Seeking Yield

Prolonged ZIRP has risk-averse conservative investors to a lot unlikely places. Mike Ashton, the Inflation Trader, who seldom recommends specific investments, has given a low-down on series I savings bond as a last bastion of "risk-free" inflation matching yield. Since TIPs are negative and nominal Treasuries have horrendously negative real yields, there aren't a lot of safe havens that make sense anymore. Investors have piled on corporates, emerging market debt, preferred shares, and even dividend-growers to bump up the scant yields they are seeing everywhere. Today, dividend-payers and growers (Schwab's dividend ETF (based on DJ US Dividend 100 Index) has a 30-day SEC yield of 2.99%) are looking like a relatively good deal when compared to Treasuries. But is all this risk worth it and what about the opportunity cost of sitting on short-term instruments? I bonds are interesting in that they have relatively high current yield (2.2%, the same as CPI-U) and are exempt for state income taxes (2.48% taxable equivalent yield for high income tax states). In fact, when the proceeds are used for educational purposes, it is also exempt for federal income taxes (meaning 3.8% taxable equivalent at maximum income tax rates). The term structure of these instruments are standardized: 30-years but redeemable penalty-free from 5-years. These instruments are not transferrable so there is no secondary market. The downside is that the excess fixed rate of return (set by Treasury) is guaranteed to be zero (which is better than TIPs right now) and each person can buy at most $10k worth of these.