At $2 Million Per Minute, Treasuries Mint Cash Like Never Before

For the first time in nearly a generation, fixed income is living up to its name.

This, at a certain level, is simply the consequence of benchmark rates in the US jumping from 0% to over 5% in a span of two years.

But at a time when all of Wall Street seems fixated on whether the Federal Reserve will actually cut interest rates this year — and heated arguments break out over whether the 10-year US bond should yield, say, 4.5% or 4.65% — it’s easy to lose sight of one important fact: That after being held hostage by zero-rate policies for almost two decades, US Treasuries are finally reverting back to their traditional role in the economy.

That is, as a source of income that investors can lock in and rely on, year after year, for years to come — regardless of where yields are at any given moment.

The numbers tell the story. Last year, investors pocketed nearly $900 billion in annual interest from US government debt, double the average over the previous decade. That’s set to rise as over 90% of Treasuries carry coupons of 4% or more. In mid-2020, just 5% yielded that much. Because of the higher interest, investors are also better shielded against any jump in yields. Currently, rates would need to go up by over three-quarters of a percentage point over the next year before Treasuries start to lose money, at least on paper.

Over the past decade, that margin of safety at times virtually disappeared.1

“With the help of our friends at the Fed, they did put the income back in fixed income,” said Anne Walsh, who oversees about $320 billion as chief investment officer of Guggenheim Partners Investment Management. “And fixed-income investors, we get to reap the benefits of higher yield. That’s a good thing.”

income is back in fixed income