With Ray Dalio claiming the 10 YR Treasuries will move over 5%

does it make more financial sense:

1. to lock that in - or go

2. for the even higher fixed income rates on the short end expiration with corporate and bank bonds/CDs such as the JP Morgan 2 year?

I'd be real careful on the corporate debt. With 10 year treasury at 5%+ you're looking at corporate debt financing issues that we haven't seen in decades. The cream will certainly rise to the top but you gotta hope you can identify them early.

Bonds are paying the highest yields in a really long time. The bond funds and indexes are trading at really nice discounts and will appreciate in value as soon as rates fall.

The CD's are attractive now but you're playing with significant reinvestment risk over the next few years

thanks BB and Sims

so we know what not to do-

what is the best option to then take beginning in January (when I have a lot of Goldman CDs being paid out)

buy US Treasuries from treasurydirect.gov?

Buy equities

What about high quality dividend payers like IBM or Chevron? They may fluctuate in value but you can ride that out .

halfastros81 said:

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What about high quality dividend payers like IBM or Chevron? They may fluctuate in value but you can ride that out .

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Why invest in a blue chip dividend stocks when CD's are at 6% and Tbills at 5.5%, with no risk to my capital?

TamuKid said:

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halfastros81 said:

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What about high quality dividend payers like IBM or Chevron? They may fluctuate in value but you can ride that out .

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Why invest in a blue chip dividend stocks when CD's are at 6% and Tbills at 5.5%, with no risk to my capital?

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Because in 10 years you will have maybe half what you could have had investing in the S&P. Don't take my word for it, set up a small account in the S&P and put the rest of your cash in a 6% CD and compare returns in 10 years. And while you're at it pick any 10 year return in the past and run that same scenario. Any 10 years.

How about March '99 to March '09?

I'd suggest some of each but you may realize some upside on the equities and over the long haul I don't think there's much downside provided you have the wherewithal to hold through a market correction

Good discussion

just to clarify-

I already have a lot of my portfolio invested in corporate 401Ks (ETF and mutual funds);

private Fidelity brokerage (about 50% ETF and 50% individual companies);

a bitcoin,

and a significant amount in 6 month and 2 year corporate CDs from Merrill Lynch.

so the question is not how do I diversify in general - but which is superior: buying Treasuries directly from USG or rolling over and continuing to purchase fixed income corporate bonds (either 2s or 10s)?

Or 1972-1982
Or 1929-1939
Or 1939-1949

It's happened before, it'll happen again.

OldArmyCT said:

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TamuKid said:

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halfastros81 said:

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What about high quality dividend payers like IBM or Chevron? They may fluctuate in value but you can ride that out .

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Why invest in a blue chip dividend stocks when CD's are at 6% and Tbills at 5.5%, with no risk to my capital?

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Because in 10 years you will have maybe half what you could have had investing in the S&P. Don't take my word for it, set up a small account in the S&P and put the rest of your cash in a 6% CD and compare returns in 10 years. And while you're at it pick any 10 year return in the past and run that same scenario. Any 10 years.

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S&P 500 wasn't the alternative. It was blue chip dividend payers. How's T doing? Or GE?

The two examples provided, IBM and Chevron… over last 10 years:
IBM less than 2% annualized return whether you DRIP'd or not.
Chevron 7.38% if you DRIP'd. 5.69% if you didn't.

And all that with risk to your principal. Could go to zero tomorrow in theory. Right now, completely risk free 6% is available in CD's.

That's the past. No doubt there's more risk and also more upside with the blue chips vs a CD and I am not saying not to invest in a CD. Just that putting some in blue chips is an alternative and relatively low risk way to diversify that also pays income . The 2 that I mentioned were of course just examples altho I do think they are probably pretty good options at this time.

Theoretically they could go to zero, realistically they will not remotely approach doing so however obviously it's not a good idea to put too many eggs in any one basket

good discussion

Is anyone able to buy US Treasury bonds on their private brokerage or it always has to go through USG website?

LMCane said:

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good discussion

Is anyone able to buy US Treasury bonds on their private brokerage or it always has to go through USG website?

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Can be bought through brokerage firms (e.g. Fidelity, Vanguard, Schwab, etc)

LMCane said:

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good discussion

Is anyone able to buy US Treasury bonds on their private brokerage or it always has to go through USG website?

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I buy all of mine on Vanguard. I have only ever gone to Treasury Direct for I bonds, which are only sold there.

halfastros81 said:

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That's the past. No doubt there's more risk and also more upside with the blue chips vs a CD and I am not saying not to invest in a CD. Just that putting some in blue chips is an alternative and relatively low risk way to diversify that also pays income . The 2 that I mentioned were of course just examples altho I do think they are probably pretty good options at this time.

Theoretically they could go to zero, realistically they will not remotely approach doing so however obviously it's not a good idea to put too many eggs in any one basket

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A diversified portfolio is always a good idea. As to your theoretically zero market, if that happens the money in your pocket isn't going to be any good.

Is there a benefit to buying US Treasuries over Agency/GSE bonds? I see that agencies pay higher interest...is that due to risk of default, call risk, or something else?

yocod said:

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Is there a benefit to buying US Treasuries over Agency/GSE bonds? I see that agencies pay higher interest...is that due to risk of default, call risk, or something else?

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In my experience it's just an explicit vs implicit backing argument. If you're an institutional buyer with an investment guideline, that matters. If it's you personally - I'd be ok with the implicit backing. Until I see the government actually let someone fail and not bail them out, I'd consider the implicit and explicit guarantee to be near the same. YMMV

Agree. The theoretical zero discussion was not my idea
Btw. I was just responding.

OldArmyCT said:

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halfastros81 said:

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That's the past. No doubt there's more risk and also more upside with the blue chips vs a CD and I am not saying not to invest in a CD. Just that putting some in blue chips is an alternative and relatively low risk way to diversify that also pays income . The 2 that I mentioned were of course just examples altho I do think they are probably pretty good options at this time.

Theoretically they could go to zero, realistically they will not remotely approach doing so however obviously it's not a good idea to put too many eggs in any one basket

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A diversified portfolio is always a good idea. As to your theoretically zero market, if that happens the money in your pocket isn't going to be any good.

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Not zero market… but a single stock. Could definitely reach zero… more realistically could lose substantial principal. Again, look at a company like AT&T (T). Or GE 6-7 years ago. Blue chip dividend payers as single stocks can be quite rough; as compared to guaranteed 6% with no risk to principal. Again; very specific and limited focus on the OP's original question. The holistic answer, of course, is to diversify. Most people shouldn't be sprinting to put all their money in fixed income securities. But it does make sense for a good portion of money to go there right now (emergency funds, big purchase savings funds, folks nearing retirement, etc).

How is buying treasuries direct different from a managed treasury money market fund like FSIXX or FISXX? I don't even know what the difference between those is...

Anyway, I'm 51 and this is the first time in 25 years that it's made sense to park money in cash, so forgive me for not knowing this stuff.

I understand any one stock could go to zero. It has certainly happened before but the probability is very low for an ibm or a chevron imo. I can't remember if Enron went to zero or not but it certainly changed the picture on a lot of folks retirement prospects.

Your points are solid!

Iirc, Enron paid all of its 401k matches in company stock, and employees weren't vested until age 50. So they were forced to be highly leveraged in toilet paper. Given the appreciation of the share prices, there must have been regular white collar types in their late 40's who had multi-million dollar paper losses.

There are more knowledgeable people than me that can answer this, but I think the advantage to buying the treasury instrument itself is that the rate is guaranteed for life of the instrument. The money market fund will have a rate that fluctuates. Once rates start to decrease, these money market funds will decrease as well. But, the money market fund is probably a bit more liquid.

I believe Fidelity parks any cash in your brokerage account in one of their money market funds by default, and it is treated as cash, meaning you can invest it or withdraw it immediately. I'm not sure about the two others you mentioned. I think the difference between them all is what treasuries they are composed of. I can't really explain the differences there, as it looks like it involved Repurchase Agreements ("Repos") which is a different world. Regardless, I believe the treasuries can be sold whenever you want, but there could be a delay between sale, settlement, and when the cash is available, though I'm not 100% sure on that. Hope this helps until somebody smarter can chime in.

Thanks.Monthly sweeps at 5.1 - 5.2%, fully liquid, is pretty good so far. That's what my savings account paid when I was 8 years old

yocod said:

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There are more knowledgeable people than me that can answer this, but I think the advantage to buying the treasury instrument itself is that the rate is guaranteed for life of the instrument. The money market fund will have a rate that fluctuates. Once rates start to decrease, these money market funds will decrease as well. But, the money market fund is probably a bit more liquid.

I believe Fidelity parks any cash in your brokerage account in one of their money market funds by default, and it is treated as cash, meaning you can invest it or withdraw it immediately. I'm not sure about the two others you mentioned. I think the difference between them all is what treasuries they are composed of. I can't really explain the differences there, as it looks like it involved Repurchase Agreements ("Repos") which is a different world. Regardless, I believe the treasuries can be sold whenever you want, but there could be a delay between sale, settlement, and when the cash is available, though I'm not 100% sure on that. Hope this helps until somebody smarter can chime in.

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The settlement fund in my Vanguard accounts is their money market fund, VFMXX. Any funds I want to use are available instantly to buy something else. Schwab's money market fund acts like a conventional mutual fund in that funds that go in settle at the end of the day and funds you want to use to buy something else are available next day.

94chem said:

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How is buying treasuries direct different from a managed treasury money market fund like FSIXX or FISXX? I don't even know what the difference between those is...

Anyway, I'm 51 and this is the first time in 25 years that it's made sense to park money in cash, so forgive me for not knowing this stuff.

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Money market funds are variable interest. When you buy a treasury directly the yield is locked in till maturity. Also money market funds are typically slightly lower yielding than short term treasuries so you can make a little more by rolling treasuries yourself.

Treasuries are not a good play right now...not even short term. The inverted yield curve, government's reckless spending, Yellen unable to sell bonds, Fed keeping the interest rate higher for longer, unrealized losses for banks holding bonds at 1% yield, and it looks like we're getting pulled into a couple of wars.

This mess has wave function economic collapse written all over it. That's my bear take. Good luck fellas.

TTUArmy said:

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Treasuries are not a good play right now...not even short term. The inverted yield curve, government's reckless spending, Yellen unable to sell bonds, Fed keeping the interest rate higher for longer, unrealized losses for banks holding bonds at 1% yield, and it looks like we're getting pulled into a couple of wars.

This mess has wave function economic collapse written all over it. That's my bear take. Good luck fellas.

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Please explain further-

if we have a 5 year or 2 year Treasury bond

why would we care about the global crises going on?

unless you are insinuating that the USG is going to collapse and not be able to repay Treasuries?

LMCane said:

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TTUArmy said:

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Treasuries are not a good play right now...not even short term. The inverted yield curve, government's reckless spending, Yellen unable to sell bonds, Fed keeping the interest rate higher for longer, unrealized losses for banks holding bonds at 1% yield, and it looks like we're getting pulled into a couple of wars.

This mess has wave function economic collapse written all over it. That's my bear take. Good luck fellas.

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Please explain further-

if we have a 5 year or 2 year Treasury bond

why would we care about the global crises going on?

unless you are insinuating that the USG is going to collapse and not be able to repay Treasuries?

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Both imply the rate will go higher from here as investors (ex Treasury) will demand higher rates of return in exchange locking up their cash in the face of continued inflation.

The Fed/Treasury could embark on curve control measures on the middle/long end of the curve but that's inherently highly inflationary. To fight that inflation, you'd have to raise rates which would fight the ycc that the Fed/Treasury were already doing.

All that is to say, I think the risk he's presenting is there's a good chance, even at these "very high yields" investing at the long end of the curve could potentially be subject a steep drop in bond value if not held to maturity. If you do hold to maturity, you're still being paid back in devalued dollars assuming all the other things happened.