Holding to maturity gives a known result, assuming the issuer pays. Selling early replaces that with whatever the market will pay on that day. A rise in rates reduces the price. If the rise is large or comes soon after purchase, the sale can be below your cost.
Two forces work on the sale price
- Time helps: fewer days remain, so the bill is closer to face value.
- Rates may help or hurt: a higher rate at sale pushes the price down, and a lower rate pushes it up.
- Costs always hurt: the bid-ask spread and any fees reduce what you receive.
Try the example below. Increase the sale rate or shorten the time held, and see when the gain becomes a loss.
Try it: early sale gain or loss
- Purchase price per 100
- 97.977778
- Sale price per 100
- 97.677778
- Cost
- 9,797.78
- Sale proceeds
- 9,767.78
- Loss on early saleBefore spread and fees
- −30.00
- If held to maturityAssuming the issuer pays
- +202.22
Illustrative numbers you can change. Not a quote or a market rate.
Key points
- Only holding to maturity gives a known amount.
- A rate rise can cause a loss on an early sale.
- Matching maturities to cash needs reduces the chance of a forced sale.
General information only. It is not investment, legal or tax advice. Details vary by market and can change, so check the issuer’s current rules.