Are Your HOA Reserves Getting The Yields They Deserve?

With US Treasury yields trending higher due to softened global demand (when bond prices go down, yields go up; this occurs because the price paid for a bond (over or under “par” $1000), directly impacts the yield or return of that bond. When bond prices paid are under par, the discount or delta in the lower price translates into a return of par when the bond matures - adding to the interest paid - which becomes the yield - or total return of the bond. (Analogous to a total return on a stock - the dividend paid plus any capital appreciation of a stock’s price gain.) HOAs can take advantage of higher yields in this market climate due to higher treasury bond yields. US Treasury money market funds are prudent vehicles to get the safety, daily liquidity without withdrawal penalties (money market funds are always priced at $1.00 - and are structured to not fluctuate in share price), and yields that other locked in investment vehicles (like CDs) cannot achieve. Although CDs are typically insured, they carry bank and investment risk - the risk that the bank issuing the CD can fail; and risk of underlying investments - which can lack the transparency HOAs should have into how reserves are being invested.