Hello all
First post... and new to this world.
I keep hearing about 'good time to invest in T-Bills / Bonds' since the interest rates are high.
This makes sense to me, to a degree.
However, 4% or even 5% doesn't seem like some great windfall (compared to HYSA for example??).
So, the question is this: It's my understanding that if one buys a (for example) One Year Bill with 'high' interest rate, there could be some add'l gains realized by selling before maturity, assuming the interest rates go down - at some point - and thus, said Bills become more attractive to investors??
Is this nonsense?
Do ppl simply buy Bills / Bonds and keep them until maturity, and enjoy the risk-free 5% interest in the meantime?
Thanks!
Husky
Los Angeles
T-Bills / Bonds (keep or sell before maturity?)
- DarthFader
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T-Bills / Bonds (keep or sell before maturity?)
Can't stand sitting
- welderwannabe
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Re: T-Bills / Bonds (keep or sell before maturity?)
Tbills are not an investment IMHO, they are a cash management vehicle and I think you're looking at it all wrong.
Yes, you could have a short term gain by selling a TBill in a falling rate environment. However you then have reinvestment risk where you need to find a place to put the money again, and all of the interest rates will be lower at that time. Therefore its a zero sum game.
However, in a relatively stable rate environment, with a normal (non inverted) yield curve, there can be some gains to be had by buying a 1 year bill, selling it at 6 months (for example) and reinvesting it back into a 1 year bill. Thats because in a normal environment, you get a higher interest rate for longer dated debt so there is some arbitrage to be had there, assuming you can keep the money locked up.
The strategy is more effective with longer dated bonds.
Yes, you could have a short term gain by selling a TBill in a falling rate environment. However you then have reinvestment risk where you need to find a place to put the money again, and all of the interest rates will be lower at that time. Therefore its a zero sum game.
However, in a relatively stable rate environment, with a normal (non inverted) yield curve, there can be some gains to be had by buying a 1 year bill, selling it at 6 months (for example) and reinvesting it back into a 1 year bill. Thats because in a normal environment, you get a higher interest rate for longer dated debt so there is some arbitrage to be had there, assuming you can keep the money locked up.
The strategy is more effective with longer dated bonds.
I am not an investment professional, but I did stay at a Holiday Inn Express last night.
Re: T-Bills / Bonds (keep or sell before maturity?)
We are using t-bills to hold some of our fixed income that will be needed soon. We buy the treasuries through our broker on the secondary market. There are no state taxes which makes the yield higher for us.
"I started with nothing and I still have most of it left."
Re: T-Bills / Bonds (keep or sell before maturity?)
I agree T bills best fill a purpose of cash management. Also the interest is not risk free as there is reinvestment risk. There is also inflation risk.
Trying to navigate cash/bond terms and cash/bond risk to somehow acquire free lunches is a very problematic undertaking.
Trying to navigate cash/bond terms and cash/bond risk to somehow acquire free lunches is a very problematic undertaking.
Re: T-Bills / Bonds (keep or sell before maturity?)
4%-5% is about what HYSAs are paying. If you're in a state with income tax, the interest from Treasuries is exempt. Depending on your tax brackets, you might come about ahead with Treasuries that are paying slightly less.S_Husky_Hoskulds wrote: ↑Tue Jun 06, 2023 1:38 am Hello all
First post... and new to this world.
I keep hearing about 'good time to invest in T-Bills / Bonds' since the interest rates are high.
This makes sense to me, to a degree.
However, 4% or even 5% doesn't seem like some great windfall (compared to HYSA for example??).
So, the question is this: It's my understanding that if one buys a (for example) One Year Bill with 'high' interest rate, there could be some add'l gains realized by selling before maturity, assuming the interest rates go down - at some point - and thus, said Bills become more attractive to investors??
Is this nonsense?
Do ppl simply buy Bills / Bonds and keep them until maturity, and enjoy the risk-free 5% interest in the meantime?
Thanks!
Husky
Los Angeles
HYSAs can change their rates at any time. When you buy a Treasury, you know what your return will be if held to maturity. It's more like a CD in that sense.
- DarthFader
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Re: T-Bills / Bonds (keep or sell before maturity?)
This is great, guys!
Thank you all!
Husky
Thank you all!
Husky
Can't stand sitting
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- Joined: Wed Jan 11, 2017 7:05 pm
Re: T-Bills / Bonds (keep or sell before maturity?)
Yes, of interest rates go down you can sell your bill for a gain. However, you will then be giving up the future income. You will also be reinvesting the cash in bonds with lower yields (i.e. higher prices). There is no reliable way to game the market here any more than there is with stock. For one thing, you cannot assume that rates will go down just because they have gone up. They could keep going up, in which case you would sell for a loss.
- DarthFader
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