Quoth the Raven
· QTR’s Fringe Finance
· August 07, 2026 at 12:17
· ⏱ 12 min read
| Read on Substack ↗
Summary
High yields are not free money: if an investment pays far above safe rates, the market is pricing in additional risk, and investors should ask why before chasing income. For markets, this is a warning against yield traps in REITs, BDCs, high-dividend stocks, and other income products, because principal loss can easily overwhelm a big coupon.
•The author uses the Fed Funds rate around 3.5% as a mental benchmark; a bank paying only 1% on savings does so because customers are sticky and the bank keeps the spread.
•A bank offering a 5% CD while everyone else pays around 3% is not necessarily failing, but the unusually high rate warrants questions about deposit growth strategy and how the bank will earn enough to cover the interest.
•Credit spreads: AAA/AA borrowers pay only about 0.5%–2% above Treasuries, A/BBB borrowers pay 1%–3%, and junk bonds pay 3%–8% more, with spreads climbing well into double digits during stress.
•A stock paying a $4 dividend at $100 yields 4%; if the price drops to $50, the yield appears to be 8% even though the company is still paying the same dividend — a falling price often precedes a dividend cut.
•Not every distribution is profit; some investments simply return part of your own capital and label it income.
•The author contrasts Investment A yielding 10% but losing 30% of its value with Investment B yielding 4% while holding or growing value — the lower-yield investment can make you richer.