Picking up Nickels

Tuesday, December 19, 2006

Fixed-income outlook for 2007

If you're reading this blog, you already know that cash has been a good place to be in 2006. This year I've received a 5%+ return on my cash by moving into high yield money market accounts, a CD ladder, and Treasury Bills. The question is, will the party continue in 2007?

The Bank Deals blog addresses this topic today, and states that the consensus on the 2007 rate environment is that there is no consensus. Of course, he is exactly right as Certificate of Deposit and Treasury markets have priced rate cuts into their yields even though the FOMC has given us no indication of pending cuts to the discount rate.

I've already locked in some cash at high interest rates via a CD ladder, so I will probably keep my remaining cash liquid in money market accounts and 4 week Treasury Bills unless a better opportunity presents itself.

However, one potential opportunity to lock in high rates could come from the Pentagon Federal Credit Union, which has offered a first quarter CD promotion with above market rates for each of the last two years. If Penfed offers this deal again in 2007, I believe that it would be a great hedge against FOMC rate cuts by locking in attractive rates with a high yield CD ladder.

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