Are these really bond yields?
"that would imply that a 30Y US Treasury bond only yields 2.78%, which is nonsensically low. Those are annualized yields.  It would be more precise to say that ""a 30Y US Treasury bond yields 2.78% per year (annualized) over 30 years"", but that terminology is implied in bond markets. So if you invest $1,000 in a 30-year T-bond, you will earn roughly 2.78% in interest per year. Also note that yield is calculated as if it compounded, meaning that investing in a 30-year T-bind will give you a return that is equivalent to putting it in a savings account that earns 1.39% interest (half of 2.78%) every 6 months and compounds, meaning you earn interest on top of interest. The trade-off for these low yields is you have virtually no default risk.  Unlike a company that could go bankrupt and not pay back the bond, the US Government is virtually certain to pay off these bonds because it can print or borrow more money to pay off the debts. In addition, bonds in general (and especially treasuries) have very low market risk, meaning that their value fluctuates much less that equities, even indicies.  S&P 500 indices may move anywhere between -40% and 50% in any given year, while T-bonds' range of movement is much lower, between -10% and 30% historically)." Yes those are really yields. A large portion of the world has negative yielding bonds in fact. This process has been in motion for the past 10 years for very specific reasons. So congratulations on discovering the bond market. But it also can't be 1.46%, because that would imply that a 30Y US Treasury bond only yields 2.78%, which is nonsensically low. The rates are displayed as of Today. As the footnote suggests these are to be read with Maturities. A Treasury with 1 year Maturity is at 1.162% and a Treasury with 30Y Maturity is at 2.78%. Generally Bonds with longer maturity terms give better yields than bonds of shorter duration. This indicates the belief that in long term the outlook is positive. It's worth pointing out that a bulk of the bond market is institutional investors (read: large corporations and countries). For individuals, it's very easy to just put your cash in a checking account.  Checking accounts are insured and non-volatile.  But what happens when you're GE or Apple or Panama?   You can't just flop a couple billion dollars in to a Chase checking account and call it a day.  Although, you still need a safe place to store money that won't be terribly volatile.  GE can buy a billion dollars of treasury bonds.  Many companies need tremendous amounts of collateral on hand, amounts far in excess of the capacity of a checking account; those funds are stored in treasuries of some sort. Separately, a treasury bond is not a substitute investment for an S&P index fund.  For individuals they are two totally different investments with totally different characteristics.  The only reason an individual investor should compare the return of the S&P against the readily available yield of treasuries is to ensure the expected return of an equity investment can sufficiently pay for the additional risk. "Those are the ""right"" yields. They are historically (but not ""nonsensically"") low. Those yields are reflective of the sluggish U.S. and global economic activity of the past decade. If global growth were higher, the yields would be higher. The period most nearly comparable to the past 10 years in U.S. and world history was the depressed 1930s. (I am the author of this 2004 book that predicted a stock market crash (which occurred in 2008), and the modern 1930s, but I was wrong in my assumption that the modern 1930s would involve another depression rather than 'slow growth.')"
If the time horizon is 5 years, I don't think that playing games with Roth IRAs or investments is really productive. I'd look at an online savings account as a holding place for this money. EDIT:  Another option is the US is Savings Bonds. The rates earned right now are poor (as of 04/2011 EE bonds earn 0.6% and I bonds yielded 0.37%), and there is an interest penalty if you redeem them in less than five years. But, they are not state taxable, and you can defer tax payments until you cash them. Your question asked about a specific time the yield curve flattened or inverted.  There are other times when the yield curve inverted or flattened.  You also imply in your question that investors were flocking to long term bonds which lowered their yields.  I don't believe this is the case.  I believe investors were fleeing from short term bonds causing the yields on short term bonds to rise to meet those of long term bonds. The chart below shows the history of yields on US bonds over time.  The shaded areas are where the yield curve flattened or inverted.  Notice that after 1982 it is the short term yields that rise sharply to meet or cross the yields on longer term bonds.  The yields on longer term bonds move little compared to the movement in yields on the short term bonds.  Thus it is investors moving out of short term bonds that cause the yield curve to flatten or invert.  These investors are not moving into longer term bonds since the yields on the longer term bonds do not move much at all at these times.  In fact, in 2006 the longer term bond market was only 25% of the total US public debt while short term bonds made up 75%.  It would take less money to move the yields on longer term bonds than it would on short term bonds yet the longer term yields did not move near as much as short term yields.  So why are investors or banks moving out of short term bonds causing their yields to rise?  I believe this happens for one of two reasons:  they are moving into higher yielding investments or they need to raise cash to cover bad investments.  Charts and more information here. You're mixing up two different concepts: low-risk and recession-proof. I'll assume I don't need to explain risk: there is always risk, regardless what form you keep your assets in. With bonds, the interest rate is supposed to reflect the risk. If a company offers bonds with too low an interest rate for the risk level, few people will buy them. While if a company offers bonds with too high an interest rate for the level of risk, they are gypping themselves. So a bond is a slightly more transparent investment from a risk assessment perspective, but that doesn't mean the risk is necessarily low: if you buy a bond with a 20% effective annual yield, that means there is quite a high risk that the underlying company will fold (unless inflation is in the double-digit range as well, in which case a 20% yield is not that much). Whereas with a stock, no parameter directly tells you anything about the risk. Recession-proof is not the same thing as low-risk. Recession-proof refers to investing in (or holding debt for) industries that perform better in a recession. http://www.investopedia.com/articles/stocks/08/industries-thrive-on-recession.asp. There is another reason why an investor might buy negative yielding bonds: if the investor expects that bond yields will go even further negative, then they are also expecting the price of the bond to go up. They can resell the bond later at a profit. As an example, they may expect an increase in central bank bond purchases to drive yields lower and prices higher. Bond prices move inversely to their yields.  So when you sell bonds and create a supply side deluge, bond prices will fall.  Since bond prices are falling, yields go up.  (The dollar amount that the bond pays out is the same.  It's simply that since the bond price has fallen, that dollar amount paid out expressed in percentage terms of the bond price has risen). A bond fund has a 5% yield. You can take 1/.05 and think of it as a 20 P/E.  I wouldn't, because no one else does, really. An individual bond has a coupon yield, and a YTM, yield to maturity. A bond fund or ETF usually won't have a maturity, only a yield. The duration of a bond tells you the sensitivity of its price to its yield. There are various ways of defining it (see here for example), and it would have been preferable to have a more precise statement of the type of duration we should assume in answering this question. However, my best guess (given that the duration is stated without units) is that this is a modified duration. This is defined as the percentage decrease in the bond price for a 1% increase in the yield. So, change in price = -price x duration (as %) x change in yield (in %) For your duration of 5, this means that the bond price decreases by a relative 5% for every 1% absolute increase in its yield. Using the actual yield change in your question, 0.18%, we find: change in price = -1015 x 5% x (4.87 - 4.69) = -9.135 So the new price will be 1015 - 9.135 = £1005.865 "I mean, it's only a difference of an order of magnitude, really.  Until you consider the following:  1) Only a fraction of the $800B Muni bonds market is new issue.  2) True spreads on Muni bonds are hard enough to calculate as is because they're all OTC.   3)The author quotes that the particular bid was for an 87K/year return on a notional of $300M. That's a spread of a whopping 3 basis points that the bank took extra over ""true value"".  4) Intraday vol for almost any financial instrument is more than 3 basis points.  5) So that's what he's making this big deal over? THREE basis points? I don't even know the length of my penis to within three basis points, and I challenge you to find anyone who could name the yield on the 10Y Treasury within 3 basis points."