Barron's Insight: Treasurys appreciate in value when rates fall

For more than a decade, investing in bonds virtually guaranteed you'd lose purchasing power to inflation. 1 famous investor called bonds return free risk. But now there are opportunities for juicy yields in both stocks and bonds. Our own Andrew Berry has just published a story on how to get income. Andrew, let's start with the most liquid a market in the entire world, the Treasury market. Should investors lock yields in here around 4/4 in the 10 year? I mean, I mean, treasuries are actually looking pretty good right now. You've got yields ranging from about 4 1/4% to 475. The 10 year treasuries around 4:40 right now, inflation is running around 3%, seems to be heading lower. So you're getting inflation adjusted returns that are positive for the first time in a while. If you want to buy Treasury, you can buy them directly from the government. Also, ETFs are a good option because you get monthly income and they're actually very liquid like the TLT which is the 30 year Treasury ETF. It's a good point. It's been a long time since you would get 2 percentage points over inflation in the bond market. Explain something for us. There's something called Treasury inflation protected securities TIPS. Are you better off going in that direction or sticking with Treasuries? You know, they're a good alternative because TIPS actually offer you protection if inflation rises, which making among the only bonds that do so right now, you'll do better in TIPS versus regular Treasuries as inflation runs at more than 2%. And that's not a bad bet given the fact that inflation is 3%. You've got big deficits and a lot of government financing ahead for the next decade. So interest rates are high, which is bad news for home buyers. But mortgage-backed securities are one way that investors can benefit. Yeah. I mean, the flip side to, you know, high mortgage rates of around 7% is that the investors in mortgage securities are doing pretty well, getting like five and a half, 6% yields on government guaranteed mortgage securities right now. And that's historically a pretty a pretty good yield and a widespread versus U.S. Treasuries. Some of the better ways to play mortgage securities are ETFs and mutual funds. You've got ETFs like the I Shares one, which is ticker MBB. It's yielding around 4 or 5%. And then bond king Jeff Gunlock Fund, which is a double line total return fund, yields around 6%. It's a little bit more aggressive, but he's got a pretty good record in the mortgage area. So Andrew, enough about bonds. They're kind of boring. Where can I find income in stocks? Well, there's a lot of income in stocks. The S&P 500 is only yielding around 1 1/2 percent, but you can get 3% yields on a lot of different stocks and ETFs and mutual funds right now like Target yields 3%. A lot of the consumer names like PepsiCo yield 3%. Banks are yielding around 3% right now. You've got a bunch of ETFs, like Vanguard has one ticker VYM, Schwab has one. And so there are a lot of ways to get income and many income oriented sectors of the market have underperformed the S&P as tech has led the market this year. So if you get a reversal, you could have some of these sectors doing well in the second-half. So what about utilities? I mean, they've always been traditionally a dividend kind of play as well as defensive. Do they look good right now? Well, they're actually defensively. There's also like a kicker now from AI, artificial intelligence, there's a build out of data centers to basically fuel the AI boom. And that means more power demand. So that means you can get about 3% dividend yields on utilities and the growth rate in dividends and earnings for many utilities could be 6 to 7% annually for the next, you know, 5 to 10 years. You could have about 10:00-ish percent total returns. You know, they're a wide variety of utilities, Southern company PPL and I source of benefiting from this AI build out. Plus you got companies like Duke and you have the ETF which is the XLU, the spider ETF yielding around 3% right now. And let me bug you about one more. Sorry to take up all your time, but I'm wondering about Reit's. I know there's a bunch of different kinds of Reit's, but are there another traditional dividend? Yeah. I mean, Reit's have actually been laggard this year. They're actually in the red. Overall, the Vanguard VNQ, which is the big ETF is down a couple percent and we are actually been trailing the market for a couple years in a row. You're getting about 4% yields right now, plus you get some inflation protection because real estate should be a bit of a hedge. If if you do get, I mean, if you do get higher prices, you can look at warehouse reads like Prologis. You've got some of the tower reads of cell phone tower reads like American Tower and multifamily reads which own apartments. You've got companies like Avalon Bay Equity Residential in Camden. You'll be around 3%, and it's actually a pretty good market right now. One interesting income play are pipelines, sometimes in the form of master limited partnerships, sometimes just as corporations. And those yields can really get up there to about 8%. Tell us about those. Yeah, you've got like almost 5 to 8%. It's actually been a very strong sector this year and last year. So they're not quite as cheap as they once were. But you've got companies that are like structured as MLP's. You've got Energy Transfer Enterprise Products, which yield more than some of the company structured as corporations, which are like Kinder Morgan and Williams. But there's good dividends and reasonably good growth. And I think fossil fuels are going to be around for quite a while, particularly natural gas where there's growing demand here in this country because of the build out of all these liquefied natural gas plants. So that's benefiting Williams and the gas pipeline companies in particular. MLP's can get a little tricky attacks time with this K1 form, but some people still like them on the tax advantage side. However, you're not a big fan of municipal bonds right now, muni bonds that kind of I would say good, not great hit. The yield spreads versus Treasuries are not historically attractive, but credit quality is very good. You're talking about 3 to 4% yields, which is which are actually tax free. And if you get potentially higher tax rates if the Trump tax cuts expire, that'll make muni relatively more attractive. Alrighty, thanks. You are a fond of wisdom, as always, Andrew Berry.