Hi folks,
Been investing for a few years ago typically in ETFs, and dabble a bit in individual stocks. But I can't seem to wrap my head around the purpose of treasury bonds and wanted to ask some questions to understand.
Please correct me if I'm wrong here:
What is a treasury bond: I can buy a bond from the US government, which is essentially me giving the government a loan on fixed interest rate and duration.
When does the bond value go up or down: Bond value has the inverse relationship of the interest rates. Ex. If I bought a bond at 0.5% interest today, and the interest went up to 1% tomorrow,, the value of my bond will decrease on the market because no one would want to buy my bond paying 0.5% when you can buy it on the market for 1%. Same principle applies when the interest rates are down. I understand that bonds give stability to a portfolio as they will also have an inverse relationship with the stock market.
If the above is true what is the purpose of holding a treasury bond: Is it to hold and collect interest payments and sell when interest rates are low? If I'm a long term investor waiting to cash out at retirement, do I hold until I see interest rates drop and sell at a high?
If I use TLT as an example, let’s say I invested in TLT in 2005 with the intention to retire in 2020. it would be wise to buy TLT at 90 dollars in 2005 and sell in 2020 for 160. I would have sold the etf at a net positive while earning interest payments over 15 years. If, by the time I’m about to retire, the net value of TLT is lower than how much I bought it for, I’d continue to hold, collect interest payments and wait until the bond is up and sell at a profit.
Can't quite seem to wrap my head around it. Thanks!
