This disparity between the cost of financing which is usually pegged to 30-year treasuries
, and the lease rent being paid by the tenant, offers an opportunity to negotiate a high return.
Today, the rate for 30-year Treasuries
bumped back to 5.
By contrast, if the yield curve is "flat," there's less of a difference in the interest paid by two-year bonds and 30-year Treasuries
Stocks followed bonds higher as the yield on 30-year Treasuries
- a benchmark used to determine the interest charged on many loans - fell below 6.
At the same time, yield spreads between 2-year and 30-year Treasuries
widened over 30 bps.
By the end of last year, 30-year Treasuries
had been slashed to single digits.
When subjected to some CMO stress tests, 30-year Treasuries
appear in the V3 category.
At one firm, for example, the interest rate risk exposure of every fixed-income security was translated into the corresponding quantities of two-year, 10-year and 30-year treasuries
that, if sold, would offset that exposure.
We sold bonds maturing in three years or less and bought 30-year Treasuries
The steady dollar also helped lift bond prices, pushing down yields of 30-year Treasuries
At a time when 30-year Treasuries
yield little more than 5 percent, there is much to be said for a partially tax-sheltered 7 percent stock dividend.
I recommend 30-year Treasuries
, zero coupon bonds, and bond futures, which will enjoy even more appreciation as rates fall.