T-bonds at 0% why not just keep the money?

dumb_mother · Jan 4, 2012

i'm sure someone has posted already but i didn't read anything so here is the reason why:

if you have 10 bil$'s that you need to hold somewhere... who are you going to trust at 0% rates? jpmorgan? goldman sachs? mf global? that's why they keep it with the government at those rates. for big hedge funds there aren't any secured facilities they can deposit with, so by default they have to keep it in tbills regardless of the rates as it isn't feasible to keep those sums in benjamins and redeem them when you need to.

kcgoogler · Jan 4, 2012

Quote from GTS:

Uh, didn't bother to read the thread, eh?

Oh i did. Actually the only reason i saw was for buying t-bonds; they have rallied last year. But t-notes is different right. They cant rally above 100; so absolutely no reason to be long them? or maybe i missed something.. so trying to understand.

-gariki

Maverick74 · Jan 4, 2012

Quote from kcgoogler:

Oh i did. Actually the only reason i saw was for buying t-bonds; they have rallied last year. But t-notes is different right. They cant rally above 100; so absolutely no reason to be long them? or maybe i missed something.. so trying to understand.

-gariki

Of course T-Notes can rally past 100. Why wouldn't they?

Martinghoul · Jan 5, 2012

Quote from bwolinsky:
I don't think investors are being at all rational, but since the Fed is printing money like this, our debt payments have never been cheaper with rates going down in all terms the FDIC is the cause for not covering everything the banks when that would have created more stability than handing $16 trillion to too-big-to-fail banks that lost an extraordinary amount of money they gave to the taxpayer, averting certain economic disaster equivalent to destroying devestating GDP growth of -120%.

bwol, please... I beg of you. Spare us from your future pearls of wisdom, be a dear?

Generally, the thing people need to understand is that bills are a liquidity management instrument, with a large liquidity premium attached to them. So with FF effective as low as it is, there's no reason why t-bills can't trade at or through 0.

kcgoogler · Jan 5, 2012

Quote from Maverick74:

Of course T-Notes can rally past 100. Why wouldn't they?

oh they do. Didnt know that. But that doesnt make sense because with 0% yeild if they rally past 100 they loose to face value upon redemption. So negative interest rate really - YTM wise.

-gariki

Martinghoul · Jan 5, 2012

Quote from kcgoogler:
But that doesnt make sense because with 0% yeild if they rally past 100 they loose to face value upon redemption.

This is incorrect (assuming it refers to bonds).

kcgoogler · Jan 5, 2012

Quote from Martinghoul:
This is incorrect (assuming it refers to bonds).

No. We are taking about t-notes here.

But even if they were bonds and have maturity in the next few weeks, same deal.

Maverick74 · Jan 5, 2012

Quote from kcgoogler:

No. We are taking about t-notes here.

But even if they were bonds and have maturity in the next few weeks, same deal.

It doesn't matter either way. If the coupon on the note is higher then the current rate, the notes will trade over par. I'm not sure if you are referring to futures or cash but it works the same way. Ten year note futures currently over 130. You buy debt for the appreciation, not for the interest.

Martinghoul · Jan 5, 2012

Quote from kcgoogler:
No. We are taking about t-notes here.

But even if they were bonds and have maturity in the next few weeks, same deal.

T-notes ARE bonds (as opposed to bills) and yes, bonds, including t-notes, can easily trade above par (as Mav74 mentioned). And no, if you buy a bond above par, that doesn't necessarily mean that you will suffer a loss at redemption.

kcgoogler · Jan 5, 2012

Quote from Maverick74:

It doesn't matter either way. If the coupon on the note is higher then the current rate, the notes will trade over par. I'm not sure if you are referring to futures or cash but it works the same way. Ten year note futures currently over 130. You buy debt for the appreciation, not for the interest.

oops. i meant t-bills; not t-notes.

But i get what you are saying about t-bonds and t-notes above. But t-bills given that they are so close to redemption (4 weeks in this case), if someone is buying them at a premium, they get only face value in 4 weeks. Hence they will loose; right?

ps: i am just learning about treasuries for my series-7; so please do be verbose if you disagree with what i say.