UnThreaded | Threaded | Whole Thread (2) | Ignore Thread Prev | Next
Author: Lokicious Big gold star, 5000 posts Feste Award Nominee! Old School Fool Add to my Favorite Fools Ignore this person (you won't see their posts anymore) Number: of 35387  
Subject: Re: Can you shed any light on this? Date: 11/8/2006 8:14 PM
Post New | Post Reply | Reply Later | Create Poll . Report this Post | Recommend it!
Recommendations: 1
However, it seems like a dubious proposition to buy a bond that will pay less than current mm yields, unless you strongly believe that interest rates will drop. What am I missing here?

I don't think you are missing anything. The problem is, typically, the yield curve has longer maturities with higher yields, so you lose out sticking with shorter maturities (or money market). Currently yields are flat or inverted, so money markets (at least the ones paying top dollar) are competitive, so you only lose out if interest rates go down.

Where you will lose out is if the Fed cuts rates and money market rates, which track the Fed rate more closely that long bonds do, go down, then long and short rates all stay down. In that case you will wish you had locked in higher rates on longer bonds.

This is where I like TIPS, because I can set a yield above inflation that seems comfortable to me and buy, even if there might be higher rates at the moment.

Personally, for now, I'm accumulating for January, when I hope TIPS will be up or Pen Fed has higher rate CDs. With the recent drop in intermediate yields, I see no reason to jump. However, I am always wrong on these matters.
Post New | Post Reply | Reply Later | Create Poll . Report this Post | Recommend it!
Print the post  
UnThreaded | Threaded | Whole Thread (2) | Ignore Thread Prev | Next

Announcements

Pencils of Promise - Back to School Drive
"Pencils of Promise works with communities across the globe to build schools and create programs that provide education opportunities for children."
Post of the Day:
Value Hounds

Netflix Riles Investors
What was Your Dumbest Investment?
Share it with us -- and learn from others' stories of flubs.
When Life Gives You Lemons
We all have had hardships and made poor decisions. The important thing is how we respond and grow. Read the story of a Fool who started from nothing, and looks to gain everything.
Community Home
Speak Your Mind, Start Your Blog, Rate Your Stocks

Community Team Fools - who are those TMF's?
Contact Us
Contact Customer Service and other Fool departments here.
Work for Fools?
Winner of the Washingtonian great places to work, and "#1 Media Company to Work For" (BusinessInsider 2011)! Have access to all of TMF's online and email products for FREE, and be paid for your contributions to TMF! Click the link and start your Fool career.
Advertisement