Fidelity has sold all of its short term T-Bills

[A HERETIC I AM]

46. You clearly are not very well versed on this subject.

So let me put your two posts together;

You said, in response to the OP;

Interest on the debt is safe. But return of principal is a legitimate concern. Especially so for the 90 day paper.

That is simply not true. The OP is referring to an article that states Fidelity "no longer holds any U.S. government debt that comes due around the time the nation could hit its borrowing limit." Your statement that the "interest on the debt is safe" is nonsense because the paper they have sold DOES NOT MAKE INTEREST PAYMENTS. It is Zero Coupon paper that is bought at a discount to par and matures at par. The difference is the yield. When they are redeemed by the Treasury they pay the par value. If the yield was 2% for example, the US Treasury is not going to just pay 2%, they are going to redeem the whole thing. The primary risk in this entire scenario is that after the 17th, unless Congress raises the debt limit, the US Treasury will not have the money to either redeem a series that is maturing or make a coupon payment that is due. Either or both of those are by definition, a default.

Here is a screen grab from Treasaurydirect.com that shows all the securities maturing between now (10/11/13) and November 10


There are 4 issues maturing on the 17th of this month totaling roughly $120 billion. THAT is what the Treasury is really worried about. And they are ALL Zero Coupon issues. They must be redeemed at par or the Treasury will have defaulted.

You are describing only one variety of Treasury instrument.

I am describing the exact type of Treasury instruments that Fidelity is selling. Short term, Zero Coupon paper.

Most Treasury investors are receiving interest (though not a lot) on a steady principal.

While it is true that the vast majority of the nations debt is in longer term paper and that paper pays biannual interest payments (the Coupon) the last portion of that sentence makes NO SENSE with regard to the holding of a bond of ANY type. "On a steady principal"?!? Are you aware that the price of a bond fluctuates? Are you aware that they can both rise AND fall in value? Are you aware that regardless of what you pay for it, bonds mature at "Par" and the coupon percentage paid is figured off that par value? Do you know what Par is? Do you know how much in dollars the standard is?

The value of a given lot of ANY type of bond will by NO MEANS stay "Steady" during the time you hold it. The value of a bond fluctuates all the time, with virtually every trade. If someone else sells a block of the same bonds you hold for LESS than you paid for them, the value of your holdings will FALL. What stays steady on bonds that pay a coupon is that very thing - the coupon rate. Coupon rate does not change, with very few exceptions (T.I.P.S. are an example)

Why would you introduce uncertainty just to upset people or cause them doubt or concern?

I am doing no such thing. I am providing accurate information. If that question was rhetorical, I can assure you Fidelity did not do this with the intent of introducing uncertainty. They did it because the Prospectus for the affected Money Market Mutual Funds REQUIRES IT.

Zeroes have their place, but they have little to do with most people's holdings.

Really? How many Americans hold Money Market funds? As a general rule, most average investors do not buy individual lots of shorter term Treasuries, that is true, but if they own a money market fund, they are in there, I guarantee it.

Including most bank holdings, which is what most people's bank accounts are holding, indirectly.

I would be very interested in seeing where you got that notion. Do you think your bank is buying ten year paper with your savings account? Is that what you are insinuating? Because nothing could be further from the truth.

If you go to this page from Treasury Direct and click on the "go" button next to "All Treasury Securities" "By Auction Date". When that opens, set the "From" month to September and click "Search". That will show you all the varying maturities of Treasury Notes, Bills and Bonds sold at auction for the last month, everything from 5 day to 30 year. Under the column that says "Interest Rate" you will see that the notation "n/a" is present and it is ONLY present on paper with maturities shorter than 2 years. That means all those with the n/a appearing are ZERO COUPON BONDS. Even though they call them Bills and Notes, they are technically still Bonds.

Please don't profess to school me when it is clear by reading what you wrote that you barely have a parochial understanding of the subject.