Maybe it's just the insanely hectic life phase I'm in these days, but I'm drooling over these soaring bond yields the way I once drooled over the Anthropologie website.
First it was the short end. Three-month Treasury bills started yielding more than 5% back in March. Six-month, similar story; even after the debt ceiling drama passed, they've been on the rise, now offering a mouth-watering 5.5%. This is all because the Federal Reserve has kept on jacking up overnight interest rates; just last month they hiked again, to nearly 5.5%.
Now, a 5.5% risk-free return on your cash after fifteen years of zero rates feels to many of us like the same can't-miss-it opportunity as a going-out-of-business clearance sale would be at your local Lululemon, if that ever happened. People have been flooding into all sorts of formerly esoteric products like government "I" bonds, and sympathizing in chat forums about how hard it is to use the TreasuryDirect.gov website.
And yes, to the critics who say why all the fuss to make a couple extra bucks, this "tbill and chill" approach, as Goldman Sachs earlier this year coined it, is not exactly a long-term wealth creation strategy. It feels more like a quick way to pick up a little extra cash, for very little effort expended. I'm not moving my 401(k) into Treasuries or money-market funds, obviously.
But now things are getting extra interesting. Because the long end is starting to offer some pretty tantalizing yields of its own. The 10-year Treasury yield hit 4.3% this week, a new fifteen-year high. The 30-year action has been very similar, with the long bond offering about a 4.4% yield today. And I can't help but think...are we getting to levels where you could literally start to live off of this?
After all, the "4% rule" is known for being the recommended yield on your retirement portfolio. Meaning that, if you need to live off of $50,000 a year in retirement (plus whatever you get from Social Security), you need to have $1.25 million saved. So if you flip this thinking around, you could get $50,000 a year for thirty years, risk-free from the government by purchasing around $1.13 million of 30-year Treasuries today.
And ironically, this kind of thinking was exactly what got a lot of "crypto bros" excited in recent years, that if they could "stake" their coins and earn what some platforms claimed was upwards of 8% a year on them, they could quit their jobs and live off of the proceeds. The very promise of "decentralized finance" has now gone mainstream, albeit in a bit less sexy way.
The only slight problem is that it is genuinely hard to have enough capital to benefit from all of this in any kind of meaningful way. How many people have a million bucks lying around? Probably not the kind of people who are eager to invest it in ho-hum Treasuries.
Plus, there is that sticky little issue of having to pay taxes. What looks like a mid-4% yield on paper, can quickly become just 2 or 3 percent in "real" terms, after taxes eat up the proceeds. (And Treasuries at least have some tax advantages over bank CDs and money-market funds.) Oh, and the minor problem of that $50,000 going less and less far each year even if you did lock it in today, because of inflation.
All of which is to say, as amazing a deal as it feels like to watch yields marching ever higher lately, we're not yet back in the "olden days" territory where people could literally live off of the 18% coupons that some bonds used to offer. As fun as it is to make a few extra bucks here and there, this is more of a way to make a little bonus money on your cash, and not a true "lazy girl investment strategy."
My whole idea this year was to "wait it out" in Treasuries until the market turned south, and then put the extra funds back into the (lower) stock market. Ah, silly me. Maybe this 5% pullback will turn into a 10% correction, as is widely expected, but that only gets me back to where we started from. It would take another 10 percent drop on top of that for my "strategy" to really pay off. The real lesson? Stop trying to market time. That's the real "lazy girl" way to do things.
See you at 1 p.m!
Kelly
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