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If the economy picks up, and inflation pressures will make rates of return of treasuries less appealing than they seemed during the bear market.
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Returns on Treasuries are so low that many investors are losing money after adjusting for inflation.
A pension or sovereign-wealth fund would earn a premium and in return deposit, say, $10 billion of treasuries in a lockbox.
BLOOMBERG NEWS Banks in the Business of Transforming Collateral | To help clients comply with rules requiring them to post higher-quality collateral, banks including JPMorgan Chase and Bank of America "plan to let customers swap lower-rated securities that don't meet standards in return for a loan of Treasuries or similar holdings that do qualify," Bloomberg News reports.
Subtract 2.1 percentage points from your 1.2% aftertax return and you have a real aftertax return of -0.9% on Treasurys.
"That would be a return of 18percentt a year versus Treasuries at 2percentt".
"At yields higher than those of Treasuries, muni-bond returns are looking downright stocklike, with just a fraction of the risk," Janet Paskin writes.
Note you can get a risk-free real return of 3.5% on inflation-indexed Treasurys.
But from October 1998 through June 2001, TIPS had a total return of 21.3percentt, versus 7.9percentt for traditional Treasuries.
That investment in overseas bonds was equal to nearly a tenth of China's entire economic output last year, even though Treasuries have a return of only 0.13 to 4.76 percent currently.
In 2008, for example, the average long-term government bond fund returned more than 27percentt, as frightened investors drove up the value of Treasuries.
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