Liquidity of U.S. treasury bonds and moving in and out of them before maturity?

Question

I am curious about the liquidity of U.S. treasury bonds. I always hear about how liquid they are.

I like the rates of the 30 year treasury bonds but lets say I don't want to park money for 30 years. Can I buy the bond, collect interest for one year, and then exit the bond at no loss?

This is assuming that the bid and ask spread is so tight that there is little-to-no slippage and that I do not expect the bond strength to weaken greater than the interest earned that year.

Insight appreciated.

user296 · Accepted Answer

A couple of points.

You may be able to re-sell the bond after the first year, but you won't be guaranteed all your money back: it will still be worth the same in 30 years, but it may not be worth the same tomorrow. If interest rates rise, the price of a new 30-year bond will fall. Since your 29-years-left bond is almost equivalent, you should expect that its face value will also fall. The 30-year bond is the most vulnerable to interest rate risk, since it is so long-term: a little difference in rate will change things a lot after thirty years. Note also that interest rates are at or near historic lows; they have very little room to fall and a lot of room to rise.
Your brokerage, bank, or credit union can help you re-sell your Treasury bonds. You may wish to investigate the process and any fees involved. They will probably be willing to tell you all about it. I cannot meaningfully comment on the spreads involved. The Treasury itself may also provide some tools; visit http://treasurydirect.gov and learn more.
You may also wish to consider consider a bond mutual fund or ETF. They can be bought or sold like stocks, which may be a more comfortable and convenient process for some people. Note that the interest rate risk in these funds is different than for a bond, because they are continually reinvesting; the risk does not fall as the bond gets closer to maturity. Read the prospectus.

JTP - Apologise to Monica · Answer

No citation, but I once read the average holding period of a 30 yr treasury is 8 hours. A rise in the rate by just .1% will drop the value by just under 2% wiping out nearly a full year's gains. With 29 years to go the value of the 3% bond will be worth $981 if the rate were then 3.1% It's at 3.16% the bond would drop to exactly $970 after the year, i.e. you've gotten no return at all. 
I view this as pretty high risk.

Liquidity of U.S. treasury bonds and moving in and out of them before maturity?

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