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Comment by YokoZar | Hacker News Reader

Even if you only need the money for a year, there is no reason you can't buy 30 year bonds and sell them later. Short term treasury bonds get a much lower price because they are dominated by buyers that are obligated to buy them for some reason (they've even had negative interest rates in the past).

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> there is no reason you can't buy 30 year bonds and sell them later.

Except, there are no guarantees the price you get on the sale of those bonds will be the same as the price you initially payed.

The possibilities are you might get your money back, you might make money or you might lose money on that sale.

Edit: In fact as can be seen by the graph below the yield on 30 Year T-Bonds is going up, indicating the price of the bond is falling (as the price moves inversly to the yield).

http://www.marketwatch.com/investing/bond/30_year

NOTE: See the 6m curve from link above

No, short term bonds get lower yield because they carry much less interest rate risk. There's no free lunch.

That cannot explain a negative interest rate.

That's just an indication of their safety. Short-term U.S. Treasuries are being used as a safe bank account by a number of people with money to park who don't trust regular banks, and don't want to expose themselves to the interest-rate risk that long-term bonds bring. This raises demand and pushes down interest rates, sometimes even into the negative range.

If you're an American with, say, $75k to park, there's no reason to put it in a treasury at negative interest, of course: you can just put it in an FDIC-insured bank account. But if you're a Cypriot with $50m to park, buying treasuries looks attractive relative to Eurobonds or Cypriot banks, and continues to look attractive even if prices rise to the point where the interest rate is moderately negative.

But in neither case should you buy a 30-year bond for short-term cash parking, unless you are either hedged against the interest-rate risk, or willing to expose yourself to a bet on the direction interest rates will move. If they move the wrong way, your $100k might be worth $90k next year, which will completely wipe out your 3.5% interest and more.

> That cannot explain a negative interest rate.

Those were not bonds, but rather Treasury Inflation Protected Securities (TIPS) which are tied to CPI.

The fixed payment on five-year TIPS, known as the real yield, has been pushed below zero because the rise in the CPI is greater than the yield on regular five-year U.S. notes

http://www.bloomberg.com/news/2010-10-25/treasury-draws-nega...

Why they were negative is because they are tied to CPI and the CPI was higher than the interest on similar short term bonds.

So provided the CPI continues to rise, these TPS securities (which are tied to CPI) will end up paying more return than similar short term bonds.

In other words the market was betting the CPI would continue to rise while short term interest rates would remain low.

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