MILLBURN, N.J. ( Stockpickr) -- The yield on a 10-year U.S. Treasury is 2.96%. For a seven-year U.S. Treasury, you will earn 2.28% to maturity. Think about it: You will receive less than 3% for locking up your money for seven to 10 years. Sure, you will most certainly not lose any of your principal, but you will be at risk for a rise in interest rates.
Given that interest rates are already at historically low levels, it is unlikely that you will be unable to generate any sort of capital appreciation. The five-year U.S. Treasury yield of 1.61% is less than the dividend yield on the S&P 500 index, which is about 1.71%. Investment grade corporate bonds of similar maturities to the U.S. Treasuries I mentioned above do not enhance your yields by much.
This yield predicament is something that investors are facing in today's interest rate environment. Retirees are increasingly seeing their higher-yielding certificates of deposit and bonds maturing without finding a suitable replacement. These people represent a good portion of my clientele, and I have had to satisfy their need to find income.
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