I get why the treasury department issues T-bills and bonds. However, I don’t understand why they offer such short duration securities? What’s their benefit? And, with the current Fed funds rate, how do these short duration securities not cause stress on the national debt?
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Banks needs places to park money for varying periods of time. Look at how SVB got in trouble by buying long term bonds when its liabilities were short term. If they’d have parked all their money in 4 week t-bills, they’d still be in business.
Banks needs places to park money for varying periods of time. Look at how SVB got in trouble by buying long term bonds when its liabilities were short term. If they’d have parked all their money in 4 week t-bills, they’d still be in business.
> I don’t understand why they offer such short duration securities? What’s their benefit?
Money is sort of a hot-potato when you have huge amounts of it. If for example you have tens of millions of dollars which your company is hanging on to for the next couple of pay periods then you really need a way to store it in a very secure way, but also be absolutely sure you can access it again in a relatively short period of time. You can deposit it in a bank but that is just passing the problem on to another organization to solve, and as has been highlighted recently banks have some small risk associated with them.
US treasury bonds and bills are as close to zero-risk as you can really get in finance. A short duration treasury bill isn’t really going to earn significant interest but it is a very secure way of parking money.
> how do these short duration securities not cause stress on the national debt?
I’m not sure what you mean by this. They are a part of the national debt but they aren’t any more of a strain than all the rest.
Banks needs places to park money for varying periods of time. Look at how SVB got in trouble by buying long term bonds when its liabilities were short term. If they’d have parked all their money in 4 week t-bills, they’d still be in business.
> I don’t understand why they offer such short duration securities? What’s their benefit?
Money is sort of a hot-potato when you have huge amounts of it. If for example you have tens of millions of dollars which your company is hanging on to for the next couple of pay periods then you really need a way to store it in a very secure way, but also be absolutely sure you can access it again in a relatively short period of time. You can deposit it in a bank but that is just passing the problem on to another organization to solve, and as has been highlighted recently banks have some small risk associated with them.
US treasury bonds and bills are as close to zero-risk as you can really get in finance. A short duration treasury bill isn’t really going to earn significant interest but it is a very secure way of parking money.
> how do these short duration securities not cause stress on the national debt?
I’m not sure what you mean by this. They are a part of the national debt but they aren’t any more of a strain than all the rest.
> I don’t understand why they offer such short duration securities? What’s their benefit?
Money is sort of a hot-potato when you have huge amounts of it. If for example you have tens of millions of dollars which your company is hanging on to for the next couple of pay periods then you really need a way to store it in a very secure way, but also be absolutely sure you can access it again in a relatively short period of time. You can deposit it in a bank but that is just passing the problem on to another organization to solve, and as has been highlighted recently banks have some small risk associated with them.
US treasury bonds and bills are as close to zero-risk as you can really get in finance. A short duration treasury bill isn’t really going to earn significant interest but it is a very secure way of parking money.
> how do these short duration securities not cause stress on the national debt?
I’m not sure what you mean by this. They are a part of the national debt but they aren’t any more of a strain than all the rest.
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