Rachel Christian at U.S. News & World Report wrote a step-by-step guide to buying Treasury bonds, and quoted me throughout on where investors actually lose money.
Treasury bonds are backed by the full faith and credit of the U.S. government, which has never defaulted. My point was that Treasurys can't default, but they can lose money, and most investors learn that the hard way. Selling early is how Treasury investors lose money. When rates rise, market prices fall, so a bond sold before maturity can return less than you paid.
On buying in the secondary market, look past the coupon. Pay more than par and you earn less than the coupon suggests. Pay less and you earn more.
On funds versus individual bonds, a conventional Treasury ETF has no maturity date. The fund keeps rolling into new bonds, so its price moves with rates every day and your principal never comes home at par. The ETF wins on convenience, since it is easy to trade and easy to hold in an IRA, but TreasuryDirect wins on certainty.
I shared the story of a client who bought long-dated Treasurys right before rates climbed in 2022. The price fell, and he sold to fund a home repair, locking in the loss. If he had held to maturity, he would have gotten his principal back. My advice is to match maturities to when you need cash, or build a bond ladder so some bonds mature every year.
The guide also walks through TreasuryDirect's move to ID.me verification, how auctions work, the differences between bills, notes and bonds, and the state and local tax exemption on Treasury interest.
Read the full article at US News & World Report →
