: that yield is annualized, not what you would get in just three months.)
Rates on the 1-year bill and 2-year Treasury note – the latter of which is most sensitive to the Fed’s policy – also popped more than 5% on Wednesday morning, reaching levels last seen in 2006 and 2007, respectively. Bond yields move inversely to prices.
Treasury rates have popped higher as the Fed continues its rate-hiking campaign.
A piece of the action
Short-term Treasurys are a great way to put idle cash to work, and you can also “ladder” them to get a little interest on your money over a certain term. This means you build a portfolio of issues with different maturities and reinvest the proceeds as they mature.
Investors can get in on the action in a couple of ways.
First, they can purchase Treasurys directly from the U.S. government via TreasuryDirect.gov. They will have to set up an account on the site and link their bank to it. For short-term investors, 4-week, 8-week, 13-week and 26-week T-bills are auctioned every week. Two-year notes are auctioned monthly, and 10-year Treasurys are auctioned every quarter.
If you hold the Treasury to maturity, you aren’t subject to market risk. The…
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