WALL STREET JOURNAL
August 15, 2019
" The yield on the benchmark 30-year U.S. Treasury bond dropped to a historic low of 2.018% in early trading Wednesday...the yield on the benchmark 10-year Treasury note settled at 1.596%...the probability of additional rate cuts totaling 0.75 percentage point by the end of the year rose to about 50%"
June 27, 2019
August 12, 2019
August 13, 2019
Many years ago, I joined Merrill Lynch for what became a 30-year career.
My specialty was bonds not stocks, because interest rates were much higher back then, and many investors felt that a double digit return in bonds was more attractive than taking stock market risks.
In the early 1980s, the prime rate hit 20%, the 30-year Treasury bond yielded 15%, and you could find good quality, tax free munis paying 13%. To those paying federal and state income taxes exceeding 50%, those munis represented a taxable equivalent annual return of nearly 30%! Who needed stocks!
With tax free bonds in particular in big demand throughout my career, by the time I retired, my clients included chairmen, presidents and/or directors of more than 50 Fortune 500 firms.
Anyway, it was a great run. Interest rates continued their long decline throughout my career and right up to the present, meaning bond prices have been in a virtual bull market for almost 40 years!
Now, however, things have gotten a bit more complicated.
With interest rates at historical lows, the search for income has become difficult for many investors. In several developed countries, investors already earn less than nothing and must actually pay banks to hold their money!
However, there is a way to reverse this trend and actually increase income going forward : "A Synthetic Bond".
Financial Resolutions, LLC