As U.S. Treasury bond yields are on the rise, so is the interest in buying them. Here’s a simple guide on how to buy these bonds online and some strategies to maximize your returns and liquidity.
Treasury bonds are essentially risk-free investments if you hold onto them until they mature. Plus, you don’t have to worry about state or local taxes on your income or gains from these bonds. They’re issued by the U.S. federal government to fund various projects or daily operations. The yields of these bonds fluctuate with inflation and inflation expectations.
There are two main ways to buy Treasury bonds. The first is through TreasuryDirect.gov, which allows you to buy bonds directly from the government each time they’re issued. However, the website can be a bit tricky to navigate, and you can only buy treasury bills or bonds when the government decides to auction them.
The second way is through an online brokerage account like Fidelity, Charles Schwab, or E*Trade. While you’ll pay a small fee, it’s generally easier and offers more variety for most investors.
If you’re using Fidelity, here’s a step-by-step guide on how to buy U.S. Treasury bonds:
- Open an investment account and navigate to News & Research, then click Fixed Income, Bonds & CDs in the dropdown menu.
- You’ll see a chart showing all types of bonds based on duration. Select the type of bond and duration you want to buy, then click the yield link.
- You’ll now see various bonds on the Fidelity secondary market to choose from. Choose the bond with the highest Yield.
- The final step is to select an Account to buy them in, then select the Quantity. Review your order, then confirm if everything looks right.
Once you’ve purchased your bonds, you’ll see a confirmation notice.
U.S. treasury bonds are risk-free investments that offer different yields at various maturities. They’re a safe investment option, along with online savings accounts, Certificates of Deposit (CDs), and AAA-rated municipal bonds.
If you’re willing to take on more risk, you can purchase longer-duration CDs, Treasury bonds, or municipal bonds. The risk here lies in liquidity risk and real interest rate risk, not principal risk if you hold to maturity.
Here are some reasons why you might want to buy U.S. Treasury bonds:
- You want a risk-free investment with a higher yield.
- The risk-free yield is attractive relative to your inflation forecast.
- You have a low mortgage rate and like the idea of living for free.
- You want to generate more passive income.
Before you buy a Treasury bond, you should have a buying strategy based on your liquidity needs, financial goals, existing net worth asset allocation, and your inflation forecasts.
If you’re unsure about the future macroeconomic environment, you can hedge by buying a variety of Treasury bond durations.
You can also buy bond ETFs for more liquidity and investing flexibility. However, you face principal risk with bond funds or ETFs.
2022 will go down as one of the worst years ever for the bond market, making buying Treasury bonds now more enticing.
Finally, if you believe in lower returns over the next 10 years as many investment firms do, then aggressively investing the majority of your money in 10-year treasury bonds yielding almost 4% makes sense.
Readers, are you buying U.S. Treasury bonds today? Why or why not? Where do you expected U.S. Treasury bond yields to be in 12, 24, and 36 months?
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