On Mon, Apr 05, 2004 at 03:03:24PM -0500, Dan Minette wrote: > > The mean length of the investment is just under 7 years from the site I > quoted. BTW, I tried clicking on my own reference, and it didn't work > properly. You need to go one level up to > > http://www.ssa.gov/OACT/ProgData/investheld.html >
Thanks for the link. I just got a chance to study it. It is interesting that the vast majority of the "bonds" are not publicly marketable, but rather "special issues". And the interest rates appear to be HIGHER than equivalent maturity publicly marketable treasury bonds. In general, higher interest rate bonds have higher risk of default. I wonder if the government thinks it is more likely to default on its special issue debt to the SSA trust fund than on its publicly marketable debt, and therefore grants itself a higher interest rate for this risk? Also, they are getting 4.125 to 4.5% on their "certificates of indebtedness" which have a maturity of less than a year. That is a GREAT short term interest rate. That is even higher than the prime rate, and almost no one can actually earn the prime rate on their low-risk short-term investment. The closest rates I can find are a 15-year mortgage is currently at 4.79% and 15-year munis are yielding about 4.48%. So the trust fund is earning the equivalent of a 15-year rate on their money that is invested short-term, less than a year. Average people who invest in short term low-risk debt, say a 6-month T-bill, are only getting 1.03% now. Another comparison is Vanguard's short-term corporate bond mutual fund, VFSTX. Its average effective maturity is currently 2.6 years, so if it had the same opportunities as the trust fund, you would expect it to be earning more than 4.5% since that is a less than 1 year rate, and corporate bonds are higher risk than treasuries. But the current yield to maturity for VFSTX is only 2.6%. http://flagship4.vanguard.com/VGApp/hnw/FundsByFundType#Bond_Funds My point is that although the SSA website may say that it invests the trust fund money in bonds, that it is not strictly accurate to call the investments "bonds" if the term "bond" is used in the usual sense that most investors employ, namely, a marketable security with an interest rate set by the market. I called the trust fund debt "I.O.U.'s" previously, and I now think that is at least as accurate as calling it bonds. -- Erik Reuter http://www.erikreuter.net/ _______________________________________________ http://www.mccmedia.com/mailman/listinfo/brin-l
