4 ms·

Maybe a dumb question, but why not buy short term treasuries instead of putting it in the bank? Any amount of money in treasuries has a strong implicit guarante

Maybe a dumb question, but why not buy short term treasuries instead of putting it in the bank? Any amount of money in treasuries has a strong implicit guarantee from Uncle Sam.

SkyMarshal 4y ago
That was my thought too, but where do you custody them where you're guaranteed to be able to take possession of them if the custodian goes under?
- alangibson 4y ago
  Good question. You can buy direct from the Treasury, so I'd imagine that would be the most foolproof method. I've never done it so I don't know if there are limits to how much you can buy.
  - ghaff 4y ago
    As a bonus you get to use a website that's ridiculously bad by 1990s standards :-) There are limits to certain instruments but, in general, you should be able to buy what you want.
  - SkyMarshal 4y ago
    Treasury Direct might actually be an option for small or medium startups. The limit is only $10k for savings bonds, but $10million per auction for Treasury Marketable Securities (bills, notes, bonds, TIPS, etc). https://www.treasurydirect.gov/research-center/ https://www.treasurydirect.gov/research-center/ (scroll to Purchase Limits section)
- NotYourLawyer 4y ago
  There’s SIPC if you hold them through a broker, but it also has limits.
gerad 4y ago
Short term treasuries are vulnerable to interest rate risk. Essentially if the government offers new treasuries at higher rates, then the market value of your treasuries drops. It’s ok if you hold the treasuries to maturity (then you’re only out the opportunity cost of holding the newer higher rate treasuries), but if you need the money at a moment’s notice then you will have to sell at a loss. This is essentially what happened to SVB.
- alangibson 4y ago
  Indeed, but SVB had 10 year maturities. I was thinking 30 days so there's little interest rate risk.
- jnwatson 4y ago
  Short term treasuries have very very low risk. Even if you have to liquidate, you might lose a percent or two.
- kurthr 4y ago
  I'd recommend looking at FRNs which are currently ~0.2% over FedFunds (eg 4.8-5%). You can buy them through Treasury Direct, a brokerage account or more liquid (if you trust them) ETFs like USFR, and they are comparable or better than short CD ladders with better liquidity. I'm kinda surprised medium sized companies were keeping more than 1 month (or pay period) of money sitting in a bank account. https://www.google.com/search?q=usfr+etf https://www.google.com/search?q=usfr+etf

Maybe a dumb question, but why not buy short term treasuries instead of putting it in the bank? Any amount of money in treasuries has a strong implicit guarantee from Uncle Sam.

SkyMarshal 4y ago

That was my thought too, but where do you custody them where you're guaranteed to be able to take possession of them if the custodian goes under?

alangibson 4y ago
Good question. You can buy direct from the Treasury, so I'd imagine that would be the most foolproof method. I've never done it so I don't know if there are limits to how much you can buy.
- ghaff 4y ago
  As a bonus you get to use a website that's ridiculously bad by 1990s standards :-) There are limits to certain instruments but, in general, you should be able to buy what you want.
- SkyMarshal 4y ago
  Treasury Direct might actually be an option for small or medium startups. The limit is only $10k for savings bonds, but $10million per auction for Treasury Marketable Securities (bills, notes, bonds, TIPS, etc). https://www.treasurydirect.gov/research-center/ https://www.treasurydirect.gov/research-center/ (scroll to Purchase Limits section)
NotYourLawyer 4y ago
There’s SIPC if you hold them through a broker, but it also has limits.

gerad 4y ago

Short term treasuries are vulnerable to interest rate risk. Essentially if the government offers new treasuries at higher rates, then the market value of your treasuries drops. It’s ok if you hold the treasuries to maturity (then you’re only out the opportunity cost of holding the newer higher rate treasuries), but if you need the money at a moment’s notice then you will have to sell at a loss. This is essentially what happened to SVB.

alangibson 4y ago
Indeed, but SVB had 10 year maturities. I was thinking 30 days so there's little interest rate risk.
jnwatson 4y ago
Short term treasuries have very very low risk. Even if you have to liquidate, you might lose a percent or two.
kurthr 4y ago
I'd recommend looking at FRNs which are currently ~0.2% over FedFunds (eg 4.8-5%). You can buy them through Treasury Direct, a brokerage account or more liquid (if you trust them) ETFs like USFR, and they are comparable or better than short CD ladders with better liquidity. I'm kinda surprised medium sized companies were keeping more than 1 month (or pay period) of money sitting in a bank account. https://www.google.com/search?q=usfr+etf https://www.google.com/search?q=usfr+etf