Bonds as an alternative to savings accounts

[Kobie]

Hi,

Hopefully this isn't a stupid question, but I've been reading about bonds lately and one thing I can't see any discussion anywhere is this:

Rather than put money into something like the national solidarity bonds, does it make sense to use the cash to buy something like treasury bonds if you can find some with a better interest/coupon rate?

For example, the Dutch state treasury is about to issue 2 bonds, one of which is a 2 year bond with a 4% coupon:

[Sorry, it's not letting me submit a link, but you can Google 'Dutch_State_reopens_two_bonds' to find it]

Presuming you had access to these during the primary offering, or if they were not much more expensive to buy afterwards, is there any drawback I'm not seeing?

 

[strmin]

If 10 year treasuries yield 2.02%, 2 year bond should yield more like 0.4%. So you won't get those bonds for anywhere near par price.

 

[Brendan Burgess]

[broken link removed]

On the issue date at 10 a.m. (CET), the DSTA will announce the prices at which PDs may buy the issues. The issuance will take the form of a tap auction, during which the DSTA may revise the prices at any time.

So as str says, you are not getting 4% on €100. The price might be €107 to buy a €100 bond. So for your investment of €107, you will get back €4, €4, and €100.

You will pay marginal tax on the €8 dividend and you will make a capital loss of €7.