14 Risks of Holding U.S. Government Treasury Bonds

Interest-Rates / US Bonds
Apr 19, 2010 - 06:00 AM

By: Martin_D_Weiss

When AT&T, California, New York City or virtually any other borrower wants your money and offers its bonds for sale, it’s required to give you a prospectus that properly discloses all the relevant risks.

It has a legal obligation to tell you about any material weakness, hidden liabilities or contingencies that could diminish your chances of getting paid in full.

Every major borrower in America’s must submit to this discipline … except, unfortunately, Uncle Sam.

Uncle Sam publishes no prospectus … provides no risk disclosure … issues no warnings … and is virtually immune to related lawsuits by regulators or investors.

If you want to buy long-term U.S. Treasury bonds, you must do so almost exclusively based on pure faith.

But what if the U.S. government did have to publish a prospectus for its bond offerings?

What risks would it have to disclose? What skeletons would it reveal?

Jim Grant, editor of Grant’s Interest Rate Observer, provides the answers by publishing what a 30-year Treasury-bond prospectus might look like.

Here’s the litany of risks that Grant documents (in quotes), plus my interpretation of his points — along with my comments — below each …

Risk #1. “Improper payments by the federal government continue to increase despite the Improper Payments Information Act of 2002.â€