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Comment by victor106 | Hacker News Reader

So treasures yield 3%. Why can’t I just buy these bonds and get a 3% rate? What am I missing?

https://www.cnbc.com/amp/2022/04/19/us-bonds-treasury-yields...

> Why can’t I just buy these bonds and get a 3% rate? What am I missing?

Savings accounts can be drawn with zero notice. They're essentially rolling overnight. A 10-year Treasury cannot be redeemed before 10 years. (It can be sold, though at the market's whim with respect to price.)

I think you're underrating the liquidity of treasuries. For all practical purposes, a treasury is as liquid as a savings account. Yes, the market will take a little bit in the bid/ask spread.

Note: I am not suggesting holding long term treasuries as a substitute for a savings account here, though a ladder of short term treasuries could be an alternative when conditions are favorable, like now.

The problem is not with liquidity or transaction costs. Let's assume for the sake of the argument that you can always buy or sell at the mid price without any additional fees.

The reference to "the market's whim with respect to price" means that if you bought $1000 of 10-year treasuries at the beginning of the year and you sell them now you'll get less than $900.

Yes treasuries are liquid, but a 100 bps rise in yield in a 10y bond means the face value is 10% less. Duration risk is (bps yield increase * years) where 100 bps is 1%.

Duration risk matters a lot less with the shorter dates issues.

If interest rates went up 10% (hypothetical, I understand it won’t happen), what would the face value of an existing 10y bond be?

Approximately drop by 50% if existing rates are near zero. That's because a 10% yield will double your money when a 10y bond matures. So existing bonds have to halve to double your money in the same way.

So the above poster's "Duration risk is (bps yield increase * years)" is not accurate?

And those market prices will drop as rates go higher.

Exactly, and this is why the Fed is doing QE.

The Fed isn't doing QE.

If anything QT starts in 10 days.

You'd be better off buying I-bonds if you want to prevent the money from shrinking. They are liquid after one year.

Your treasury bonds can lose value if newer bonds pay a higher interest rate. Your free 3% is only guaranteed if you hold the bonds to maturity. If you have to sell them before maturity for some reason, you could lose money overall.

You can, and you should buy short dated govt bonds (up to, say, 2 years). This is what I do for savings. And you can "draw down" quickly by selling them, perhaps at a modest loss of rates go up in the meantime. If not they will deliver exactly as advertised.

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