Last Thursday, these securities yielded only a quarter-point more than the benchmark.
Even discounting the tax benefits, Mr. Sinise said, the units offer a yield of 6percentt; Bloomberg Financial Markets calculates the securities yield, including the tax benefit, at 11.53 percent.
Since Mr. Kotlikoff believes that Treasury inflation-protected securities, or TIPS, are the only truly "safe" asset -- they keep pace with inflation, and are backed by the United States government -- the default is set at 2 percent, or about what the securities yield now. That's why he believes TIPS should substitute for conventional bonds.
The rise in government security yields and in the interest rates charged and paid by banks forces other financial institutions to offer a higher rate of return on their obligations, in order to be competitive, and, given the reduced availability of bank credit, enables them, like banks, to command a higher rate of return on their loans.
The average junk security yielded 7.16 percentage points more than the 10-year Treasury note late yesterday, according to a Merrill Lynch index.
On Monday, investors retreating to the safe haven of United States Treasury securities pushed yields to their lows for the year.
Recently issued Fannie Mae 30-year mortgage-backed securities have yields more than 1.5 percentage points above the 10-year Treasury.
Germany, for instance, lets investors bid more than its short-term "Bubills" are worth, giving the securities negative yields.
Cook County in Illinois scrapped a $200 million bond sale yesterday after the Securities and Exchange Commission questioned whether brokers had misled investors about securities with yields reset periodically by auction bids.
The resumption of trading in the bond market sent investors running for the safe haven of Treasury securities, pushing yields down sharply.
