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Juergen from Bonn is not interested in buying US Treasuries for the same reason that Joe from Baltimore is not interested in buying Mexican government bonds eve
by kgwgk 7y ago
Juergen from Bonn is not interested in buying US Treasuries for the same reason that Joe from Baltimore is not interested in buying Mexican government bonds even though they yield 7% rather than 1.5%.
- mruts 7y agoYou’re comparing Mexican bonds with US T-notes? US 3-month treasuries are the risk-free for the entire world. Every investor and every country in the world (besides maybe North Korea or something) hold them in massive quantities.
- kgwgk 7y agoObviously not “every investor” does hold Treasury bills, not even in the US. And if you don't like the Mexican bond example [1], let’s say it’s for the same reason that Joe from Baltimore was not interested in buying Australian government bills a few years ago (when they were yielding 2% more than US treasury bills). Note that the rating for the Australian debt is better than for the US... [1] it’s true that a comparison of 3m bills (8% yield in Mexico vs 2% in the US) would be more appropriate.
- badpun 7y agoThey're not risk free, because there's always the currency risk. 20% of my portfolio is US govt bonds, but that's mostly to hedge against the fall of my country's currency.
- mruts 7y agoYou’re right, nothing is risk free. In finance though, the three month US Treasury bill yield is considered the risk-free rate. The only reason why this matters is that the risk-free rate is built into almost all financial equations and models.
- pnutjam 7y agoYeah, I'm pretty sure there is a reason they pay higher interest, more risk.