Rates Are Rising – Is It Time to Consider US Treasuries?

The US Federal Reserve Board (Fed) is currently in the midst of a rate-hiking cycle that began in December 2008. As a result, the federal funds rate (the rate at which banks lend money to other banks overnight) rose from 0.05 percent in December 2009 to 2.19 percent in October 2018.

When the Fed federal funds rate rises, it typically has a ripple effect on interest rates across the entire economy. US Treasury yields, for example, have followed suit, soaring to multiyear highs in October. The yield on the 10-year US Treasury note, for example, exceeded 3 percent to reach its highest level since July 2011.

With interest rates poised to continue rising, US Treasuries may be appealing. To some, 3 percent may seem far too low for a sensible long-term interest rate. For others, it is a reasonable return for the safety of bonds backed by the full faith and credit of the US government.

Additionally, there are other high-yielding alternatives. For example, you may be able to obtain higher yields with only slightly more volatility via non-Treasury government-backed bonds, such as mortgage-backed securities supported by other agencies.

One example is mortgage-backed securities supported by the Government National Mortgage Association (GNMA), which guarantees investments backed by federally insured loans. These securities carry the full faith and credit of the US government and may offer a higher yield than comparable US Treasuries do.

Of course, no investment is suitable for all investors. A financial professional can help you determine whether the mentioned securities are appropriate for your portfolio.