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124 votes
Accepted

Bought agency bond (FANNIE MAE 0% 04/08/2027), now what?

Neither. What you appear to have purchased is a zero coupon bond. In under 10 1/2 years, your $10,677 will grow to $15,000. This is a compound 3.3% per year. To be clear, the return comes from the ...
JTP - Apologise to Monica's user avatar
67 votes

Can an American birth certificate be redeemed for money?

Why is an American birth certificate on bond paper? Because it is an important document which needs to survive for a whole human lifetime. So it gets printed on paper which is thicker and of a ...
Philipp's user avatar
  • 24k
67 votes

Are treasury bonds more liquid than USD?

Liquidity is about how easily something can be converted to cash not how much of it is circulating. So dollars (or other plausible currencies) are by definition the most liquid possible asset. There ...
Justin Cave's user avatar
  • 27.8k
41 votes

Bought agency bond (FANNIE MAE 0% 04/08/2027), now what?

Since it sounds like you are just starting out in bonds, let me first tell you a little about how bonds work before moving on to answering your actual question. Whereas stocks represent a portion of ...
user's user avatar
  • 4,609
38 votes

Can an American birth certificate be redeemed for money?

You are referring to a specific conspiracy theory called the "redemption movement" involving the United States government, bankruptcy, and Jewish bankers. Of course, there is no truth to this ...
Ben Miller's user avatar
  • 116k
37 votes
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Is my back-of-the-envelope calculation about taking out a loan to invest into the markets flawed?

Any scheme of borrowing money to "invest" is in fact a gamble and should be avoided. Stick to your own money for investments. Nobody can predict the market and neither can you. 4% interest ...
Manziel's user avatar
  • 7,442
36 votes

How Is There A Yield Curve For Treasuries?

The basic detail you're missing is that you can't redeem the bond for it's face/par value until maturity. If you buy the 30 year bond at 2.5% now, and in one year's time the rate for a new 29 year ...
GS - Apologise to Monica's user avatar
32 votes
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How Is There A Yield Curve For Treasuries?

There are some good answers already but I think it would help to walk through a concrete scenario under your implied hypothesis. "Why buy a 1-year Treasury Bill at 1.25%, when I can buy a 30-year ...
Grade 'Eh' Bacon's user avatar
27 votes
Accepted

What’s the difference between inflation and inflation tax?

It's mostly semantics. Per https://en.wikipedia.org/wiki/Talk%3AInflation_tax#:~:text=An%20inflation%20tax%20is%20the,that%20subtracts%20value%20from%20currency. An inflation tax is the economic ...
Hilmar's user avatar
  • 7,924
25 votes
Accepted

Why invest in long term government bonds when the yield curve is inverting?

Short-term bonds might pay more interest, but only for a short time. When they mature, overall interest rates available for reinvestment are likely to be lower in this scenario. (Long-term rates are ...
nanoman's user avatar
  • 30.2k
24 votes

Is my back-of-the-envelope calculation about taking out a loan to invest into the markets flawed?

Personal rule for borrowing money in order to 'invest' in any kind of generally available thing: Assume your investment will lose all of its value and you lose your job and need to live off your ...
Kaz's user avatar
  • 2,499
17 votes

Why invest in long term government bonds when the yield curve is inverting?

Bonds are interesting and you've come across most of what makes them so interesting. The interesting thing with bonds, is all the already outstanding notes of similar remaining duration and ...
quid's user avatar
  • 49k
17 votes

What’s the difference between inflation and inflation tax?

It IS going to the government. What causes inflation is when the government increase the money supply faster than the economy is growing. Imagine a simpler monetary system with no fractional reserve ...
Jay's user avatar
  • 22.8k
15 votes
Accepted

How do UK Gilts interest rates and repayments work?

A title such as "5% Treasury Gilt 2020" expresses the nominal yield. In other words, 5% is the yield you will receive if you are able to buy the Gilt at the nominal (issue) price of GBP100. Of ...
not-nick's user avatar
  • 6,420
15 votes

Do bonds become more valuable right before a coupon payment?

Well, sort of. The quoted price in the secondary market is for the bond itself, but when you buy the bond you pay that price plus accrued interest. So the closer you are to the payment date, the ...
Pete Becker's user avatar
  • 5,512
14 votes
Accepted

Do bonds become more valuable right before a coupon payment?

Unlike Stocks or ETFs where there is a hard cutoff of dividend ("Ex-Dividend"), the buyer of the Bonds has to pay "Accrued Interest" to the seller if the Bonds were purchased between two payment dates....
base64's user avatar
  • 10.5k
13 votes

Is my back-of-the-envelope calculation about taking out a loan to invest into the markets flawed?

Is it risky? One of my colleague's answers reads "Any scheme of borrowing money to "invest" is in fact a gamble and should be avoided." That sentence is not really correct. ALL ...
Fattie's user avatar
  • 13.8k
12 votes

Bought agency bond (FANNIE MAE 0% 04/08/2027), now what?

I would like to point out one issue that has not been discussed in either JoeTaxpayer's answer or Michael Kjörling's answer. While a "zero-coupon" bond pays no interest each year/quarter/month (in ...
Dilip Sarwate's user avatar
11 votes
Accepted

What do single quotation marks in the price of futures mean?

Cash bonds and futures based on U.S. Treasury securities do not trade in decimal format but in full percentage points, plus fractions of a 1/32 of par value. (Source: Calculating U.S. Treasury ...
Flux's user avatar
  • 17.1k
11 votes

Can I convert interest income to capital gains by selling t-bills before maturity?

This here's the relevant guidance from IRS: https://www.irs.gov/instructions/i1040sb Basically no, the accrued portion of unpaid interest is still considered regular interest income; see further here [...
Grade 'Eh' Bacon's user avatar
10 votes

Why would one buy a bond with negative rate?

If we exclude speculation about future value, there's one rather simple reason to buy such a bond: If you're looking for a safe way to store a lot of money, this is in fact the cheapest option. Let'...
Thomas's user avatar
  • 247
9 votes

Is there a catch in investing in treasuries close to maturity date?

The question seems to be whether you can benefit from the (normally) higher yield of a longer-term bond but limit your risk by buying it close to maturity. The answer is you cannot, because you have ...
nanoman's user avatar
  • 30.2k
9 votes
Accepted

Why is there a sell off of US bonds if interest rates in the US are currently rising?

Bond prices and interest rates have an inverse relationship. When rates increase, bond price declines, and vice versa. Suppose you bought a bond with a rate of 4%. At a later date, interest rates ...
Bob Baerker's user avatar
  • 76.8k
9 votes

Why does the yield on SHY (US treasury bond ETF) seem so bad?

Both answer given so far by @0xFEE1DEAD and @Kevin Arlin are correct. I'll just add some concrete numbers. The average coupon (weighted by market value of the bonds) of SHY ETF is currently ~2.36%. ...
AKdemy's user avatar
  • 2,822
8 votes

How do UK Gilts interest rates and repayments work?

The name of the Gilt states the redemption date, but not the original issue date. A gilt with 8.75% yield and close to its redemption date may have been issued at a time when interest rates were ...
alephzero's user avatar
  • 4,473
8 votes

Why does the yield on SHY (US treasury bond ETF) seem so bad?

I'm pretty sure it's as simple as that it takes some time for holdings to turn over. The Fed only first hiked rates in March, and the March and May hikes were not the big 75 bp hikes we've seen since. ...
Kevin Arlin's user avatar
8 votes

How does a rollover work with Bonds?

It depends on how the system is set up. For example with treasury direct you can tell the system to automatically buy a new bond when the current one matures. What happens when you want to do this for ...
mhoran_psprep's user avatar
7 votes

Do governments support their own bonds when their value goes down?

Companies do not support their stock. Once the security is out on the wild (market), its price fluctuates according to what investors think they are worth. Support is a whole different concept, ...
Mindwin Remember Monica's user avatar
7 votes

How Is There A Yield Curve For Treasuries?

You cannot count on a crisis (specifically a deflationary crisis) happening just when you want to liquidate. If you need to sell a long-term bond (before maturity) during unexpectedly strong economic ...
nanoman's user avatar
  • 30.2k
7 votes
Accepted

Is the US market really expecting less than 3% yearly inflation over the next 5 years?

The overall answer to your question is: yes, current market prices imply an expected inflation rate over the next 5 years of around 2.67%. Having said that, the market for TIPS is significantly less ...
Myggen--'s user avatar

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