- CNBC's Jim Cramer told his Investing Club members Thursday that he personally bought 2-year Treasury notes.
- The 2-year Treasury yield has spiked to nearly 3.9%, a high back going back to 2007.
- On top of the yield, if you hold a 2-year Treasury for the full term, you get your money back.
CNBC's Jim Cramer told his Investing Club members Thursday that he personally bought 2-year Treasury notes — because for the first time in a really long time, the yields are more competitive with stock returns, especially when factoring in the risk-free nature of government-backed bonds.
- Before we get any further, we want to explain that Cramer, as a financial journalist at CNBC, has to adhere to our company rules against buying individual stocks with his own money. The distinction here is that Cramer, as head of the CNBC Investing Club that uses his Charitable Trust stocks holdings as the portfolio, said he only wishes he could own the names he advises members to buy. The Club only owns stocks and holds cash. It does not invest in bonds.
As Cramer said Thursday, in his personal life, he contributes every month to an S&P 500 index fund. But this month, instead of putting money there, the "Mad Money" host said he "actually bought a tranche of two-year paper." He recalled, "I haven't done this since March 15th of 2000. That's how much I respect Jay [Jerome] Powell," chairman of the Federal Reserve.
And why not: the 2-year Treasury yield has spiked to nearly 3.9%, a high back going back to 2007, along with talk about more aggressive Fed interest rate hikes. Cramer called it "absurdly high" and "guaranteed by the full faith and credit of the U.S. government." On top of the yield, if you hold a 2-year Treasury for the full term, you get your money back.
By comparison, the current dividend yield on the S&P 500 is nearly 1.7% annually. But unlike a bond, your principle in stocks or stock funds is not guaranteed.
- So in a bull markets for stocks, dividend yields and share price appreciation blow bond yields out of the water. But in bear markets, like the one we're in now, bond yields start to look a whole lot more attractive, because a guaranteed yield of nearly 3.9% on a 2-year Treasury is more than double the S&P 500 dividend yield. Plus, the risk to you principle is basically non-existent.
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