Will You Lose Your Treasuries if the U.S. Defaults on Its Debt? Suze Orman Has an Answer (2024)

FAQs

Will You Lose Your Treasuries if the U.S. Defaults on Its Debt? Suze Orman Has an Answer? ›

Suze Orman said, "The short answer is there is no place to hide. If the U.S. government defaults, it would be cataclysmic. Which is why I have a high level of confidence… it just won't happen."

Treasury Bills, or T-bills, represent short-term debt obligations by the Treasury. Because the U.S. government backs them, they are considered extremely low-risk, although they also have relatively low returns.

“Treasuries are used to fund the national debt. And as I just said, they are considered the safest of all bonds because they are backed by the full faith and credit of the United States government,” Orman said in an October 2023 episode of her Orman's Women & Money podcast.

The No. 1 advantage that T-bills offer relative to other investments is the fact that there's virtually zero risk that you'll lose your initial investment. The government backs these securities so there's much less need to worry that you could lose money in the deal compared to other investments.

U.S. Treasury bonds are fixed-income securities. They're considered low-risk investments and are generally risk-free when held to maturity. That's because Treasury bonds are issued with the full faith and credit of the federal government.

Counterparty risk is the risk that a counterparty to a contract will not perform their part of the contract, such as repay a deposit of cash, settle an invoice or supply goods when due. This is called 'default risk'. It also refers to how much of the contract is performed.

These spreads reflect how much extra yield investors demand to hold corporate bonds over Treasury notes and bonds, which are considered the safest financial instruments because there is a near-zero chance of default by the U.S. government.

But while they are lauded for their security and reliability, potential drawbacks such as interest rate risk, low returns and inflation risk must be carefully considered. If you're interested in investing in Treasury bonds or have other questions about your portfolio, consider speaking with a financial advisor.

T-bills are known to be low-risk short-term investments when held to maturity since the U.S. government guarantees them. Investors owe federal taxes on any income earned but no state or local tax.

Inflation. This is the rate at which the price of goods and services in the economy rises and is perhaps the greatest risk to T-bill investors. Rising inflation erodes the value of interest payments. Inflation can exceed the investment return and eat into the principal's value.

Are Treasuries safer than CDs? ›

CDs and Treasuries Offer a High Degree of Safety

Both CDs and Treasuries are considered extremely safe investments. Treasuries are backed directly by the federal government, while CDs are covered by FDIC insurance – which is also backed by the federal government.

A Treasury bill, or T-bill, is a short-term debt obligation backed by the U.S. Treasury Department. It's one of the safest places you can save your cash, as it's backed by the full faith and credit of the government. T-bills are auctioned off at a discount and then redeemed at maturity for the full amount.

All these securities are backed by the full faith and credit of the United States government.

Treasury bonds, notes, and bills have no default risk since the U.S. government guarantees them. Investors will receive the bond's face value if they hold it to maturity. However, if sold before maturity, your gain or loss depends on the difference between the initial price and what you sold the Treasury for.

Both CDs and Treasuries are considered extremely safe investments. Treasuries are backed directly by the federal government, while CDs are covered by FDIC insurance – which is also backed by the federal government. In fact, no depositor has lost a penny of FDIC-insured funds since the FDIC was founded in 1933.

If held to maturity, T-bills are considered virtually risk-free.

They are considered risk-free, as the government can always print the money to pay back the debt. And given that they have only a short time to maturity, they have very little sensitivity to interest rate moves. If interest rates rise, the bonds don't fall much in value.