4 ms·

Doesn't that suffer from some of the same risks as what brought SVB down? I'm not super educated when it comes to the US financial system, so probably high chan

Doesn't that suffer from some of the same risks as what brought SVB down? I'm not super educated when it comes to the US financial system, so probably high chance I'm wrong. But as far as I understand it, T-bills suffer from the "interest risk" in that if interest rates rise, newer T-bills are more valuable so it'll be harder to sell the ones you have if you want to sell them before they mature. They might also not keep up with inflation, so the inflation could be higher than the yield, meaning you'd lose purchasing power effectively. But again, I might completely misunderstand things, but I don't think there is any investment that is absolutely risk free, which I guess is why you put it in quotation marks in the end.

NordSteve 4y ago
T-bills have very short duration, so interest rate changes have smaller effect on their value. Think of the duration as a lever, the longer the lever the larger the move in value that interest rate change make.
geraldwhen 4y ago
You are not a bank and need to ensure far less cash. https://www.treasurydirect.gov/marketable-securities/tips/ https://www.treasurydirect.gov/marketable-securities/tips/ You could buy TIPS or I-bonds.
dmoy 4y ago
SVB wasn't buying Treasury bills (<1 year term). They were buying notes at like 5 years and longer term bonds. So they suffer from the same type of interest rate risk, but at order of magnitude lower impact.
Out_of_Characte 4y ago
You're correct, but even underwater T-bills are better than holding the money. Its essentially both insurance and additional interest. the only risk is having to sell them at the wrong time.
spaceman_2020 4y ago
As an individual investor, you don’t have redemptions pressure from customers asking for their money back. If you fee that you don’t need the money before X years, you can get treasuries for those years and not sell them before maturity.
toast0 4y ago
> if interest rates rise, newer T-bills are more valuable so it'll be harder to sell the ones you have if you want to sell them before they mature. As others pointed out, T-Bill indicates a shorter term than T-Note which is shorter than T-Bond... but either way, it's not that the instruments are hard to sell, it's a very liquid market, but the prices rapidly adjust so that yield to maturity for a given maturity date is broadly similar regardless of the initial yield and coupon. It may be emotionally hard to sell and realize a loss if interest rates rise after your purchase, but it's not transactionally hard. If you are subject to a mark to maturity reporting regime, it may also look bad on your balance sheet, but I don't believe individuals would be subject to that.
dkjaudyeqooe 4y ago
People like Wealthfront offer $3M in FDIC insured deposits and 4.3% interest (from their recent email). Others have similar offers or you can just spread your money around to different banks. That should cover most stuff. For the rest of your money you can estimate when you'll need it and buy the appropriate T-bill, down to 4 weeks. Everything you say is correct, but only on that timescale. The only risk is the US government collapsing, but in that eventuality you are very likely to be completely fucked no matter what you do.

NordSteve 4y ago

T-bills have very short duration, so interest rate changes have smaller effect on their value. Think of the duration as a lever, the longer the lever the larger the move in value that interest rate change make.

geraldwhen 4y ago

You are not a bank and need to ensure far less cash. https://www.treasurydirect.gov/marketable-securities/tips/ https://www.treasurydirect.gov/marketable-securities/tips/ You could buy TIPS or I-bonds.

dmoy 4y ago

SVB wasn't buying Treasury bills (<1 year term). They were buying notes at like 5 years and longer term bonds. So they suffer from the same type of interest rate risk, but at order of magnitude lower impact.

Out_of_Characte 4y ago

You're correct, but even underwater T-bills are better than holding the money. Its essentially both insurance and additional interest. the only risk is having to sell them at the wrong time.

spaceman_2020 4y ago

As an individual investor, you don’t have redemptions pressure from customers asking for their money back. If you fee that you don’t need the money before X years, you can get treasuries for those years and not sell them before maturity.

toast0 4y ago

> if interest rates rise, newer T-bills are more valuable so it'll be harder to sell the ones you have if you want to sell them before they mature. As others pointed out, T-Bill indicates a shorter term than T-Note which is shorter than T-Bond... but either way, it's not that the instruments are hard to sell, it's a very liquid market, but the prices rapidly adjust so that yield to maturity for a given maturity date is broadly similar regardless of the initial yield and coupon. It may be emotionally hard to sell and realize a loss if interest rates rise after your purchase, but it's not transactionally hard. If you are subject to a mark to maturity reporting regime, it may also look bad on your balance sheet, but I don't believe individuals would be subject to that.

dkjaudyeqooe 4y ago

People like Wealthfront offer $3M in FDIC insured deposits and 4.3% interest (from their recent email). Others have similar offers or you can just spread your money around to different banks. That should cover most stuff. For the rest of your money you can estimate when you'll need it and buy the appropriate T-bill, down to 4 weeks. Everything you say is correct, but only on that timescale. The only risk is the US government collapsing, but in that eventuality you are very likely to be completely fucked no matter what you do.