Blog

Investing Blog Roundup: Reinvestment Risk with an Inverted Yield Curve

Since late 2022, we’ve had an inverted yield curve, which is when shorter-term fixed-income investments actually have higher yields than longer-term fixed-income investments. That’s not the typical situation. Bonds with longer duration have more interest rate risk (price volatility), so they typically have higher yields to compensate for that higher risk.

But, right now, they don’t. For instance, as of right now, the yield on 1-month Treasury Bills is more than a percentage point higher than the yield on 30-year Treasury Bonds.

And that leads to one of the most common questions I’ve received over the last year: if cash (and other super-short-term fixed-income options) actually pays more than longer-term bonds, why would I use longer-term bonds at all?

In a recent article, David Blanchett dove into one such reason: reinvestment risk. With cash and similar, you know what rate you’re getting today, but there’s no way to know what rate you’ll be getting in even the intermediate-term future. And as Blanchett found, the way an inverted yield curve often “fixes” itself is by cash yields falling.

Beware of Reinvestment Risk When the Yield Curve is Inverted from David Blanchett

Other Recommended Reading

Sharpe’s Arithmetic and the Risk Matters Hypothesis from Victor Haghani, Vladimir Ragulin and James White
The Holy Grail of Portfolio Management from Ben Carlson
More Than Half of Americans Want to Retire Gradually from Michael Fischer
The No. 1 In-Demand Remote Job Companies Are Hiring For from Morgan Smith
The Seasons of Life from Jim Dahle
The Case for Using Subsidies for Retirement Plans to Fix Social Security from Andrew Biggs and Alicia Munnell

Thanks for reading!

What is the Best Age to Claim Social Security?

Read the answers to this question and several other Social Security questions in my latest book:


Social Security Made Simple: Social Security Retirement Benefits and Related Planning Topics Explained in 100 Pages or Less

Click here to see it on Amazon.

Disclaimer:Your subscription to this blog does not create a CPA-client or other professional services relationship between you and Michael Piper or between you and Simple Subjects, LLC. By subscribing, you explicitly agree not to hold Michael Piper or Simple Subjects, LLC liable in any way for damages arising from decisions you make based on the information available herein. Neither Michael Piper nor Simple Subjects, LLC makes any warranty as to the accuracy of any information contained in this communication. The information contained herein is for informational and entertainment purposes only and does not constitute financial advice. On financial matters for which assistance is needed, I strongly urge you to meet with a professional advisor who (unlike me) has a professional relationship with you and who (again, unlike me) knows the relevant details of your situation.

You may unsubscribe at any time by clicking the link at the bottom of this email (or by removing this RSS feed from your feed reader if you have subscribed via a feed reader).

What's your reaction?

Excited
0
Happy
0
In Love
0
Not Sure
0
Silly
0

You may also like

Blog

Market Updates Email 2.0

One of the first features that I built when I started StocksCafe is “Market Update” ...

Leave a reply

Your email address will not be published. Required fields are marked *

More in:Blog