|30-year Treasury bond won't help
|By Laura Bruce
Uncle Sam is once again issuing the 30-year Treasury
bond, which was discontinued in October 2001. The new bond is being
auctioned semiannually beginning Feb. 9.
The bond will enable the federal government to raise long-term
money at low rates, which is good news for American taxpayers. Corporate
and government pensions and insurance companies will also enjoy
financing long-term obligations at low rates.
But for the average consumer, buying a 30-year bond might not be
a wise investment considering the current
flat yield curve. On the day this article was written, the two-year
Treasury was yielding 4.6 percent while the 10-year had a yield
of 4.53 percent. You might be right to assume that the new 30-year
would yield more than the 10-year, but would it be enough to take
on the risk of a 30-year investment?
Let's look at another fixed-income alternative -- certificates
of deposit. Investors in short-term CDs have done very well as the
Federal Reserve has raised interest rates. Buyers who are willing
to go outside their own neighborhood for the best
rates will find three-month CDs yielding 4.5 percent, six-month
CDs tipping the scale at 4.75 percent and one-year yields at 5.05
It won't be known how well the 30-year will do until the government
determines how strong demand is for the bond. Some experts say if
institutions jump in and buy heavily it will ease pressure on the
10-year bond, which institutions have been buying because it's the
longest-term, newly issued government bond. If that happens, the
price of the 10-year should drop, and the yield would rise. That
might make it attractive to consumers, but until then it looks as
though short-term CDs will give Uncle Sam's long-term options a
run for the money when it comes to the consumer's investment dollars.
For information on how to purchase Treasury securities visit the
Direct Web site.