Bonds are rated according to their risk of default. Since the U.S. government has never defaulted on Treasury debt even before the Constitution was written, Treasury Bonds are rated AAA. They are described as extremely safe investments.
Assuming that the U.S. government continues to service all debt on time it’s true that a Treasury bond (or bill) is entirely predictable as long as it is held until maturity. The value of the bond will fluctuate with the prevailing market yield (like all other bonds) but it will pay par when it matures.
Failure to understand this led to the collapse of Silicon Valley Bank in 2023 when the Federal Reserve raised interest rates. Their “safe” portfolio of Treasury bonds suddenly lost value.
Unlike individual bonds, mutual funds and ETFs have a constantly rotating portfolio of bonds and do not have a fixed maturity date. The NAV (Net Asset Value) of a bond fund constantly fluctuates. The fund will lose value if interest rates rise even if all the bonds are AAA rated. This is especially true of funds with long maturity bonds which fluctuate more with changes in yields.
This is why I never invest in bond funds but only in a ladder of bonds which I hold to maturity. This provides me with zero volatility and zero risk (unless Treasury defaults in which case the entire market will go to he!! in a handbasket).
However, there are Treasury ETFs which provide extreme volatility and risk.
https://www.wsj.com/finance/investing/levereged-inverse-etfs-treasurys-d4fa4e62?mod=wknd_pos1
How to Make 267%—or Lose 90%—on Treasury Bonds
Billions of dollars have poured into leveraged and inverse funds that can magnify the market’s swings. Before you join in, you’d better understand what you’re in for.
By Jason Zweig, The Wall Street Journal, March 28, 2025
…
Officially, “ETF” stands for exchange-traded fund—a tool that makes investing simple. This subset of ETFs, though, is so sensitive to market moves that the acronym should stand for “extra-touchy funds.” They are anything but simple.
Extra-touchy funds come in two basic forms: leveraged and inverse.
As of the end of February, according to Morningstar, 316 leveraged or inverse ETFs held a total of $115.6 billion in assets…
Leveraged funds use total-return swaps or other derivatives to amplify the daily returns of an index, a basket of securities or even a single stock. Leveraged ETFs can aim to deliver twice or even triple the daily return of the underlying asset, turning a 1% market rise into a 2% or 3% gain; they also magnify losses the same way.
Inverse funds seek the opposite of an asset’s daily return. Depending on how they’re structured, they can turn a 1% daily loss into a 1%, 2% or 3% gain; conversely, they can turn a 1% market gain into a loss of 1% or more…
“If you get a whipsaw market, you could find a lot of your profits eaten away or your losses amplified because of the pattern of returns,” says Elisabeth Kashner, director of ETF research and analytics at FactSet. “You have to get the overall direction right, and you have to get the path of travel right.”
Good luck with getting both those things right. And, if you turn out to be wrong, leveraged funds will magnify your mistake. [end quote]
Wendy