The world of fixed-income investments can be vast and complex. Choosing between Treasury bonds, corporate bonds, and Mortgage-Backed Securities (MBS) can feel o

Treasury vs. Corporate vs. MBS: Choosing the Right Fixed-Income Friend - Leverage DEMA for a Well-Rounded Decision


blog post cover photo

Image credit: Avery Evans

The world of fixed-income investments can be vast and complex. Choosing between Treasury bonds, corporate bonds, and Mortgage-Backed Securities (MBS) can feel overwhelming. Let's break down the pros and cons of each option and explore how the Double Exponential Moving Average (DEMA) can be a valuable tool for making informed decisions.

The Fixed-Income Trio: A Closer Look

  • Treasury Bonds: Issued by the U.S. government, Treasuries are considered the safest fixed-income investment, offering steady returns but typically lower yields compared to corporate bonds and MBS.
  • Corporate Bonds: Issued by corporations, corporate bonds offer potentially higher yields than Treasuries but come with greater credit risk (risk of the issuer defaulting).
  • Mortgage-Backed Securities (MBS): Represent pools of home mortgages bundled and sold as investments. MBS can offer attractive yields but come with prepayment risk (homeowners paying off their mortgages early) and interest rate risk (fluctuations in interest rates impacting the value of the MBS).

Choosing Your Champion: It Depends on Your Goals

  • Safety First: If you prioritize capital preservation and a steady income stream, Treasuries might be the best choice.
  • Seeking Higher Yields: If you're comfortable with some additional risk and are looking for potentially higher returns, corporate bonds could be an option. Consider the creditworthiness of the issuing corporation.
  • Balancing Risk and Return: MBS offer a middle ground, potentially providing higher yields than Treasuries with somewhat lower credit risk compared to some corporate bonds. However, MBS come with their own set of risks.

DEMA: Your Guide Through the Fixed-Income Maze

Regardless of your choice, DEMA can be a valuable tool to help you navigate the fixed-income landscape.

  • DEMA Explained: DEMA is a technical analysis indicator that smooths out short-term price fluctuations compared to the Single EMA.
  • DEMA's Benefits in Fixed-Income: While DEMA is typically used for stocks, it can be conceptually applied to fixed-income yields. By reducing noise, DEMA can potentially help you:
    • Identify Underlying Yield Trends: DEMA can help reveal longer-term trends in yields for Treasuries, corporate bonds of different credit ratings, and MBS. This can be particularly useful when market sentiment is heavily skewed towards one direction.
    • Make Informed Investment Decisions: A clearer understanding of yield trends, informed by DEMA analysis, can guide your investment decisions within the fixed-income asset class.

Remember, DEMA is a Tool, Not a Magic Wand:

  • Conduct your own research and consider your investment goals, risk tolerance, and time horizon before making investment decisions.
  • Look beyond just yields. Consider the creditworthiness of bond issuers, the prepayment risk of MBS, and the overall economic environment.

Here's a Bonus Tip:

Combine DEMA with other fixed-income analysis tools like duration analysis, which measures a bond's sensitivity to interest rate changes.

By strategically using DEMA and conducting thorough research, you can navigate the world of fixed-income investments with greater confidence!

Explore how the Double Exponential Moving Average (DEMA) (Financial Modeling Prep DEMA API Documentation) can be a valuable tool for analyzing this outlier.

Other Blogs

Nov 25, 2023 6:39 AM - Parth Sanghvi

DCF Valuation vs. Comparable Companies Analysis: Choosing the Right Valuation Method

Choosing the Right Valuation Method: DCF vs. Comparable Companies Analysis Introduction: Valuation methods play a pivotal role in determining the fair value of a company, aiding investors in making informed investment decisions. Two commonly used methods, DCF Valuation and Comparable Companies A...

blog post title

Dec 23, 2023 2:19 AM - Parth Sanghvi

Understanding the Limitations of DCF Analysis: A Guide to Overcoming Challenges

Introduction: Discounted Cash Flow (DCF) analysis stands as a cornerstone in valuing investments, yet its efficacy is contingent upon various assumptions and methodologies. While a powerful tool, DCF analysis comes with inherent limitations and challenges that investors must acknowledge to make i...

blog post title

Dec 25, 2023 2:28 AM - Parth Sanghvi

Integrating Sustainability into Valuations: Navigating ESG Factors within the Discounted Cash Flow (DCF) Model

Introduction: The investment landscape is undergoing a profound shift with a heightened emphasis on sustainability and responsible investing. In this blog post, we explore the intersection of Environmental, Social, and Governance (ESG) considerations within the Discounted Cash Flow (DCF) model, h...

blog post title


Financial Modeling Prep API provides real time stock price, company financial statements, major index prices, stock historical data, forex real time rate and cryptocurrencies. Financial Modeling Prep stock price API is in real time, the company reports can be found in quarter or annual format, and goes back 30 years in history.
2017-2024 © Financial Modeling Prep