In This Economy?

What Bonds Should You Buy

| Apr 24, 2023
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    In This Economy?

    What Bonds Should You Buy

    Apr 24, 2023

    Bonds offer an alternative form of investment to stocks that can add diversification and a steady stream of income to your portfolio. Types of bonds include Treasuries, Municipal bonds, and corporate bonds, and each type varies in credit rating and yield - the higher the credit rating, the lower the yield, and vice versa. Within the US Treasury market, there are bills, notes, and bonds that differ primarily on their duration, or length of time - longer durations tend to garner a higher interest rate. Finally, there are inflation protection bonds that offer a variable interest rate that moves higher and lower with inflation rates.

    Failures to raise the debt ceiling has signaled fear of a potential US Treasury default. Credit default swaps and Treasury yields are showing that the US Treasury is as close to default as ever. Credit default swaps on Treasuries with 1 year of duration or less have more than quadrupled in recent weeks as people seek protection against a potential default. The US Treasury yield curve has moved dramatically as demand has increased for 1-month Treasury bills that could be some of the last that the Treasury has money to pay for before the potential default.

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