Individuals Come Back to Uncle Sam

Frightened by municipal bonds and wary of mutual funds, many yield-hungry small investors have been going back to basics: buying shorter-term bills and notes issued directly by Uncle Sam.

This week, investors get another chance to buy: The Treasury will auction $17.25 billion in two-year notes on Wednesday and $11 billion in five-year notes on Thursday.

Individual investors can bid for the notes--that is, they can try to finagle the best potential yield out of Uncle Sam--but competitive bidding is a game for professional institutional investors. Instead, most individuals make “non-competitive” purchase offers, meaning that they agree to take the average yield bid on the notes.

And current yields are arguably attractive: If rates stay near today’s levels, buyers of the two-year note can expect an annualized yield of about 7.6%; the five-year note may yield about 7.8%.

Minimum bids are $5,000 for the two-year notes and $1,000 for the five-year. If you don’t have an order form in hand by now, you’ll probably have to go to the Federal Reserve Bank in Downtown Los Angeles to pick up a form, then deliver it back there by 9 a.m. auction day (for information: (213) 624-7398). Or you can buy through discount or full-service brokers for a small fee.