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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 t
by 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 agoIndeed, but SVB had 10 year maturities. I was thinking 30 days so there's little interest rate risk.
- jnwatson 4y agoShort term treasuries have very very low risk. Even if you have to liquidate, you might lose a percent or two.
- kurthr 4y agoI'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