Treasury I bonds used to be the best place going to get a big yield. But now they're getting a run for their money.
Tuesday, the Treasury slashed the sky-high yield on Treasury I bonds, also called series I savings bonds, to 6.89%. That's down from 9.62%, which was tough to beat. So now you can easily find investments that yield more, thanks to a combination of rising interest rates on other bonds and S&P 500 dividend hikes.
Nine stocks in the S&P 500 including Lumen Technologies, Pioneer Natural and Altria now yield more than I bonds, says an Investor's Business Daily analysis of data from S&P Global Market Intelligence and MarketSmith. And that doesn't even mention the 20 of the 500 most busily traded ETFs that yield more as well, says data from Morningstar Direct. Sometimes much more.
Looking At New I Bond Yields
It's easy to understand last week's mad dash to buy I bonds, while they still yielded nearly 10%. The Treasury Department has cut the rate, tied to inflation, through April of next year.
So I bonds aren't the screaming high-yield bonanza that they were.
Why? Rates are elevating elsewhere. The yield on the S&P 500, a collection of some of the most established companies in the world, is rising fast. The yield on the SPDR S&P 500 ETF Trust is now 1.6%. That might not sound like much, but it's up more than 33% from 1.2% a year ago. And that's just the indexed average. You can find much higher and faster rising yields in the S&P 500. Lumen Technologies, a maker of networking equipment for telecom, is now yielding 13.59%, up more than 63% in a year's time.
Dividends from energy firms are on fire, too. Pioneer Natural Resources, an energy exploration firm in Texas, is yielding 9.92%, up more than 127% from a year ago. And some die-hard big dividend payers continue to deliver. Altria, a tobacco company that may not be ESG, still pays 8.13%, stable with where it was a year ago.
Yes, it's valid to point out that company dividends are far from money you can count on. They can be suspended or stopped for any reason, unlike payments on Treasuries. And of course with dividend paying stocks, the prices of the stocks may fall. But with these S&P 500 stocks, you're getting some premium for that uncertainty.
Additionally, you can reduce some company-specific risk with some popular ETFs that are outpaying I bonds.
S&P 500 Yields Topping I Bonds
| Company | Symbol | Yield |
|---|---|---|
| Lumen Technologies | 13.59% | |
| Pioneer Natural Resources | 9.92 | |
| Vornado Realty Trust | 8.99 | |
| Coterra Energy | 8.35 | |
| Altria Group | 8.13 | |
| Devon Energy | 8.02 | |
| Diamondback Energy | 7.77 | |
| VF Corp. | 7.22 | |
| Verizon Communications | 6.98 |
Source: S&P Global Market Intelligence
ETFs That Top I Bonds' Yield
If you're looking to make I-bond-beating yield without counting on individual companies, ETFs can help.
The Global X SuperDividend ETF is the best example. The $684 million ETF, which owns more than 100 stocks of companies all over the world, sports an SEC yield of 13.95%. That's more than double the published rate on i bonds. The ETF is focused on the up-and-coming financial sector, with a 47% weight of the fund in that area. The biggest slice of the ETF's holdings, 29%, is in the U.S., with Hong Kong No. 2 at 22%.
For investors looking for income from bonds, ETFs have high-yield solutions too. The $3-billion-in-assets SPDR Bloomberg Short Term High Yield Bond ETF owns much riskier bonds. But it's still sporting an SEC yield of north of 9%, topping even the old I bond yield. There's a risk that some of the ETF bonds will default, but the duration is relatively short at 2.5 years.
But while I bonds are less compelling, it's not all over for them.
Don't Rule Out I Bonds
I bonds have more competition. But they are still very competitive especially for their risk-free nature, says Greg McBride, financial analyst at Bankrate.com. Many high-yield savings accounts yield just 2.3%, although it is easier to take money out than with I bonds. If you take money out of i bonds in less than five years, you sacrifice a quarter's worth of returns. Also, you can only invest $10,000 annually in I bonds, unless you know these tricks. But I bonds are backed by the U.S. government, so your principal isn't at risk as it is with stocks and corporate bonds. They also pay two types of interest, a fixed part and a variable rate that is revised every six months based on inflation.
"The headline rate on the I bond declined but the I bond actually got better for investors because they will now carry a fixed annual rate of 0.4% above the rate of inflation," McBride said. "As long as you hold it for at least five years, you'll actually enjoy slight growth in your buying power now. There was no such thing the past several years, as I bonds only reimbursed for inflation; there was no additional after-inflation return."
The best news of all? At least there's now choice for investors looking for yield.
Popular ETFs Out-Yielding I Bonds
| Name | Ticker | SEC yield |
|---|---|---|
| Global X SuperDividend | 13.95% | |
| JPMorgan Equity Premium Income | 12.51 | |
| iShares Mortgage Real Estate Capped | 11.71 | |
| iShares MSCI Brazil | 11.02 | |
| iShares Latin America 40 | 10.18 | |
| Invesco Emerging Markets Sov Debt | 9.13 | |
| SPDR Blmbg ST HY Bd | 9.06 | |
| iShares Broad USD High Yield Corp Bd | 9.02 | |
| WisdomTree Emerging Markets High Div | 8.89 | |
| iShares 0-5 Year High Yield Corp Bd | 8.61 | |
| SPDR Blmbg High Yield Bd | 8.57 | |
| iShares Fallen Angels USD Bond | 8.26 | |
| iShares iBoxx $ High Yield Corp Bd | 8.17 | |
| Vanguard Emerging Mkts Govt Bd | 7.72 | |
| VanEck JPMorgan EMLcl Ccy Bd | 7.70 | |
| PIMCO 0-5 Year High Yield Corp Bd | 7.70 | |
| iShares JP Morgan USD Em Mkts Bd | 7.68 | |
| iShares International Select Div | 7.59 | |
| VanEck Fallen Angel HiYld Bd | 7.54 | |
| SPDR Blackstone Senior Loan | 7.25 |
Source: Morningstar Direct
Follow Matt Krantz on Twitter @mattkrantz
