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Frequently Asked Questions
Treasuries

These are questions from real investors phoned in to my past TV show, live. I’ve included them here in the same phrasing used by callers, which is not always the “correct” phrasing(!) But I thought that many other investors who are not bond professionals may be able to relate to the callers’ way of talking.

Some of my answers are quite long and informative. Others are short, to the point, “zesty zingers!” Sorry. No one ever accused me of being too tactful!

Question:
Can the Government “call” their 30-year Treasury Bonds, and if so, which years?

Answer:
Most Treasury Bonds are not callable: though one or two callable ones may still be out in the market. However, there’s nothing to prevent the Treasury from purchasing their bonds back in the public bond market. The only legal use for a government’s surplus revenue is to reduce the Federal Debt. Congress may change that law in due time, but for now, that’s the law!

Question:
Would you consider investing in Treasury inflation-protected securities?

Answer:
In my personal opinion, TIPS or Treasury Inflation Protected Securities are not an attractive investment because I think you give up too much yield in buying the inflation protection. I would rather go out and buy a 1-year, 2-year, 3-year, 4-year, etc., up to 10 or 15-year Treasury bonds and put them together in a Treasury portfolio and let that be my protection against inflation.

Each year, as a bond matured, I could then invest in the new longer-dated Treasury, thereby always seasoning-up the yield of my portfolio. In this way, I would have protection against changes in interest rates because I’m always seasoning-up, but I would not be giving up any yield for the automatic Treasury inflation protection adjustment. Another important consideration is that in times of deflation, when interest rates are falling, TIPS can really move against you by reducing or limiting your interest income as compared to “non-protected” bonds.

Question:
What do you think is better for a two-to-five-year horizon? Treasury Notes or I-Bonds?

Answer:
I-bonds are zero coupon savings bonds, a portion of whose interest or accretion rate is determined by an inflation index. Treasury bonds are interest-bearing bonds with a fixed coupon rate and will fluctuate in price based on the interest rate market. Please see my answer to the previous question.

Question:
Where can I purchase Treasury Bonds?

Answer:
You can purchase them from any brokerage house, or you can call the Federal Reserve Bank in your Federal Reserve District and buy them through the program called Treasury Direct. Call your local Federal Reserve Bank and find out how it works. There’s no commission charged, they are purchased at par (face value), and your bank account is automatically debited/credited by the Fed. The major drawback is that there is very poor liquidity prior to the maturity date.

Question:
A senior citizen, 65 years old, retired, and living on fixed income. He needs income and was wondering if an I-bond would be an appropriate investment and what portion of his $100,000 portfolio would you invest in it?

Answer:
If someone needs to live on the income from their bonds, why would they go to I-bonds, which accrue their interest until redemption? For the same risk category (Treasury quality), an individual has a number of alternative investment options: Treasury bills, Treasury notes, Treasury bonds, or GNMAs. The GNMA security will probably pay close to a full percentage point higher income than any of the other Treasuries of the same maturity. GNMAs pay interest monthly, which is sort of nice if you’re living on the interest from your bond portfolio.

Mortgage-backed securities, such as Ginnie Maes, represent an investment in a pool of mortgage loans; thus, the yield and average life will fluctuate depending on the rate at which mortgage holders prepay the underlying mortgages and changes in interest rates. Your financial advisor should explain how mortgage-backed securities react to different market conditions.

If your portfolio is greater than $500,000, Sharon Alister can provide a free analytic review to help ensure that your portfolio is in line with your investment goals. Call Sharon Alister at (800) 745-7110 or email info@AlisterTalksBonds.com

 

Interest Rates (Indications only)

Please note the rates for Ins’d and Pre-Res are not available from Bloomberg and will be updated as soon as possible.

Treasuries AAA Munis
3mo 1.815 N/A
6mo 2.009 N/A
1yr 2.237 1.74
2yr 2.482 1.87
5yr 2.809 2.19
10yr 2.970 2.53
30yr 3.145 3.14
today's rates chart

AAA Rated Munis

Pre-Res Ins’d Pure*
2 yr 1.91 2.05 1.87
5 yr 2.23 2.49 2.19
10 yr N/A 2.89 2.53
15 yr N/A 3.20 2.82
30 yr N/A 3.50 3.14

*Rated AAA on its own
Source: Bloomberg

Frequently Asked Questions
Treasuries

These are questions from real investors phoned in to my past TV show, live. I’ve included them here in the same phrasing used by callers, which is not always the “correct” phrasing(!) But I thought that many other investors who are not bond professionals may be able to relate to the callers’ way of talking.

Some of my answers are quite long and informative. Others are short, to the point, “zesty zingers!” Sorry. No one ever accused me of being too tactful!

Question:
Can the Government “call” their 30-year Treasury Bonds, and if so, which years?

Answer:
Most Treasury Bonds are not callable: though one or two callable ones may still be out in the market. However, there’s nothing to prevent the Treasury from purchasing their bonds back in the public bond market. The only legal use for a government’s surplus revenue is to reduce the Federal Debt. Congress may change that law in due time, but for now, that’s the law!

Question:
Would you consider investing in Treasury inflation-protected securities?

Answer:
In my personal opinion, TIPS or Treasury Inflation Protected Securities are not an attractive investment because I think you give up too much yield in buying the inflation protection. I would rather go out and buy a 1-year, 2-year, 3-year, 4-year, etc., up to 10 or 15-year Treasury bonds and put them together in a Treasury portfolio and let that be my protection against inflation.

Each year, as a bond matured, I could then invest in the new longer-dated Treasury, thereby always seasoning-up the yield of my portfolio. In this way, I would have protection against changes in interest rates because I’m always seasoning-up, but I would not be giving up any yield for the automatic Treasury inflation protection adjustment. Another important consideration is that in times of deflation, when interest rates are falling, TIPS can really move against you by reducing or limiting your interest income as compared to “non-protected” bonds.

Question:
What do you think is better for a two-to-five-year horizon? Treasury Notes or I-Bonds?

Answer:
I-bonds are zero coupon savings bonds, a portion of whose interest or accretion rate is determined by an inflation index. Treasury bonds are interest-bearing bonds with a fixed coupon rate and will fluctuate in price based on the interest rate market. Please see my answer to the previous question.

Question:
Where can I purchase Treasury Bonds?

Answer:
You can purchase them from any brokerage house, or you can call the Federal Reserve Bank in your Federal Reserve District and buy them through the program called Treasury Direct. Call your local Federal Reserve Bank and find out how it works. There’s no commission charged, they are purchased at par (face value), and your bank account is automatically debited/credited by the Fed. The major drawback is that there is very poor liquidity prior to the maturity date.

Question:
A senior citizen, 65 years old, retired, and living on fixed income. He needs income and was wondering if an I-bond would be an appropriate investment and what portion of his $100,000 portfolio would you invest in it?

Answer:
If someone needs to live on the income from their bonds, why would they go to I-bonds, which accrue their interest until redemption? For the same risk category (Treasury quality), an individual has a number of alternative investment options: Treasury bills, Treasury notes, Treasury bonds, or GNMAs. The GNMA security will probably pay close to a full percentage point higher income than any of the other Treasuries of the same maturity. GNMAs pay interest monthly, which is sort of nice if you’re living on the interest from your bond portfolio.

Mortgage-backed securities, such as Ginnie Maes, represent an investment in a pool of mortgage loans; thus, the yield and average life will fluctuate depending on the rate at which mortgage holders prepay the underlying mortgages and changes in interest rates. Your financial advisor should explain how mortgage-backed securities react to different market conditions.

If your portfolio is greater than $500,000, Sharon Alister can provide a free analytic review to help ensure that your portfolio is in line with your investment goals. Call Sharon Alister at (800) 745-7110 or email info@AlisterTalksBonds.com

 

Interest Rates (Indications only)

Please note the rates for Ins’d and Pre-Res are not available from Bloomberg and will be updated as soon as possible.

Treasuries AAA Munis
3mo 1.815 N/A
6mo 2.009 N/A
1yr 2.237 1.74
2yr 2.482 1.87
5yr 2.809 2.19
10yr 2.970 2.53
30yr 3.145 3.14
today's rates chart

AAA Rated Munis

Pre-Res Ins’d Pure*
2 yr 1.91 2.05 1.87
5 yr 2.23 2.49 2.19
10 yr N/A 2.89 2.53
15 yr N/A 3.20 2.82
30 yr N/A 3.50 3.14

*Rated AAA on its own
Source: Bloomberg

Investing involves risk, including possible loss of principal. When investing in bonds, it is important to note that as interest rates rise, bond prices will fall. Conversely, as interest rates fall, bond prices will rise.

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