Treasury Yields Are Sinking – But Don’t Turn to a Starvation Diet Just Yet


Here’s your “Slap in the Face” Award for this week. This cheek-smacker goes out to income investors, which includes me.

In case you weren’t already aware, since rates were lowered to zero or near zero during the Obama administration, earning anything on your money (“anything” meaning income from an investment) has been a challenge.

The press was quick to report the yield inversion (where the two-year Treasury paid more than the 10-year Treasury) recently. But it seems oblivious to the fact that when it comes to yields, seniors and retired people in this country have been living on a starvation diet for years.

And I wish I could say that’s going to turn around, but a recent analysis by Moody’s – one of the credit rating agencies – has convinced me that yields are actually going lower.

How low? How does 0.5% on the 10-year Treasury sound?

If that’s not enough to shake you up, how does 1% to 1.5% on the 30-year work for you?

It seemed like the world was going to end when the 10-year settled in the 1.3% area. The possibility of 0.5% seems surreal.

But when you consider that $15 trillion worth of government bonds worldwide are paying less than 0%… well, maybe we don’t have it that bad. But tell that to the guy who’s scraping by on what certificates of deposit (CDs) have been paying.

Now, most people don’t own Treasury bonds. I know that. But a whole bunch of us own mutual funds that own Treasurys. And they will suffer.

And as the Treasury market goes, so will other yields.

There isn’t a one-to-one correlation between Treasurys and most of the debt market, except perhaps with municipal bonds. But if the Moody’s analysis is right, and I have no reason to question it, we’re going a lot lower.

The only good news here is that if we can get rates that low on the 10- and 30-year Treasurys – which means the shorter-maturity notes and bills will be paying even less – we can make a significant dent in the debt service this country is now paying.

The current average rate being paid on the national debt is 2.57%. That’s with the 30-year sitting around 2% and the 10-year at around 1.5%.

At 0.5% to 1% on the 10-year, we could conceivably cut our debt service by 33% to as much as 66%.

But if you’ve been around the block as many times as I have and if you’ve watched Washington as long as I have, you know it’ll find a way to screw that up too.

Yeah, that’s my sarcastic and cynical side coming out. But if I’m certain of anything, it’s that what Washington does best is run up debt. If it’s significantly cheaper, it’ll just run up more.

I’m not trying to blow my own horn or that of Marc Lichtenfeld, but the only solution I see for this income and yield problem is what Marc and I have been recommending for our Members for years: investing in high-quality corporate bonds and stocks that consistently grow their dividends.

If you’re part of that portion of the senior population that is hunkered down in CDs, annuities and mutual funds that invest in bonds or government securities, I know it’s been tough to make ends meet. But grab hold of your ankles – it’s only going to get worse.

That’s it for this week. Keep your eye on the horizon and your powder dry.

Good investing,


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