U.S. 5 year Treasurys maturing in 2016 were trading near par to yield 0.94%.

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Unlike most municipal paper, these bonds were taxable and priced at par to yield 8% to maturity in 2006.

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On the 10 year auction launched on August 12, Smith bought at par for a yield of 2.84% and made 7 points plus the coupon for a return of almost 10%.

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The investment grade rated bond eventually sold at a slight discount from par and fetched a yield of 4.5%, over 250 basis points over 10 year U.S. Treasury bonds.

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Buyers who purchase a 10-year TIPS today are locking in a yield of less than 1%, while the 5-year is selling at a premium to par so it actually has a negative yield of -0.52%.

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Take the 10-year US Treasuries, for instance, which trades 20 percent above par, at a historically low yield of near 2 percent.

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Local currency debt come with higher coupons (yield at offer, and par), but come with the added risk of currency devaluation.

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It is important to note that the nominal yield does not estimate return accurately unless the current bond price is the same as its par value.

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