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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 li
by ac29 5y ago
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.
- kgwgk 5y agoThe 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.
- quickthrowman 5y agoYes 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.
- deanmoriarty 5y agoIf interest rates went up 10% (hypothetical, I understand it won’t happen), what would the face value of an existing 10y bond be?
- shukantpal 5y agoApproximately 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.
- deanmoriarty 5y agoSo the above poster's "Duration risk is (bps yield increase * years)" is not accurate?