Finance

I've been trying to figure out when to start investing again.  Schwab's October 7 report on Treasury yield curve flattening argued that this is a good time to be investing in equities.  As they explain, when the Treasury yield curve is steep and positive (there is a large difference between 10 year Treasury yields and 3 month Treasury yields), it means the risk of rising inflation is high, and the market is factoring in rising interest rates.  A negative sloping yield curve means that the risk of recession is high, and interest rates are about to start dropping.  The yield curve has gone from pretty steep (with a 3.83% difference between the 10 year and 3 month Treasury yields) to fast approaching flat.  Their argument is that a flat yield curve is a good time for stocks.  That's true--but if the yield curve's slope punches through 0 into the negatives, it is a sign of a rapidly falling economy.

However: when I start looking at what is now available, it looks like interest rates are beginning to perk up, in anticipation of adult supervision taking over in Congress.   (I want to think this is going to happen, but at this point I can only assume that Republicans will be taking over Congress.  Adult supervision of Congress remains uncertain.)

I was pleased to see that some of the government agency bonds now have yields above 4%. 

FED NATL MTG 4%30BONDS DUE 10/28/30 is a 4% coupon, currently selling at 99.375, for a 4.046% annualized yield.  It is callable at face value 10/28/2011--and my past experience is that Fannie Mae bonds are always called before maturity--but that's still a decent return for a very low risk bond. I was also looking at other possible investments, and I found Harris Preferred Capital (HBC/PR), the preferred stock shares of Harris Capital--with a current yield of 7.24%.  (Yes, that's the dividend that they have been paying.)  There is also Barclays Bank PLC ADR (BCS/PRD).  This is the ADR for Barclays Bank, and presumably has all the foreign exchange risks and opportunities that comes with holding shares in a foreign corporation.  But the current yield is 7.74%.  Both of these trade in a fairly narrow range, partly because they are callable at $25, and both are just above that level right now.  There is some risk that if they were called before you received the next scheduled dividend that you could lose money. I was going to observe that both of these have S&P ratings of A--but after Wall Street's inability to correctly evaluate risk, I'm not sure how meaningful an S&P rating is anymore.