I’m trying to get some higher interest within the next year. I see that US treasuries are the safest for return of principal. What about corporate bonds from companies like Goldman Sachs, JP Morgan, GE, Wells Fargo, BoA, Microsoft? They all seem to be investment grade bonds according to Moody‘s and the S&P. They are all maturing within the next year. What is the chance that I lose my principal if I buy these corporate bonds?
T bills seems to be a good alternative to money market accounts to temporary park cash. Buying long term bonds (with potential rate hike) or getting corporate risks exposure doesn't look like a good idea.
CDs are paying more than treasuries with similar maturities. You can get a 13 month cd for 2.25%. 10 year treasury is only paying 2.8%.
Depends on the coupon rate. If you get 5% return on 1 year Corp bond maturity Vs. 3% from similar t-bills, as long as you are ok with the risk and generally believe in the economy, it’s likely t-bill yields will rise by 2% or 200 basis points in one year. T-bills are safer but not risk free. US deficit exceeds $17trillion and growing.
You need to look at duration in addition to rating. Also, you can lose money in bonds in a rising rate environment unless you’re buying individual bonds and holding to maturity. Prices and rate move inversely.
I won’t be buying bond funds. These are individual bonds only
Your chances of losing your principle within the next year are low with both treasuries and corporate bonds (except for higher yielding issues from unstable companies). But if you’re like most people here with high TC, you don’t want either. You want to be in tax free municipal bonds. After taxes, the risk-adjusted return is much higher.
Bonds for safety, stocks for growth... stick with treasury or tips. Match duration to when you’d need the money. Edit: Or tax free munis I’d high tax bracket
True, if you can find munis with yields closer to 4%. Otherwise a AAA Corp bond with 6% yield gives you 3.5-4% yield after tax.
Tax free municipal bonds payout is less than if you directly buy bonds and pay tax .
You have to calculate the tax equivalent yield to compare apples to apples. The higher your tax bracket better the yield and most likely the higher the after tax equivalent return. Super easy calculation here’s a good explanation of the concept. https://www.thebalance.com/calculating-tax-equivalent-yield-417147
What is the rate of interest differential between treasuries and Corp bond maturities?
Some are five, six, 8%, while others are 2.5%
Interesting. AAA? 6% and above sound like junk bonds