No. of Recommendations: 0
It is Foolish indeed to hold Treasury Notes and Bonds to maturity. And buy them direct from the Fed. I suppose, later in life, I wont have quite the liquidity requirement that I have now. 'Frinstance my old clunker may need replaced any day now, its not gonna wait for my 2yr T-Note to mature.

Of course I could sell the Note in the secondary market, but that is foolish when you take into account commisions and such.

If you have short-term liquidity requirements, you probably shouldn't be using a bond fund, for you may be selling at an inopportune time.

You might consider US Savings bonds. The yields are competitive and reset every 6 months, and you are always guaranteed return of your principal should you cash them early. Moreover, they are highly liquid: banks can turn them into cash the same day. Finally, the ability to defer taxes for up to 30 years is a really huge benefit for taxable accounts (which I assume is your case, with your liquidity requirements).
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