Buy Treasuries Now!
Right now you can get an amazing 4.18% yield to maturity on 10-yr treasuries! Or, if you want to take on some more risk, you can earn 5.04% before fees investing in the DJ Corporate Bond Index. At that rate you may be able to outpace inflation by 1-2%. OK, maybe there are better options out there.
For example, the following stocks have yields that rival the total return of the T-notes. (And, if you are a long-term investor, you have significant up-side potential.)
Citigroup 4%
Bank of America 4.6%
ING 4.5%
Merck 5.4%
UST 5.2%
(Disclosure: I currently own ING and UST and might be in the market in the near future for some of the others.)
Most of the companies above have headline-grabbing risk factors and have less than spectacular near-term prospects. Citigroup’s executive office has been depleted; BAC is integrating a couple very large mergers; ING is particularly susceptible to a flattening yield curve and reserving in their Asian insurance operations; MRK has significant litigation risks; and UST always has litigation risk and is losing market share. (In addition, the banks listed have general industry risks in that associated with under-reserving for loan losses, risks associated with a slowdown in the housing market, and risks associated with a flattening yield curve.) Although these risks are real, they are still great companies with good long-term prospects, with yields close to a 10-yr T-note.
Of course, if you don’t want to take the small risk of investing in these companies, enjoy your 4.18% and I will enjoy the dividends and capital appreciation for years to come.
