“Knowledge is knowing a tomato is a fruit; wisdom is not putting it in a fruit salad” Miles Kington
These are broad areas that have been getting stronger
- S. Dollar
- Floating Rate U.S. Treasuries
- Oil Exploration
These are broad areas that have been getting weaker
- Long Term Corporate Bonds
- Social Media
- Emerging Markets
Source: Dorsey Wright and Assoc./Thomson Reuters
(See complete List by clicking here: Market Trends)
As inflation data continues to come in, it confirms that the Fed will stay on the path of aggressive rate increases. Especially with the core inflation continuing to stay near 40 year highs.
Last month we talked about the “little ray of sunshine” which were 6 – 12 month T-Bills paying approximately 3.50% - 4.00%. This time I would like to discuss another type of U.S. Treasury that was introduced back in January 2014. They are called U.S. Treasury Floating Rate Notes. As you can see they are ranked among the areas of the market that are getting stronger. These are an area that I have been looking at very closely. I thought you might like to hear about them too!
First, they are two-year bonds. However, instead of paying interest every six months, like most bonds, they pay every 3 months. This interest rate is comprised of two pieces. One, the interest rate on regular 3-month U.S. Treasury T-Bills. Secondly, a little extra yield (called a spread) that is added to the T-Bill rate. Here’s an example.
As of 10/24/2022, the 3 month yield on the T-Bill was approximately 3.913% and the floating rate spread was 0.037%. Added together, the overall yield would be 3.95% (3.913% + 0.037%). Now here’s where it gets interesting. If the 3-month T-Bill goes down in three months to 3.80%, then the overall yield would adjust down to 3.837%. However, if the 3-month T-Bill rate goes up in the next three months to 4.00%, then the overall yield would increase to 4.037%. Since the Fed has been raising interest rates, these floating rate notes have been more attractive than when interest rates were at 0.08% in January of this year.
As always, I enjoy interacting with you! Feel free to contact me with any thoughts and questions. You can email or call me…my phone is with me all the time. I look forward to speaking with you soon!
Michael
Michael S. Lewis
President, Wealth Manager
Anchor Wealth Management
358 NW 1st Ave, Suite 2, Canby OR 97013
(503) 910-1687
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Securities and advisory services offered through LPL Financial, a Registered Investment Advisor. Member FINRA/SIPC.
Treasury Bills are guaranteed by the US Government as the timely payment of principal and interest and, if held to maturity, offer a fixed rate of return and fixed principal value.
US Treasury floating rate notes are backed by the full faith and credit of the US Government.