If you’re looking for low-risk investments, Treasurys have often been the way to go because they are fixed-income securities backed by the U.S. government. Though they have different maturity dates, Treasury bonds, notes and bills are red-hot now, with interest rates reaching highs as of late.
As Jaspreet Singh — successful entrepreneur and founder of the Briefs Media and Minority Mindset brands — noted, U.S. Treasury bonds are “exploding,” opening possibilities for investors who might be worried about the current state of the economy and U.S. dollar.
Bond yields, which move inversely to prices, tend to rise in an inflationary environment because inflation erodes the value of a future bond payout. While that often means bad news for stocks, consumer debt and mortgage hunters, interest rate hikes by the Federal Reserve have helped grow Treasury yields across the board.
“Treasury yields in the United States have officially hit their highest levels that we have seen since before the 2008 crash,” said Singh in a Minority Mindset YouTube video last week.
But, because investors are currently in an “inverted yield curve” — having the ability to earn higher yields on shorter-term Treasury bonds rather than lock money up for longer periods to generate higher interest income — an economic downturn might be coming around the bend.
As Singh stated, now is not the time to go out and buy a truck (despite used vehicle prices relaxing somewhat recently), but it might be a smart time to look into investing in high-rate Treasurys.
How To Invest in U.S. Bonds
With 10-year Treasurys paying out at a lower interest rate than shorter-term two-year bonds, Treasury bills are an interesting option. According to CNBC, T-bill yields — which have terms ranging from four to 52 weeks and pay out interest when the asset matures — have increased significantly since the Fed began raising rates in March 2022.
However, Treasury bills aren’t without their risks. While higher-yield short-term bills might seem like a no-brainer, you might miss out on higher interest income with long-term Treasury investments. Additionally, as the economy improves, other options like stocks become more attractive. Repurchasing new T-bills every time they mature might hinder returns as markets and inflation progress.
Bond laddering involves spreading your bond investments across different maturities and is a safe and popular way of taking advantage of current Treasury rates. As Forbes reported, “You can build a bond ladder for any period of time, and the staggered reinvestment means that you’ll have flexibility in how you respond to varying interest rate environments.” When yields are high, consider investing in shorter-term bonds. As the bonds mature, you can reinvest the proceeds into new bonds with higher yields.
Evaluate High-Yield Bonds
High-yield or “junk” bonds often offer higher yields compared to investment-grade bonds. However, they come with higher risk due to the relative creditworthiness of the issuing companies and carry a higher chance of default.
Bonds decrease in price as interest rates rise, but historical patterns and healthier issuers all point to investment rebounds, according to The Wall Street Journal. Don’t do yourself a disservice by dismissing “junk” bonds. If you assess the risk-reward profile of high-yield bonds and consider allocating a portion of your portfolio to them, you might win out in the end.
“I always like being in high-yield after it has had a year of negative returns,” says Peter Tchir, head of global macro at New York-based Academy Securities.
The chances of getting rich through T-bills, Treasury notes and government-protected bonds is slim, but in a challenging economic environment, they might be a safe haven for investors.
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