Zero-Coupon Treasurys Leading Other Assets --- Investors Like Double Protection Against Weak Economic Growth and Falling Yields -- Despite No Interest for 20 Years
The best-performing asset this year is one that will earn you zero interest for the next 20 years.</br></br>Zero-coupon Treasurys maturing in more than 20 years have returned 21% this year through Thursday, the latest data available, beating out investments from stocks to corporate bonds and gold. Zero-coupon Treasurys maturing from 10 to 20 years have handed investors a return of nearly 17% in the same period.</br></br>Investors have flocked to these securities because they offer double protection -- not just against weak economic growth but also against further declines in yields -- a big risk for fixed-income investors. A nominal 10-year Treasury note pays interest twice a year, leaving investors with funds that have to be reinvested as yields continue to decline.</br></br>Last week, the two-year yield hit a record low of 0.545%, while the 10-year benchmark note's yield touched a 15-month low of 2.851%. In late trading Friday, the two-year yield was at 0.592%, while the 10-year benchmark note yielded 2.997%.</br></br>Zero-coupon Treasurys, in contrast, are sold at a discounted price but redeemed at face value. The difference between the two prices represents the investor's profit, which technically amounts to the accumulated interest.