CDs Offer Attractive Relative Value

relative valueIn an investing world in which there is very little value to be found, investors who are desperate to put cash to work will have to settle for relative value.  By relative value, I am referring to the attractiveness of one investment relative to another, rather than relative to historically attractive valuations and yields.  Concerning fixed income, relative value can be found in 7- to 10-year certificates of deposit (CDs).

  To see a list of high yielding CDs go here.  

With 7- to 10-year Treasuries generally trading in the 1.90% to 2.45% range, and 7- to 10-year corporate bonds generally in the 2.10% to 3.00% range, FDIC-insured CDs look relatively attractive.  At the time this article was written, new issue 10-year CDs could be purchased with yields up to 3.35%.  That’s nearly a full percentage point more than a 10-year Treasury is yielding.  A yield of 3.35% is even more than a 30-year Treasury bond is yielding.  Additionally, on the secondary market, 10-year CDs can be found trading under par with yields up to 3.449%, and 7-year yields are as high as the 2.80s%. If you are wondering who the issuers are of CDs trading at the aforementioned yields, here are several examples from Vanguard’s inventory:

CIT Bank is offering new issue CDs maturing on June 4, 2024 with a yield of 3.35%.

Goldman Sachs Bank is offering new issue CDs maturing on June 4, 2024 with a yield of 3.30%.

GE Capital Retail Bank is offering numerous 10-year new issues in the 3.30% range, and a 9-year with a yield of 3.00%.

Discover Bank is offering new issue CDs maturing on June 4, 2024 with a yield of 3.20%.

Should you miss the opportunity to purchase these new issue CDs and don’t want to wait for new inventory to pop up, take a look at the secondary market. Examples of CDs trading under par on the secondary market include:

GE Capital Retail Bank has numerous secondary-market CDs with 7- to 10-year yields in the 2.80% to 3.449% range.

Goldman Sachs has secondary-market CDs with 10 years or less to maturity currently yielding up to 3.434%.

CIT Bank’s secondary-market CDs with 10 years or less to maturity are currently yielding up to 3.40%

Discover Bank’s secondary-market CDs with 10 years or less to maturity are currently yielding up to 3.357%.

If you are looking for a place to park your money and focusing your efforts on Treasuries or high-quality corporates, don’t forget to turn your attention to FDIC-insured certificates of deposit.  With yields up to 100 basis points over comparable Treasuries, and 10-year CDs yielding more than 30-year Treasuries, CDs offer value that is attractive on a relative basis.

More from The Financial Lexicon:

The 5 Fundamentals of Building a Retirement Portfolio

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  To see a list of high yielding CDs go here.  

 

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Comments

  1. says

    But if you think rates will continue to drop for the next 10 years, you will want to lock in the 30 year Treasury rate. For 21 years, from 1935 to 1955, the long-term Treasury rate was below 3%.

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