The bond and treasury markets are at times confusing to investors. Generally they are considered a safe form of income in relatively stable economic times. Investors enjoy a small but stable flow of income. In today’s environment, however, there may be a bit of uncertainty.
The Federal Reserve has reduced interest rates to help spur the economy, thus making treasury notes and bonds more attractive. Unfortunately, this same agency has also issued quite a bit of debt, as it relates to the “rescue package.” Generally speaking, this means that at some point interest rates will need to rise to keep foreign/domestic investors buying these treasury bills and government backed bonds. When this occurs yields on these products will drop. The question is when and how to keep an income flowing until, but before, interest rates rise.
There are a few ways to look at this issue. The first is quite simple, if the Federal Reserve raises rates, sell the bonds and treasuries. Currently treasuries are seeing this. The condition in this sense, however, is that an investor is not generally concerned with the price of the bond or treasury but the payout. So judging on the payout instead of bond price is the way to go.
Another way to think about the scenario is little known government supported agencies. These are semi-government agencies known as Fannie May and Freddie Mac. Most investors only see the horror stories regarding these semi-governmental groups, but never the fact that they pay a nice little dividend each month. This dividend is not huge but rather a nice little piece of change each month designed as an addition to a stable fixed income portfolio. The real kicker is that it is paid each month and can be easily followed to gain insight as to what the government might do with the quasi-governmental agencies.
Corporate bonds are another option to consider. This one is sort of tough for the general investor, but one that might be an option if the right company can be found. Be forewarned, however, that many investment professionals are not quite sure this area of investment is ready for a rebound.
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