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Risky Can Be Safer Than Risk-Free
Porter's Journal Issue #52, Volume #2
Porter Stansberry
May 07, 2025
Exploring An Investing Myth That Permeates The Financial World
This is Porter’s Daily Journal, a free e-letter from Porter & Co. that provides unfiltered insights on markets, the economy, and life to help readers become better investors. It includes weekday editions and two weekend editions… and is free to all subscribers.
U.S Treasuries are anything but risk-free… There is interest rate risk… There is default risk… Trump’s liberation day announcement created a large-scale sell-off… Don’t get misled by imprecise talk about risk-free and risky securities… What the Fed said today… |
Table of Contents
In early April, President Donald Trump announced higher tariffs on U.S. trading partners than the market was expecting, and the financial world reacted… triggering mass selling of U.S. Treasuries by foreign central banks.
The 10-year Treasury bond’s price dropped 2.2% between April 2, when tariffs were announced, and April 11 – a big move in such a short period. The selloff was significant – and highlighted the higher-than-understood degree of volatility that comes with investing in Treasures, which are normally viewed as risk-free.
Today we’ve turned the Daily Journal over to Distressed Investing senior analyst Marty Fridson, who explains the risks involved in investing in U.S. Treasuries – something readers should consider as more of the same market uncertainty could be in store if Trump’s tariff policies continue to siphon away global confidence in the U.S. dollar.
Here’s Marty…
Perhaps the greatest of all the financial myths out there is that investing in U.S. Treasuries is a risk-free endeavor.
The truth is that a U.S. Treasury security with a 10-year maturity is anything but risk-free.
The risk-free rate is a theoretical value that financial theorists use to adjust return for risk, as in calculating a stock’s Sharpe ratio, which compares the return of an investment with its volatility. Risk-free rate is usually represented by the yield on 90-day U.S. Treasury bills, not by longer-maturity Treasury notes or bonds. Over the past 20 years, the T-bill rate has averaged 1.25 percentage points less than the 10-year Treasury rate, although the two happen to be very similar right now.
One type of risk that investors definitely care about is interest rate risk. As the Wall Street Journal frequently reminds its readers, when interest rates go up, bond prices go down.
And how!