A new twist in TreasuriesIn early May, 30-year Treasuries were yielding 2.87 percent, compared to 0.11 percent for one-year Treasuries, and 0.03 percent for one-month Treasuries. That gave 30-year Treasuries a 2.76 percent advantage over their one-year counterparts, and a 2.84 percent advantage over the one-month alternative. How have things changed since then? It depends where you look. Short-term yields have fallen slightly, while the long-term yield has risen significantly. By the end of September, 30-year Treasuries were yielding 3.68 percent, while 1-year Treasuries were at 0.10 and 1-month Treasuries were at 0.02. That widened the advantage of 30-year Treasuries to 3.58 percent over one-year securities and 3.66 percent over one-month Treasuries. In a few short months, yields on Treasuries have started to look more attractive -- if you look at the long end of the yield curve.
What you should know about buying TreasuriesIf those Treasury yields look tempting, here are three things you should know about buying these securities.
- Income investors should take a buy-and-hold approach. Be advised that long-term Treasury prices can fluctuate wildly. However, if you are buying for income, you should be unaffected by those fluctuations as long as you take a buy-and-hold approach, in which case your income payments until maturity are guaranteed, and the face value of the security is guaranteed at that point as well.
- They are best bought in bulk. Treasury securities can be bought with reasonable efficiency in face-value blocks of $10,000 or more, so they are best for fairly significant commitments rather than smaller, incremental investments.
- Bond funds may not deliver enough income. A bond fund may allow for smaller investments, but be advised they may not deliver the same amount of income you think you are getting from the bond market. Mutual fund fees will take away a slice of that income, and whether you get the same yield as a buy-and-hold approach will depend on the bond manager's investment decisions.