Interest rates continue to be a major investment theme leading into 2025. We are several months into a Federal Reserve easing cycle which began in September of 2024. Over this time the Federal Reserve has lowered the Fed Funds rate by 1 percentage point.

One of the tools we use to view the spectrum of interest rates on any given day is the Charles Schwab Yield Curve. The Yield Curve displays interest rates for various instruments for various lengths of time in one easy to read table.

On the left-hand side of the Yield Curve is the specific fixed income instrument. At the top are Certificates of Deposit (CD’s), followed by US Treasury Bonds, then Government Agency Bonds and finally Corporate Bonds. If you notice next to “Corporates” you will see an “A” rating. This is the S&P Credit rating for that category of Corporate Bonds. As you may imagine, “AAA” is best and so forth.

Across the top of the Yield Curve is the length of time until maturity for the specific category of fixed income instruments. The Yield Curve starts as short as three months and all the way out to 30 years.

The measure of most interest to investors can be found in the field of the table. “What is the interest?” you may ask. Well, that is quoted in the field of the table as the “yield to maturity”. The yield to maturity or YTM is the rate of return per year if one of these instruments is purchased and held to maturity.

To take this a step further, these are bonds trading in the secondary market. YTM takes into account the price paid for the bond and the annual interest rate to calculate a yearly return.

This Yield Curve is a snapshot in time. Unless one regularly looks at this it may not have much meaning. Since we look at this daily let me give you my two cents.

1. Shorter term rates have been trending down. They are most influenced by the actions of the Fed. Specifically; the interest rates are less than one year. As the Fed has lowered interest rates they have trended down.
2. Longer term interest rates like the 10-year have trended up lately. The yield curve was “inverted” for quite some time. Which means that the interest or YTM on the 2-year Treasury was actually higher than the interest or YTM on the 10-year treasury. That is not the case any longer.
3. The third takeaway is that generally the 10-year, 20-year and 30-year are all fairly close. It varies based on the instrument, but they are all close.

For someone who has been following these rates for over 25 years, the one point that makes me smile is that investors can finally get around 6% in bonds again. Back in the Covid years bond rates dropped precipitously. So much that in July of 2020 the 10-year Treasury interest rate was .54%, almost half of a percent! I would joke that it wasn’t even worth putting a trade in for that low of an interest rate. Well, the good news is those days are gone. And… I wouldn’t say you “get rich” investing in bonds, but 5% to 6% is a big improvement and for now I’ll gladly take it!