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by pg314 1195 days ago
> The bonds are worth exactly what they thought they'd be worth if held.

That's wrong. A 10 year treasury bond with a .60% you bought in august 2020 is now worth significantly less. Whether you hold it or not is irrelevant. If you disagree, I'm willing to give you one, if you give me a 7 year treasury bond at the current interest rate of 3.86%.
1 comments
shagie 1195 days ago
Has the amount that it pays when it reaches maturity changed?

The yield curve has gone negative - the shorter term bonds are worth more than the longer term ones (and certainly the longer term ones bought back in 2021).

And if you were trying to sell me a 10 year note at 0.6% I'd want a serious discount because even your 7 year note at 3.86%, I can do better with a 3 month note at 4.794% or a 6 month note at 5.086%. https://www.marketwatch.com/investing/bond/tmubmusd03m?count...

But that's if you were trying to sell it now. The amount it will pay at maturity remains unchanged and in 10 years it will be worth exactly the same no matter what the financial history that brought it to that point was.

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lordfrito 1195 days ago
> But that's if you were trying to sell it now. The amount it will pay at maturity remains unchanged and in 10 years

This point is lost on everyone. They will get their money back, in 10 years. That's why it's a called 10 year note.

They messed up not considering they'd need the money sooner, and failed to seriously consider that no one would want to buy their notes if interest rates went up, because there would be much better deals out there.

They made a 10 year bet that interest rates wouldn't go up significantly. They bet wrong.

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shagie 1195 days ago
A Planet Money episode on bonds as turtles and the impact of changing rates. https://www.npr.org/2022/10/06/1127357539/why-are-stocks-and...

Note that Planet Money is intended more for accessibility and entertainment than hard hitting economic news... but they still get their facts right.

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pg314 1195 days ago
> The amount it will pay at maturity remains unchanged and in 10 years it will be worth exactly the same no matter what the financial history that brought it to that point was.

Wrong. You're forgetting about inflation. Interest rates increased because inflation spiked. In 2022 alone, that nominal payout at maturity has lost 8% of its real value.

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shagie 1194 days ago
The value of the amount that it will pay out has lost money.

However, it will still pay out exactly what it said it would pay out when it was purchased. Compare this to buying a stock in say... RBCN (went bankrupt and delisted in December) where any of the stock you had is worth nothing.

There is no risk that a bond won't pay out the amount that it says (other than the government really messing up and defaulting).

I will certainly be willing to say "a purchase of 10 year bonds would be short sighted and failed to account for possible risks from changing cash flow or increased rates over the next 10 years."

And yet a bond is still going to pay out what it says on the label when it was purchased when it pays out.

Now, if its not a hold to maturity type portfolio and you want to trade them, then its a whole 'nother ball game where prices will go up and down as it becomes easier or harder to make money in various markets. And whoever holds a $100 ten year note at ten years time will get paid exactly that amount.

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