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30-year Treasury bond won't help most consumers

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.
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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 percent.

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 government's Treasury Direct Web site.

Bankrate.com's corrections policy
-- Updated: Feb. 9, 2006
 
 
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