Question

1. Why would T-bonds be an attractive investment, post 2008, even though they had such miserably low rates?

Answer 1

After the subprime crisis of 2008, investors started to become more risk averse and became reluctant to invest in avenues which were carrying high risks like equity market, bonds and debts of companies with high repayment risk. Therefore, T-bill or treasury bill which are backed by the federal reserves seems to be the safe heaven for investors irrespective of the rate of return they provide on the principal. Due to surety of the principal repayment, the rate of return is very low on T-bills and investors with low risk appetite opt for this. However, 2008 financial crisis made people realize that even banks may not turn out safe for their funds and they may have a go on their money, therefore, they started to find safe heaven and T-bill along with various other government backed securities offers the same kind of opportunities to investors. It is more of human behavior than market mechanism. As it is often said, 'once bitten, twice shy'.