# Bond short term

What is a short term bond?

A bond with a short term is a bond that has a life time of ca. 1 to 3 years. Interest gets paid according to the promised yield during this time and then the full amount gets paid back. Bonds with a short term maturity usually have a lower yield then those with longer life time.

Examples of **short term bonds**:

USA: **Treasury Bills** which have a life time that ranges from a couple of days to 1 year. These are with a discount to their full value, and at the of the life time the full amount gets paid back. So there are no real interest payments

Germany: '**Finanzierungschätze**' have a life time of one to two years and are sold at a discount like the treasury bills.

UK: '**Gilts**' are bonds, those with a life time of up to 3 years are called, ultra short those with up to 7 years are called short.

France: **BTF** (Bons du Trésor à taux fixe) have a maturity of up to one year and are sold as discount like treasury bills.

One have to keep in mind that these are short term bonds, but there are also bonds with a short term left.

The difference is that short term bonds are emitted with a short duration, and thus a smaller interest rate by the states. Of course one can sell bonds before they end, so one may buy a bond short term left, which was originally a long term bond. The interest rate of this long term bond will be higher on the paper, but the price to buy one would be higher than that of a same duration short term bond. So in the end the yield on these will be on par.

**Example calculation:**

We take a freshly emitted 3 year short term bond with 2% interest rate. The buy price would be 100%, and at the end of the 3 years one would have 106% of money (the original 100% and 3 times 2% interest rate payments).

If we take a 10 year medium term bond, but with 7 years already done, it is a bond with short term of 3 years now. The interest rate would be higher, lets say 4%. If you want to buy this one, you would get only 98% for your money. That is, because the annual interest payments of 4% will sum it up to 106% at the end again.