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Can someone explain to me how these bonds work?
Are they released to the public at a certain price (face value) and interest rate, and the face value is what traded on in the market place, resulting in a change in the yield?
Does the yield determine how much you will receive at each payment for 10 years assuming you hold onto the bond?
The latest quote is 2.53, does that mean I'd receive that percent of face value each payment period, for 10 years?
Here is a page on the US treasury notes
Regarding how to purchase:
You can bid for a note in either of two ways:
- With a noncompetitive bid, you agree to accept the yield determined at auction. With this bid, you are guaranteed to receive the note you want, and in the full amount you want.
- With a competitive bid, you specify the yield you are willing to accept. Your bid may be: 1) accepted in the full amount you want if your bid is less than the yield determined at auction, 2) accepted in less than the full amount you want if your bid is equal to the high yield, or 3) rejected if the yield you specify is higher than the yield set at auction.
To place a noncompetitive bid, you may use TreasuryDirect, a bank, or a broker.
To place a competitive bid, you must use a bank or broker.
Once you buy the note the price you can sell it for will move depending on what interest rates are doing during those 10 years.
The price and interest rate of a Note are determined at auction. The price may be greater than, less than, or equal to the Note's par amount. (See prices and interest rates in recent auctions.)
The price of a fixed rate security depends on its yield to maturity and the interest rate. If the yield to maturity (YTM) is greater than the interest rate, the price will be less than par value; if the YTM is equal to the interest rate, the price will be equal to par; if the YTM is less than the interest rate, the price will be greater than par.
@jon your 1st assumption was correct. If you invest in a 10yr treasury bond of face value of 100,000$ . You will recieve interest twice at 1/2 the coupon rate . So over the period of 10 years @ 2.56 it would earn you 1.78%x100000=178000+178000(6months payout @ 1.78%) or 2.56%x100000=256000(total annual payout)
Source:http://www.thesimpledollar.com/making-sense-of-treasury-securities-treasury-bills-notes-and-bonds/
