Looking at the fixed income (FI) offerings right now, I think perhaps I found something that may be reasonable for very conservative investors. The issue facing conservative FI investors right now is where to get yield, and where to get yield that will last for a while. It’s easy to buy 5% 4-week, 8-week, 13-week, 26-week bills, but those yields only last for 4, 8, 13, or 26 weeks. After they mature, you are left again to the vagaries of the bond market. If you want 5+% for a longer period of time, you need to look elsewhere. The 1-year, 2-year, and 3-year treasury securities are yielding under 5%, well under 5% in most cases (and even under 4% for the 3-year).
So what to do?
While updating a spreadsheet today, I was looking at fixed income offerings and I noticed that some of the agency securities have nicer yields for longer terms. For example an 18 month (10/21/24 maturity) Federal Home Loan bond is yielding 5.1%. You can’t get 5.1% for 18 months in CDs/etc (I think). Now you might say “but these are not call protected, and when people pay down their mortgages, that sweet 5+% yield will end”, and that is true to some extent. Some of those mortgages will be repaid, or principal paid early, but if you believe that rates are staying “higher for longer”, then there won’t be a wholesale rush to refinance “all” mortgages anytime soon. So it seems that at least some of the money put into these securities will earn 5+% for the duration.
The 10/21/24 one (18 months) is 5.1%, the 4/27/26 one (3 year) is 5.2%, the 04/28/2027 one (4 year) is 5.3%, and the 04/26/2030 one (7 year) is 5.4%.