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The current prices of a 2 year seem to be near the 52 week low.

Is that good?
Let's say I had $1,000 to spend and I put it all in 2 year treasury notes.
Could I sell them in a year like stocks (if the price went up to say 0.56 cents?
How does it work?

Dheer
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samwise
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3 Answers3

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There is a large market where notes/bills/bonds are traded, so yes you can sell them later. However, if interest rates go up, the value of any bond that you want to sell goes down, because you now have to compete with what someone can get on a new issue, so you need to 'discount' the principal value of your bond in order for someone to want to buy it instead of a new bond that has a higher interest rate.

The reverse applies if interest rates fall (although it's hard to get much lower than they are now). So someone wanting to make money in bonds due to interest rate changes, generally wants to buy at higher interest rates, and then sell their bonds after rates have gone down. See my answer in this question for more detail Why does interest rate go up when bond price goes down?

To answer 'is that good' the answer depends on perspective:

  • For someone wanting to buy a bond and get a return on their investment beyond the security that comes with T-notes/bills/bonds, it's not good at all. It means very low returns right now for risk adverse investors, in some cases not even keeping pace with inflation.
  • For the Government, and taxpayers, it's good because the government can finance the national debt (either items coming due, or new debt) for almost free, and that means we are not taking an even larger hit out of the budget for finance charges on the debt. So for taxpayers and the Government that's been on a spending spree (with the brief exception of a few years during the clinton era) since Reagan was elected, the low rates are a good thing.
  • If we step beyond Treasury issues, it's also good for Business that wants to finance new projects, capital improvements, etc, since it also means they can get money fairly cheaply via the corporate bond market.
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Chuck van der Linden
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  • Hey Chuck, thank you for the reply, just to be clear, let's say you went back in time (12 months ago) and you wanted to buy 2 year notes. Would you have purchased in 2010/Oct (0.40), 2011/Feb (1.00) or 2011/Jun (0.30)? And when would you have sold? Basically I'm asking if treasury notes follow the same buy low, sell high concept as just about any other product. – samwise Aug 01 '11 at 18:45
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    buy low, sell high with respect to what? The value of the bond, the selling price, or the current prevailing interest rate? Remember the value on the market for a bond/note/bill has an inverse relationship to the difference in rates that the bond pays verses the current prevailing rate. If you are speculating in bonds, you buy when interest rates are high, and sell when they are low. but most people 'investing' in bonds are doing so for safety and income, and plan to hold them to maturity, so market value fluctuations don't concern them. – Chuck van der Linden Aug 01 '11 at 21:17
  • To address your 'would I' If I was buying for security I'd just get a new issue via treasury direct. If I was speculating I would NOT have purchased ANY bonds in the last few years as rates have been at a historic low, and I can't really foresee them going any lower, so IMHO it's a bad time to buy bonds if the intent is to resell later after rates go down further. My crystal ball doesn't have to be very good to understand that with rates where they are, it's hard for them to go even lower. – Chuck van der Linden Aug 01 '11 at 21:24
  • ahah! that's what I was missing, thank you very much. Now it makes sense – samwise Aug 02 '11 at 12:44
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Look at this question here. In my answer there, I put a link to an Investopedia article about the bond prices.

Keep in mind that speculating over a short term period is pretty dangerous, even with the Treasury notes, and the prices may be affected temporary but greatly by the ordeals like the latest Republican shenanigans in Washington.

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littleadv
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Notes and Bonds sell at par (1.0). When rates go up, their value goes down. When rates go down, their value goes up.

As an individual investor, you really don't have any business buying individual bonds unless you are holding them to maturity. Buy a short-duration bond fund or ETF.

duffbeer703
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  • Thank you for the reply. I need to do some more research, when I looked at 2 year notes (the prices, and the price history) it looked almost like a penny stock, and that's the mind frame I was approaching (can I just buy some now, and sell it in a few months like I might a penny stock). – samwise Aug 01 '11 at 20:19