If private credit yields more, why hold Treasuries at all? Because the highest-yielding asset is not automatically the right asset for every job in a portfolio. Treasuries earn their place through liquidity, high credit quality and flexibility: qualities that matter most exactly when income-focused assets are under pressure. Portfolio construction is about function and risk, not maximizing the yield of every single position.
Key takeaways
- ▹Treasuries provide liquidity, high credit quality and flexibility that higher-yielding assets often cannot.
- ▹Private credit and Treasuries do different jobs; comparing them on yield alone misses the point.
- ▹Yield is one consideration among several; liquidity and risk are others that matter just as much.
What Treasuries contribute to a portfolio
U.S. Treasuries are debt issued by the federal government. Their appeal is not yield; it is quality and liquidity. They are backed by the U.S. government's credit and are among the most liquid securities in the world, meaning they can typically be sold quickly and in size. As of the stated rate date, the 10-year Treasury yielded roughly 4.65 to 4.68% and the 2-year around 4.17%; respectable, but generally below what private credit targets.
That lower yield buys something valuable: a holding the portfolio can rely on and convert to cash without drama. In a portfolio, that reliability is a resource in its own right.
Why private credit and Treasuries perform different jobs
Private credit's job is income; it is compensated for accepting credit risk and illiquidity. A Treasury's job is liquidity and stability; it is compensated far less because it takes far less credit risk and can be sold readily. Asking why you would hold the lower-yielding asset is like asking why a fire truck is not also a race car. They are built for different tasks, and a portfolio needs both kinds of capability.
Liquidity as an investment resource, not idle capital
It is tempting to see liquid, lower-yielding holdings as lazy money. In practice, liquidity is an active resource. It lets a portfolio meet obligations and redemptions on schedule, and it lets a manager act on opportunities, buying assets when others are forced to sell, without liquidating good long-term holdings at the wrong moment. Held for that purpose, Treasuries are working even when they are not the top earner.
What happens when markets or redemption needs change?
Stress reveals why liquidity matters. When markets fall or many investors want cash at once, illiquid assets are hardest to sell and worst-priced. A portfolio with a liquid reserve can meet those needs from its Treasuries and cash rather than dumping private holdings into a weak market. A portfolio without that reserve can be forced into exactly the sales it should avoid. The lower-yielding sleeve is, in effect, insurance you are glad to hold when conditions turn.
Treasuries inside CDB
Within Compound Diversified Bond, Treasuries and cash form the liquidity sleeve. The purpose is disciplined portfolio construction: holding high-quality liquid assets so the portfolio can manage risk and obligations, rather than chasing the highest headline yield across every position. One caution: CDB's overall liquidity is a portfolio characteristic and should not be equated with the liquidity of Treasuries themselves.
Risks still exist
Treasuries are high credit quality but not risk-free in every sense. They carry interest-rate risk: when rates rise, the market price of existing Treasuries falls. They carry reinvestment risk, since maturing proceeds may be reinvested at lower rates. And over long horizons, their real return can be eroded by inflation. Calling any asset risk-free without that context is misleading.
What this means for investors
The instinct to own the highest-yielding asset everywhere is understandable and usually a mistake. A portfolio is a system of roles, and some of the most important roles (liquidity, stability, the ability to act under stress) are filled by assets that do not top the yield table. Treasuries are the clearest example: their value shows up precisely when higher-yielding, less-liquid assets are hardest to sell. The disciplined principle is to optimize the portfolio as a whole, not each individual line item. A manager who holds sensible Treasuries and cash is not leaving money on the table; they are buying flexibility and resilience that pure yield-chasing cannot provide.
Risks and limitations
Treasuries carry interest-rate, reinvestment and inflation risk and are not risk-free in every sense. Yields cited are as of the stated date and change continuously. CDB portfolio liquidity is not equivalent to Treasury liquidity. Any CDB allocation shown must be dated and verified.
