U.S. Treasury Bonds have been considered one of the safest investments in the world today. The yield on a 10 year bond is still looking great even with the action or inaction occurring in Washington today toward our economy. U.S. treasuries are perceived to be risk free by many investors with good reason. These are some of the risks you may experience investing in U.S. Treasury Bonds at this time.

No default risks

Treasury bonds are considered risk free because many investors believe America will always pay their debt. Therefore, U.S. bonds are never in danger of defaulting. There is a fundamental belief that even if the stock market is volatile and displays rapid increases and decreases the U.S. Treasury Bond market will hold steady. There is no risk of default according to many financial advisors which puts a tremendous amount of faith in U.S. bonds and their investment opportunities.

No interest rate risks

The interest rate is controlled by the Federal Reserve or the Fed. Investors believe that when purchasing a U.S. Treasury Bond they may experience a change in the interest rate, but the change will not be enough to make U.S. Treasury Bond a bad investment.

For example, an investor may purchase a 10 year bond for $1000 which pays 4% interest. If interest rates increase the investor will still receive their 4%. If interest rates would decrease they still receive their 4%. Even if the price of the bond would decrease they are still going to receive their 4%.

Reinvestment risks

There may be some risks associated with reinvestment. However, when purchasing a bond you are usually assuming the bond for a long period of time. Long term bonds give an investor the opportunity to see the direction of the market and interest rates far ahead and review the market over a long period of time.

Reinvestment is not a requirement and if you choose not to reinvest you don’t have to. Some bonds have an automatic reinvestment built into the bond. Verify if you have purchased these types and make certain you don’t have your earnings automatically reinvested if you don’t want to.

Liquidity risks

Liquidity is always a risk for any long term investment. When investing in Treasury Bonds you should be prepared to lower your liquidity for these investments.

You can have more liquidity if you choose to spread your investment over different maturity dates for your bonds.

Downgrade risks

Downgrade risks are a risk that the bond will be downgraded by credit reporting agencies and lead to a selloff of bonds. Bond ratings are important for many investors including banks, trusts, endowments or pension plans.

Owning bonds that are backed by the U.S. Treasury are safer than bonds from any other source. The risks of these bonds being downgraded are extremely low.

U.S. Treasury Bonds are a great investment for the investor seeking a low risk option for their monies. There are some risks associated with this investment as outlined here. However, the risks of U.S. Treasury Bonds are very low compared with other investment opportunities available in the marketplace today.