I have been vacationing in Portugal for the last two weeks and was hearing only hints of the turmoil striking the U.S. bond market in recent days. The yield on the benchmark 10-year nominal Treasury, for example, jumped from 2.88% on September 6 to 3.23% at the market close on Friday, October 5.
That's a leap of 35 basis points, fairly remarkable in a month. I also noticed that the TIP ETF - which holds the full range of Treasury Inflation-Protected Securities - finally dipped below $110, which in the past I have considered a "buy" target. (I'm no longer so sure about that, because of distortions from the flat yield curve.)
Higher bond yields mean lower bond prices, and that's bad news for bond-fund investors. Here are the one-month results for bond ETFs holding medium-term Treasurys (down 1.0%), total bond market (down 1.5%), TIPS (down 1.8%), and long-term Treasurys (down 5.7%):
However, for buy-and-hold investors in bonds and bank CDs, higher yields may bring some happiness: Finally, we are seeing higher yields for our maturing investments. It has been a long time since we have been able to get even 3% for a safe, stable investment.
So I was wondering: Where are the buying opportunities out there? Are banks now going to step up - finally - with higher yields for insured accounts? Are nominal Treasury yields also reaching interesting levels?
My interest was perked by an email I received from a North Carolina-based credit union, Truliant Federal. It is offering a 37-month CD yielding 3.05% with a minimum investment of $1,000 of new money. This CD has a one-time "bump" option, meaning the rate can be increased one time - matched to the yield of Truliant's 36-month CD (currently a pathetic 1.55%). Another perk is that new money can be added to the CD throughout the term.
It seems like a good offer, but how good? To find out, let's take a look at a broad range of super-safe, shorter-term investments (yields as of Friday, October 5):
A yield of 3.05% for 37 months is attractive, but only about 7 basis points higher than a comparable Treasury on the secondary market. However, the added perk of a one-time bump in the rate is attractive, as is the ability to add cash to the current CD at 3.05%.
I suspect that these rate bumps are rarely used, especially in the case of a "higher than usual" yield for 37 months. In Truliant's case, the bump would be usable only if the 3-year term rises above 3.05%. It's currently just 1.55%. If a rate bump offer interests you, look for an institution with strong yields across all maturities.
That being said, Truliant has a good promotion and I give them credit for the possibility to earn more than 3% over three years.
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