It’s a race to the bottom, and you’re guaranteed to lose.
Bureaucrats around the globe have fomented lust for interest rates set at zero or below. This includes our lead bureaucrat – the tangerine-tinctured Donald Trump.
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A 10-year German government bond is priced to yield -0.51%. The Swiss equivalent yields -0.82%. On the other side of the Pacific, investors have bid the 10-year Japanese bond to yield -0.22%.
That’s no misprint. Investors really are paying to lend.
A German government bond that pays no interest (it has no coupon) is priced at 105.24 today. It will pay 100.00 when it matures.
Bond investors are guaranteed to lose 5.24 on every German bond they buy and hold to maturity.
This is no isolated mania. Believe it or not, $17 trillion worth of this negative-yield debt trades in the global bond market.
Negative Yields and Retirement Income
The mania is spreading. Negative yields are now appearing in the private sector.
The German industrial conglomerate Siemens (OTC: SIEGY) recently offered $1.16 billion in two-year notes without paying a cent in interest (no coupon). There were plenty of takers. Investors bid the Siemens notes higher to a -0.315% yield.
The 1.79% (positive) yield on the 10-year U.S. Treasury notes appears almost profligate in comparison.
President Trump is unhappy. As is often the case, he wants the world to know.
Trump tweeted last week that “the Federal Reserve should get our interest rates down to ZERO, or less, and we should then start to refinance our debt.”
The Fed complied. It ordered a quarter-point interest rate cut after concluding its policy summit on Wednesday.
This race to the bottom is a big deal if you’re an income investor, and more so if you’re one homing in on retirement.
When we cross the bridge to leisure class from working class, we usually want to cross with a conservative investment portfolio, preferably with one that provides ample income.
So, what do traditional leisure-class investments pay today?
A triple-A rated Microsoft (NASDAQ: MSFT) three-year bond offers a 4% coupon. The problem is the price has been to yield only 1.86%.
If you are willing to stretch the time frame, you could buy a 2041 Microsoft bond with a 5.3% coupon. Unfortunately, you’ve been beaten to the punch. This long-dated Microsoft bond is priced to yield only 3.0%.
You’ll likely be better off holding Microsoft stock. The company’s a proven dividend grower. It increased its quarterly dividend 11% this week. Microsoft’s lofty share price, though, means you’ll start with only a 1.5% yield.
How about the bank stuff?
Certificates of deposit (CDs) are traditional income investments, but you won’t find much for retirement income here, either.
Bankrate.com shows that the best two-year CDs are offering 2.45% yields. You pick up a little more yield if you extend the time frame, but not much. The best five-year CDs are paying 2.5%.
Retirement Income Repressors
The term is “financial repression” and it includes what governments around the world are doing today: They’re confiscating your wealth with subtle tools like zero interest rates to ease their debt burden.
The good news is that you can fight the repressors.
Don’t let Trump repress your retirement. Look beyond the traditional to the unconventional: Liberty Checks.
One Liberty Check can pay you 10x the income of one quarterly dividend or one interest payment.
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