| What should I do with a 5-year Treasury earning 3.125% I bought in 2003?

What should I do with a 5-year Treasury earning 3.125% I bought in 2003?

Thomas O asked:


I bought a small bond latter with a 1-year, 3-year and 5 year note and the 5-year is the only outstanding bond left. Sell it or let it mature? I understand rates are higher but am I penalizing myself by selling before maturity?

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Comments

3 Responses to “What should I do with a 5-year Treasury earning 3.125% I bought in 2003?”

  1. Antoine a on April 25th, 2009 6:21 am

    Bonds value is reversed of CD’s, meaning CD’s rates are going up, the value of Bonds drops. For your question, the face value of the Bond is at stake because if less than $10,000 the charge for selling it when you surrender the bond, you can lose some $$$ for sure.
    I would recommend you to keep it as interest rate seems to be at its highest level. If the economy slows down due to costs of energy (gas), the interest may drops and bond value will climb again. Anyway, consult a financial planner or ask that question by sending it to the Money magazine.

  2. saulpanzer2 on April 27th, 2009 6:04 am

    Basically, it doesn’t matter. You can continue getting below-market interest rates, or you can sell it for less than the face value and reinvest the smaller amount at market interest rates. The two are equivalent. But taxes may change this– if you sell it you have a capital loss that you can use to reduce your taxes. But check this with an accountant.
    As to whether you’d lose money by selling now: sorry, but you’ve already lost it. If you hold on and interest rates go back down, the value of your bond will go up. But interest rates might go up more, and then the value of your bond will go down more. If anyone tells you they know what interest rates will do, ask them why they’re not rich.

  3. muncie birder on April 28th, 2009 7:08 am

    The main advantage of selling now would be to have a tax loss that it would provide. That can come in handy, perhaps. If you hold the bond to maturity, there will be no tax loss. But only $3,000 of capital loss can be taken against current income. The remainder must be carried forward. The total loss can offset captial gains however.

    6 mo t-bill are currently paying 5.2%.