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Financial Conversations with Fitz #67 - CD rates are low, What about buying Treasury Bills - 06/01/2010

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A beautiful  morning…..  Small shower with lots of electricity in the air on Sunday night.  The soil temperatures above 71 in Kanawha.   It looks like the grains will open down this morning with the good crop prospects and a new month.    The DOW open will probably be flat to low.  I see the grain people are busy making their predictions now that most of the crop is in the ground.   There are so many variables affecting the arrows up or down.   Still waiting for China to decide how much grain they are going to buy.  I trust most of us had a good weekend with nice weather and some great programs in all of our towns to honor our memories of why we are free.   It is always good to see the young people read different readings.   We are certainly sending some quality young people to Boys and Girls State.  

This morning I want to share some thoughts that I had with some of our CD investors lately.   This concern about buying something  with higher earnings usually comes up when we have when rates are so low.   Today they are historically low.   With us thinking of leaving our normal investing vehicle makes it important we know who and what we are dealing with.   Our discussion was “Maybe I should look at Treasury Bills”.   A treasury bill of course is ‘safe’ if you buy the right one.   It is issued by the Federal Government.    Banks buy them in large amounts.   The unique thing is that banks are usually pricing their CD's off the same index that is the Treasury.   Treasuries are usually sold at auction on Tuesdays weekly.   Once in a while they will have a special issue.    There are a number of places you can purchase them.   Of course brokers with large firms can handle them since they probably purchased a large amount.  Banks used to resell them to their customer years ago.   There are enough caveats that most banks have stopped doing that.   Or you can buy them direct from the Treasury.  If you can find the right source and comfortable doing it on a computer.  So why shouldn’t I buy a Treasury?   First of all is the rate is probably within basis points of the CD you just cashed in.   A recent report  shows  3 month Treasury Yield of .015%; 5 year Yield is 2.04%; 10 year yield is 3.24; and the 30 year yield is 4.14%.  The other is liquidity.  Be sure you know the difference is between Yield and Rate.  That is a whole show.  The value of your $10,000 bond can change when the interest rate goes up if you purchased it at a low rate.  Say you buy a 5 year $10,000 bond to get a decent return.    Rates go up in three years.  You need the money for economic reasons or there is a death by the owner.    That bond will probably not be worth $10,000 on the open market.  So if you are going to make bonds part of your investment portfolio be sure you buy something in a term you are comfortable with.    For sure, talk to one of our officers before you leave the CD market and go into an alternative investment that you have done before.   Give us a call before you make a move.

Remember that you should deal with people in community banks and organizations that when they put something together for you that they will  be sitting with them at ball games, church or community events.  So, if in doubt give us a call.