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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 35362  
Subject: Re: Bonds/CD's Date: 9/6/2006 10:24 AM
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Why would you buy bonds now when CD rates are so high? (Obviously rather bond ignorant).

Suppose it depends on what your definition of bonds is.

If you are comparing Treasuries with insured CDs of the same maturity, which have the same default risk (priced in as none), at the moment it looks like you can find CDs with better yields, even after state and local taxes, than Treasuries. Since not all CDs have higher yields, you may need to shop around, while with Treasuries you can have the convenience of bidding at auction with Treasury Direct.

Through most of the low interest rate period of recent years (I'd hardly call current CD rates "so high"), there have been CDs available with better after tax yields than Treasuries. We did go through a period this year, roughly March through July, where Treasury yields in most maturities were competitive, after taxes, with CDs, and TIPS yields were close enough to historical averages to be worth considering. Over the last month, Treasury and TIPS yields have gone down faster than the better CD yields, although on the whole CD yields have also gone down. But, with CDs, you do sometimes get localized reasons (or, perhaps, incompetence) that leads to offerings that are out of line with broader trends (Pen Fed, now). The banking industry is more competitive than the Treasury market, so I would expect, more oftern than not, it will be possible to find CDs that beat Treasuries, if you shop around.
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