Short-term Treasury yields are rising to new highs, making risk-free notes more attractive to investors looking for safety and income at a time when market returns are scarce. The yield on two-year Treasuries rose to 4% on Wednesday, the highest level for bonds since 2007. Bond yields move inversely to their prices. The two-year note is the point on the Treasury yield curve that is most sensitive to an interest rate hike by the Federal Reserve. Central bank leaders are expected to raise interest rates by 0.75 percentage points on Wednesday afternoon in an attempt to tame inflation. In August, the CPI rose 0.1%. Economists polled by Dow Jones expected a decline of 0.1%. With the yield curve inverted, short-term banknotes now have higher yields than long-term ones. These short-term bonds are now more compelling given the lackluster performance of stocks this year. The S&P 500 is down nearly 19% in 2022. Jeffrey Gundlach, CEO of DoubleLine Capital, Bond’s king, said in a recent online broadcast that after several tough years, the fixed income market is now the place to be. “The opportunities are now more exciting than at any time, in my opinion, in the past 10 years,” he said. Gundlach recently purchased long-term Treasurys. On the other hand, CNBC Jim Cramer bought two-year Treasury bonds for his personal portfolio. For the first time in a long time, he said, returns are more competitive with equity returns. With short-term bonds, investors can get a high return without a long-term commitment. For those looking to get a part of the action, here’s what you need to know. Purchase Direct from the Government You can purchase Treasurys directly from the United States government through its website, TreasuryDirect.gov. You will need to create an account and link your bank to the website. The banknotes sell in increments of $100 and are generally issued within one week of the auction date. Treasury auctions for 2, 3, 5 and 7 years occur every 4 weeks, while the 10-year auction takes place every three months. Buying notes makes income planning easy. said Chartered Financial Analyst Tim Utecht, chief investment officer at Life Planning Partners, based in Jacksonville, Florida. “You know exactly what you’re going to get.” You will get paid interest twice a year. If you hold the treasury to its maturity date, it will not be affected by market risk. The downside to owning stock instead of investing in a treasury fund is the lack of diversification, unless you’re handing over the bonds yourself. You will also have to ensure that you purchase the appropriate Treasurys based on your goals and time horizon. Certified financial planner Diahann Lassus, managing director at Peapack Private Wealth Management in New Providence, New Jersey, said the investments are also separate from your other accounts. “For people who want to see it all together, it’s a little more difficult,” she said. You also can’t buy them in your own IRA or Roth IRA, which Lassus believes is the biggest downside. If you want to sell the bond before it reaches the maturity date, you cannot do so on the government website. Instead, you will have to transfer it to a bank, broker or merchant. Buying treasury bonds from a brokerage You can also buy treasury bonds on the secondary market, through a brokerage. You will still get all the benefits of owning security straight away. For Utech, this is the easiest way to buy bonds, and he described the government’s website as “a bit cumbersome.” He said that online brokers like Fidelity and Charles Schwab have tables that list the returns on different Treasurys, so you can compare products. In addition to offering secondary market bonds, both Fidelity and Schwab sell a new version of Treasurys. You also have to be aware that you may not get the exact time horizon of note on any secondary purchases from the Treasury, Otik said. Be sure to check any minimum purchase requirements and related fees. At Schwab and Fidelity, for example, you can buy Treasurys online for free, but broker-assisted trades are $25 and $19.95, respectively. At Fidelity, the minimum purchase is $1,000 for Treasuries. What Lassus loves about getting into a brokerage, she said, is the fact that you have the ability to get your investments together and you can even add them to an IRA or a Roth IRA. Exposure through a bond fund You can also have exposure to the bond market through mutual funds and exchange-traded funds. “It provides instant diversification,” Lassus said. For example, a short-term Treasury bond fund can have issues with maturities between one and three years. You can buy them through your brokerage, which may also make it easier to track performance along with the rest of your holdings. See below for four short-term treasury funds. However, funds can suffer price turmoil in a year like this year and have the potential for losses. Also, income payments can fluctuate due to the different bonds in the fund. Be aware of any fees involved, which may wipe out your returns. Funds also have a turnover rate and are therefore subject to capital gains tax, unlike individual bonds.
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