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Old 10-15-2014, 08:16 AM   #21
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So you don't think a laddered approach is the way to go?
Say $40k each in a 1/2/5/7/10
There are pro's and cons to laddered CD's. In general a ladder even up to a 10 year rate is a very conservative way to approach fixed income investing, especially after the initial 10 year period setting up the ladder and having all true 10 year instruments at the time of issue. It has been 23 years since we have had a 4% inflation print number for an entire year, we have surpassed 3.4% inflation for a year once in that time period. And there is little risk difference other than liquidity between a brokered CD and a 10 year US treasury bond and the brokered CD you quoted is paying 1% more than a 10 year bond.

The Federal Reserve's concern is deflation not inflation, they are warning they do not think they will see even 2% inflation until 2018 at the earliest. Of course at that point the relevant rate will be the 5-6 year CD rate and not the 10 year rate and it is very possible that rates will not be higher at that point.

In all the studying I have done on bond ladders a 10 year US Treasury bond ladder return has consisitently exceeded the inflation rate over most periods and the implied return of this CD 3.4% is 1.8% over the current year over year inflation of 1.6% is a little lower than what historical expectation for 10 year treasury bonds should offer over inflation which would be about 2 percent and a brokered CD should offer a premium above that rate. But in a world where the national governments are controlling interest rates, predicting what these will do in the future is a fool's game and there is no forcing at the present time the market to offer historically appropriate interest rates.
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Old 10-15-2014, 10:49 AM   #22
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FWIW, its not listed today on the Vanguard site? Hmmm
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Old 10-15-2014, 11:08 AM   #23
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FWIW, its not listed today on the Vanguard site? Hmmm
I called Vanguard, they told me it sold out yesterday.
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Old 10-15-2014, 11:08 AM   #24
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FWIW, its not listed today on the Vanguard site? Hmmm
I don't know why this 3.4% CD is no longer listed, but one factor may be that U.S. treasuries are in the midst of a furious rally. Ten year t-notes are currently yielding only 2.05% after briefly touching 1.88% earlier today. Only a week ago their yield was 2.3%. This is such a huge decline in such a short period of time that it's tempting to speculate that the bank has decided that they no longer have to offer a 3.4% yield on a ten year CD to attract customers and has withdrawn the offer.

That's the flip side to interest rate risk. Interest rates can go down as well as up, even starting from already low rates. Locking in 3.4% when you had the chance might turn out to have been a good choice. It all depends on how interest rates change in the future, and that's something that is awfully hard to predict.
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Old 10-15-2014, 11:19 AM   #25
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Agree, today may be a game changer. Have been sitting out for quite a while. Does not bother me a bit.

They cant go too much further down, unless we go negative. LOL LOL
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