Magic mirror on the wall, who is the fairest one of all?
It might just be short-term U.S. Treasuries.
Why? Let me count the ways.
- Currently paying 5.5%.
- Zero risk (guaranteed repayment of principal and interest).
- The most liquid security in the world.
- More than a 1% positive spread between the current yield of 5.5% and core inflation of 4.35% (this hasn’t happened in more than 15 years).
- Treasury interest is not taxed at the state level. In California, this could equate to taking the current 5.5% yield to a tax-equivalent yield of over 6.3% if held in a taxable account.
- When the market or the world panics, time and time again, investors have run to the safest investment in the world—U.S. Treasuries—which in turn drives their prices up.
Maybe the evil queen was on to something.
-Paul R. Rossi, CFA