In modern financial practice, only U.S. Treasury bonds are considered a “risk-free asset.”
What makes them risk-free? The ability of Uncle Sam to tax its citizens to ensure interest gets paid, or, if necessary – and more likely — print money to do so.
Since the pandemic and Biden social agenda spending years, investors have been less confident in the “risk-free” part of the thesis.
Bond yields on the 30-year Treasury rose above 5% for the first time since late 2023 yesterday. And for the first time in 19 years, the Treasury auction closed there:
30-year bond yields are at their highest levels in 19 years, even after two years of rate cuts. (Source: Treasury Dept)
At 5% interest rates, the math on the federal deficit looks even more grim than it does now. Rates are moving in the opposite direction of what Treasury Secretary Bessent and newly minted Federal Reserve chairman Kevin Warsh have said they can handle.
For investors, however, in the short run, a 5% return on risk-free Treasuries looks more attractive than the “potential” earnings yield of the S&P 500 trading at over 30 times earnings.
If… Warsh, who starts his new job on Monday, can persuade the other Fed governors to cut rates later this year, and “if” the Strait of Hormuz opens and the oil market cools off, today’s relatively high yields won’t last.
In the meantime, a prudent saver might want to lock in some of those higher yields.
To get our top play amid the latest surge in interest rates, become a member of Grey Swan Pro — details here.
~ Addison
P.S. It doesn’t matter how smart you are or how much money you make in the stock market if you give all your gains to Uncle Sam. Today at 2 p.m. EST/11 a.m. PST we’re hosting Nick and friends from Prime Corporate Services for a tax webinar to help you be confident you’re getting all the write-offs that properly structured individual investors are entitled to. Join us, you’ll be surprised and how much you may be leaving on the table.
As always, if you have any questions for us, send them to Feedback@GreySwanFraternity.com.
