Monday, February 4, 2013

Treasury Billmageddon!

Click to enlarge.

Okay, there's some sensationalized sarcasm in this post's title and in the chart. I admit it. I never claimed to be a respectable economic journalist! Hey, I'm just a computer and physics guy with a sarcastic sense of humor. You get what you pay for on this free (deflationary) and mostly anonymous blog. ;)

In all seriousness, much to the dismay of typical economic pundits (think CNBC and/or Jeremy Siegel) it would seem hard to have a full-blown treasury bond rate explosion in the near-term if we can't even get the 3-month treasury bill to yield one-tenth of one-percent on a regular basis. Just a thought!

So what does this mean? I had no problem locking in a 3.53% yield for 20 years on EE Savings Bonds in January yet again. That's the yield one gets if one buys the bond today and holds 20 years (since they are guaranteed to double in value over the period).

2^(1/20) = 1.0353

The same may not be said for those who buy in May (when rates and possibly terms will next be changed). Should rates continue to remain this low on the short end of the curve, then eventually someone within government might decide that 25 years would be a more suitable time frame for EE Bonds to double in value. Just a hunch.

I can't say that 3.53% is an absolute bargain (hindsight may show that it wasn't), but it definitely beats the current 2.79% yield on the 20-year Treasury. In other words, long-term savers could certainly be doing worse.

I am a relative interest rate and inflation agnostic these days. I have virtually no opinion on what either will be doing 10 years from now. If I was forced to guess under penalty of death, I'd probably say more of the same. Put another way, I think the entire global economy is as @#$%ed over the next decade as it has been for the last decade. Call me a permabear.

This is not investment advice.

Source Data:
FRB: Selected Interest Rates
US Treasury: Yield Curve Rates

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