Disadvantages of T-Bills
1. Lower Returns: While T-Bills offer safety, their returns are generally lower compared to riskier investments. Investors trade off higher returns for the security of government-backed debt.
2. Interest Rate Risk: If interest rates rise after purchasing T-Bills, investors might miss out on potentially higher returns available in the market. T-Bills lock in a specific rate at the time of purchase, and changes in market rates can impact their relative attractiveness.
3. Inflation Risk: T-Bills might not keep pace with inflation. The fixed return at maturity may not fully compensate for the erosion of purchasing power over time due to inflation.
4. Market Fluctuations: T-Bill prices can be influenced by market conditions, impacting their value if sold before maturity. Changes is supply and demand dynamics, economic indicators, and central bank policies can affect market prices.