Blue Haven

More yield with Less Risk

By October 17, 2022 No Comments

Markets, as we’ve learned, are very efficient over time. Companies that make money have stocks that tend to go up, companies that do nothing tend to eventually go out of business. We also see efficiency in the bond markets- a bond with less risk tends to yield less than a bond with higher risk.

For the last few weeks, Certificates of Deposit (CDs) have been yielding LESS than equivalent maturity US Treasuries. Why is this unusual? Well technically, CDs have more risk than US Treasuries. Yes, CDs are guaranteed by the US Government up to a certain amount, but “guaranteed by” the US Government is different than direct debt issued by the US Government. If push came to shove the US would pay its debt (Treasuries) first, then pay the things it has insured (CDs).

If you have CDs coming due at a bank, consider these yield differences we are seeing right now:

3 month CD: 3.29%
3 month US Treasury: 3.60%

6 month CD: 3.80%
6 month US Treasury: 4%

1 year CD: 4.15%
1 year US Treasury: 4.45%

2 year CD: 4.40%
2 year US Treasury: 4.45%

Any time an investor can get a higher return and simultaneously take less risk, then the investor should do that. These yield differentials won’t last forever and we encourage our clients who may have bank CDs to think about US Treasuries.

Don’t want to miss anything?

Subscribe to our monthly newsletter for market insights.

Leave a Reply