The economy has recently become a challenging year for companies to survive. The impact of Covid-19 is still being felt until now.
The US Federal Reserve has been continuously raising interest rates since 2022 and it is predicted to continue to rise to tame inflation.
This is in response to last year's policy where the Central Bank printed trillions of dollars to be given as incentives to Americans. This is aimed at maintaining the purchasing power of the public.
The increase in central bank interest rates potentially puts many companies at risk of bankruptcy. This is because with the increase in central bank interest rates, if companies want to obtain funding through debt, they must pay higher interest.
Nevertheless, there are those who benefit from this phenomenon. Every bad phenomenon has an opportunity to be exploited for profit. One of them is those who buy treasury bonds.
What Treasury Bond Really Is ?
The modern economy world is certainly familiar with the term debt. Every institution, whether it is in the private or public sector, usually obtains funding through debt.
Debt is usually taken to obtain funding because it is the easiest and most common way. In addition, there is less risk for creditors because there are usually assets that are pledged.
Apparently, countries are also the same. Most countries in the world obtain funding sources from debt. This happens when the state budget experiences a deficit.
Even the United States is the same. The United States through the Department of Treasury often issues a debt instrument called the Treasury Bond.
Treasury Bonds are the most reliable debt instruments in the world because the guarantor is the United States. In addition, their maturity varies from annual to decades.
Fixed or Variable Interest Rate ?
Before buying a bond, it's important to know whether the interest rate is variable or fixed. This is crucial to maximize your profits.
Fixed rate means the interest paid by the issuer to you will remain the same until maturity date. Usually, the interest rate will depend on the central bank's interest rate at that time.
Variable rate means the interest paid by the issuer to you will differ until maturity date, either higher or lower. It's usually influenced by the central bank's interest rate in the future.
Meanwhile, Treasury Bond typically uses a fixed interest rate. This is used to give investors certainty about what they will earn in the future.
So your profit will depend on your luck when the US Department of Treasury issues Treasury Bonds. You might have spent your money three years ago when the interest rate was lower than it is now.
Tradability
We know that your profit in Treasury Bonds depends on your luck. You might have spent your money on Treasury Bonds that give lower interest rates.
But you don't need to worry because Treasury Bonds can be traded. So you can sell your old bonds and buy new ones with higher interest rates.
This is the advantage of Treasury Bonds over other bonds. Almost everyone in the world wants to buy Treasury Bonds. Because the guarantor and issuer is the US Government.
However, there are bonds that are quite popular to sell if the guarantor is highly credible. Usually, the currency in the bond is also important. Although the guarantor is credible, if the currency used is Zimbabwean, it is difficult to trade.
The fact that Treasury Bonds can be traded is a sign that investment here is lower in risk. If you need cash urgently, you can sell your bonds, and in certain conditions, you can get more profit.
4,63% Interest Rate
The advantage of Treasury Bond is that its interest rate follows the Central Bank. This is different from a deposit that follows the policy of the local bank.
So, when the economy is in a downturn because the Central Bank raises interest rates, those who have cash will benefit.
For example, currently, Treasury Bonds issued recently have an interest rate of 4.63%. This is much higher than the deposit you buy at a local bank.
In addition, the currency paid is dollars, so if something happens like currency devaluation, you don't have to worry. Usually, the interest is paid every six months.
Unlike a deposit where you cannot get your money until the maturity date, investing in Treasury Bonds has flexibility. This is because if you need your capital back, you just sell your bond.
