Monday, June 13, 2016

Three Point Five Percent

June 12, 2016
Japan’s Second-Biggest Bond Fund Doesn’t See Value in Yen Debt

The yield on the 10-year Japanese government bond plunged to a record low of minus 0.165 percent Monday, while that on the 20-year security slumped to an unprecedented 0.17 percent.

The TOTAL interest earned on a 20-year Japanese Treasury held 20 years is 3.5%.

1.0017^20-1 = 3.455%

A US EE Savings Bond issued today is guaranteed to double in price if (and only if) held 20 years.

The ANNUAL interest earned on an EE Savings Bond held 20 years is 3.5%.

2^(1/20)-1 = 3.526%

For long-term savers willing and able to hold 20 years, you could certainly do worse than an EE Savings Bond. That's especially true considering that the US 10-year Treasury currently yields just 1.61% and the US 30-year Treasury currently yields just 2.43%. No joke.

EE Savings Bonds: Rates & Terms

Treasury guarantees that an EE Bond will be worth at least its face value after the first 20 years. If an EE Bond does not double in value (reach its face value) as a result of applying the fixed rate of interest for those 20 years, Treasury will make a one-time adjustment at the 20 year anniversary of the bond's issue date to make up the difference.

This is not investment advice. You know this isn't investment advice because it is seldom, if ever, mentioned on CNBC. Wall Street's middlemen can't make any money off of investors buying Savings Bonds directly from the government. Go figure.

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