Wednesday, October 5, 2022
US Treasury Market
|Date||1 mo||3 mo||6 mo||1 yr||2 yr||3 yr||5 yr||7 yr||10 yr||20 yr||30 yr|
Source: U.S. Department of the Treasury, as of 10/04/2022
See-ya Tina, Welcome Back Babs
For much of the past decade, fractionally low interest rates have pushed yield-hungry investors out on the risk spectrum. It all began when liquid & lonely investors met an alignment of weirdos in a speed dating event with alternative investment assets such as cryptocurrencies and speculative equities which resembled the original Star Wars bar scene. In short order, income-starved savers found themselves in an arranged courtship with “Tina” (There Is No Alternative) – an equity only portfolio seeking returns above zero. They first met in 2010 when the Fed initiated Zero Interest Rate Policy (ZIRP) and it’s been a mostly loveless marriage since then.
But with this year’s tight Fed policy firmly focused on tamping down inflation, yields are soaring and high quality bonds are back and searching the scene for new buyers who will appreciate a long term profile of ample and steady returns. And deprived investors saddled with the burden of low income are eagerly swiping right at the sight of “Babs” (Bonds Are Back!).
A comparative look at performance makes Babs’ case clear. The S&P 500 has plunged more than 20% so far in 2022 but the dividend yield is only 1.80%. Meanwhile, simple Treasury yields are posting 3.5% to 4% nominal yields at different spots along the curve. And recent muni bond offerings of good quality issuers and varied maturities have cleared the market at a tax free yield of 4.25%. This produces a Taxable Equivalent Yield of 7.17% (at the current 37% highest tax bracket +3.8% surtax on investment income) which compares favorably vs this table of 50yr Average Returns of the S&P 500 as reported by www.tradethatswing.com:
Investors should expect equities to out-perform lower risk fixed income. But at current levels, bonds seem unusually attractive vs. higher risk (but not terribly higher yield) alternatives. That’s a wonderful combination. Bonds are back!
Let’s face it Tina, we never really even knew each other. Welcome home Babs J
This information is intended for institutional investors only. The material provided in this document/presentation is for informational purposes only and is intended solely for private use. Past performance is not indicative of future results. This material is not intended as an offer or solicitation for the purchase or sale of any financial instruments.
•Not FDIC Insured •No Bank Guarantee •May Lose Value