Treasury Bonds...Time to Buy?

10-Year Treasury Bond Rates Closed Friday, June 11, At 3.788%.

Remember the good old days when you could buy a CD paying 12%? Of course, inflation was running at higher rates than that, but boy oh boy, didn't it feel great to know that your money was safe and earning a guaranteed double digit return? Only a few years ago, 5% CDs were still common. And a couple of years before that, you could actually find 7% CDs. But those days are gone. Today, it's work just to find a CD paying you 2%, and as a result, many retirees are looking under every stone to find better interest on their money. But at the same time, you want to be safe, like a CD.

Of course, many times, this is where the typical retiree gets into trouble. It's called "chasing yield". You have to be very careful reaching for a higher return, as the risk to your principal grows along with the yield of any investment you consider.

If you don't want to risk your principal, then you only have three places you can look for options. Those three places are: Banks, Government, and Insurance Companies. Banks primarily offer savings accounts and CDs. The Government offers Treasury Bonds, Savings Bonds, and Inflation Bonds. And Insurance Companies offer Fixed Annuities.

Any other investment comes along with some type of risk to your principal. It's as simple as that.

In recent news, 10-Year Treasury Bonds are nearing 4% return. Given the difference between that and CDs, is it time to look at investing in Government Bonds?

I don't believe so.

Why not? I can think of three really good reasons.

Inflation is coming, and when it does, interest rates will rise. Do you want to lock yourself into 4% rates for the next 10 years if we could be looking at 6% or higher rates available in the near future?
If interest rates do rise, the value of your 4% bonds will fall. Bond values move in the opposite direction as interest rates. You'll be stuck with those 4% bonds until maturity, or you will have to sell them at a discount.
Losing Money Safely. It's highly likely that inflation rates will be rising, which means that while you are earning 4%, the cost of goods and services will be going up each year 6% or 7%. You will be guaranteed to be earning less than inflation. This is never a good place to put yourself!

What should you do?

I would encourage you to take a look at Fixed Indexed Annuities. They guarantee your principal, but give you the opportunity to earn better-than-inflation rates of return. Like anything else, they do have disadvantages, but if you are looking for better rates, they offer the best opportunity in today's marketplace.