Are investors still buying Treasury notes with their low rates of return? It seems so, although interest rates have been ticking higher as investors are committing new funds to stocks paying dividends rather than opting for the safety of bonds. On Tuesday came a 5-year Treasury note auction. This was for $29.27 billion in noncompetitive bids and is the next to last of the note auctions this week ahead of Wednesday’s FOMC meeting.

The maturity is January 31, 2018 for a coupon of 0.875% with a yield at pricing of 0.889%. For every $100,000 invested in this note, investors will receive only an implied amount of $4,445 for the entire period and they get to pay taxes on that. Today’s auction came with a 2.88 bid to cover ratio, with some 39.7% being indirect bids and 16.8% being direct bids.

Investors have been chasing yields slightly higher of late, but the gain in yield is still very low when you consider that 2012 was the trough in low interest rates. Some investors would even ask “What interest rates?” in their investment strategies. The on the run 5-year Treasury was around 0.88%, and that is up 13 basis points from a week ago and up a total of 17 basis points from a month ago.

With stocks expected to rise (see DJIA 14,590 peak price target projected for 2013), the great rotation has started to take place. It is too bad that most retail investors have seen stocks double from the lows of the 2009 peak panic selling before they started feeling comfortable about stocks again.

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