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CDs: better than Treasuries

By Sheyna Steiner · Bankrate.com
Wednesday, June 6, 2012
Posted: 9 am ET

One thing CDs have going for them lately is their safety. Consequently, a short-term CD or another insured bank product could be a better option for savers than the safest investment in the world: United States Treasury securities.

Bankrate's senior financial analyst, Greg McBride, was interviewed by Chuck Jaffe, a senior columnist with Marketwatch.com for the online talk show "MoneyLife." They talked about the incredibly low yield the 10-year Treasury has reached and the danger to investors should yields bounce back.

Bond yields go in the opposite direction of their price. When a bunch of people are buying 10-year Treasuries, the price goes up and yields go down. That means if you buy a 10-year note at today's yield of 1.5 percent, you're either stuck with that yield for ten years or you're forced to sell at a loss when yields go up, hopefully long before a full decade ticks by.

The interview was summed up in the Marketwatch blog The Tell in the post, "How to lose 4% on your bond investment in a hurry."

From the story:

McBride said that investors "do not want to be following the herd and piling into Treasuries," though he felt that institutional investors will keep going there, because they are more concerned with return of capital than with the amount their money is making. He noted that in Germany  right now, two-year government bonds are at negative yields, meaning people are paying the German government to hold their money.

Individual investors will be better off in top-yielding money-market and savings accounts, and suggested investors probably don’t want to tie their cash up for more than a year. "I don’t see any need to invest in a 10-year Treasury at something below 1.5% when you could get a short-term CD that would pay you the same rate of return over a much shorter period of time, and still offer you FDIC insurance."

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