Safe havens that provide different kinds of shelter

If investors take no risk, they should not expect to receive a premium return. But what is risk-free for one investor may be risky for another:

• For a short-term investor, Treasury bills represent the zero risk investment that provides capital protection over the short term.
• For an individual or an insurance company wanting to secure an income, Treasury bonds give that security for the lifetime of the bond. Treasury bills that mature every three or six months are risky for this purpose as they are immediately vulnerable to cuts in interest rates which a Treasury bond, if held to maturity, is not. The risk from these bonds is that inflation may pick up. Figure 3.1 shows how the income yield on offer for ten years to buy-and-hold investors in ten-year Treasury bonds compares with the yield on offer for the next three months for holders of Treasury bills.