Here's a story the media is just catching on to: The yield on
10-year U.S. Treasuries (NYSEARCA:IEF) has been edging higher and
is now close to matching the S&P 500's (NYSEARCA:IVV) dividend
The 10-year U.S. Treasury bond currently yields 1.99% compared
to the S&P's 2.07%. Last year, the S&P's dividend yield
peaked at 2.29% in November.
As the S&P 500 and Dow Jones Industrial Average
(NYSEARCA:DIA) approach all-time highs, U.S. Treasury prices have
been pounded, pushing up yields. The price and yield of bonds is
inverse correlated. As yields rise, bond prices fall and vice
The DJIA's all-time high is 14,165, while the S&P 500's
all-time high of 1,565. Both benchmarks reached those highs on Oct
None of this is part of the Federal Reserve's plan, because the
Fed wants to keep a lid on borrowing rates.
"The Fed purchased $3.357 billion in Treasuries maturing from
February 2020 to November 2022 as part of its plan to cap
borrowing costs. The central bank is purchasing $85 billion of
government and mortgage debt each month."
From a yield standpoint, U.S. Treasuries are still not
attractive because they're not even keeping pace with inflation. In
2012, the Consumer Price Index (
), a benchmark of inflation averaged 2.1%. After factoring in
inflation plus taxes, the yield on U.S. Treasuries is negative.
What about credit default risk? Are Treasury bondholders being
adequately compensated for this risk? Of do you still
have the fairyland view that Treasuries are "risk-free"
If the yield on 10-year Treasuries matches or even exceeds the
S&P's dividend yield (NYSEARCA:SPY) by a few basis points, it
will still not make Treasuries an attractive investment for
On theother hand, the view that Treasuries (NYSEARCA:TLT) are a
protection against a future stock market (NYSEARCA:SCHB) correction
is the right interpretation.
In 2012, our $100,000 all
ETF Income Mix Portfolio
generated $10,400 by combining both dividend income and
money from covered calls. The expense ratio average for this
portfolio is 0.18%, which is five times less compared to U.S. stock
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