Bond Yields Aren’t Great—But It Could Be Worse!

For fixed-income investors, it’s getting more and more challenging to find favorable interest rates in combination with the type of security that most are looking for. It hasn’t been too long since 10-year US Treasuries were yielding over 3%, and if you were buying in 2006 or 2007, you could lock in close to 5%.

Today, though, yields are around 1.3 on the 10-year Treasury, and the 5-year note is below 1%. This doesn’t seem very appealing, especially when you consider that inflation is currently running in the 6–7% range. But as discouraging as this picture might look, it’s actually better than what bond investors in other countries around the world are able to achieve.

In Germany, the government has issued 2-, 5-, and 10-year bonds, all at a 0% coupon rate; if you buy and hold them to maturity, you get your money back, and that’s it. Of course, as we know, the market price of bonds fluctuates, and right now, those 0%, 2-year bonds are trading at an effective yield of -0.738% (remember, as bond prices go up, effective yields go down). The 5- and 10-year bonds have an effective yield of -0.724, and -0.464, respectively. Admittedly, the current German inflation rate of 1.35% helps the picture a little bit, but in terms of actually staying ahead of inflation, German government bonds might not be a hot ticket right now.

But what about other European countries? Is the picture any better? The Spanish 2-year government bond, issued at a positive yield, currently trades at a -0.684% effective yield. Similarly, Dutch, Belgian, and French bonds are trading at negative effective yields all the way out to 10-year maturities. Italian, Swedish, and Portuguese government bonds are providing negative yields until the 10-year mark.

Of course, as we also know, bond yields are a function not only of time, but also of creditworthiness. Investors willing to take a risk on borrowers with a lower credit rating can obtain yields well above those mentioned above. For example, the Argentine 10-year government bond is yielding a generous 45%. You need to know, however, that inflation in Argentina is currently running at a 47% annual rate, so your investment would have considerably less purchasing power by the end of the year. That wouldn’t be as bad, however, as buying a Venezuelan government bond. While yielding a nominal rate of 46%, inflation in Venezuela is 9,986% (down from last year’s rate, believe it or not). At that rate, your bond would have zero purchasing power about a year after you bought it.

Maybe the moral is obvious: while US rates are currently not very exciting, they’re actually better than those available, most other places in the world, especially when you consider the relative security offered by the direct backing of the federal government.

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Empyrion Wealth Management (“Empyrion”) is an investment advisor registered with the U.S. Securities and Exchange Commission under the Investment Advisers Act of 1940. Information pertaining to Empyrion’s advisory operations, services and fees is set forth in Empyrion’s current Form ADV Part 2A brochure, copies of which are available upon request at no cost or at The views expressed by the author are the author’s alone and do not necessarily represent the views of Empyrion. The information contained in any third-party resource cited herein is not owned or controlled by Empyrion, and Empyrion does not guarantee the accuracy or reliability of any information that may be found in such resources. Links to any third-party resource are provided as a courtesy for reference only and are not intended to be, and do not act as, an endorsement by Empyrion of the third party or any of its content. The standard information provided in this blog is for general purposes only and should not be construed as, or used as a substitute for, financial, investment or other professional advice. If you have questions regarding your financial situation, you should consult your financial planner or investment advisor.

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