125
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 ...
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 ...
- 23.9k
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 ...
- 26.5k
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 ...
- 4,599
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 ...
- 115k
37
votes
Accepted
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 ...
- 7,422
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 ...
- 27.9k
32
votes
Accepted
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 ...
- 42k
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 ...
- 7,615
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 ...
- 29.4k
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 ...
- 2,489
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 ...
- 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 ...
- 22k
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 ...
- 6,400
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 ...
- 5,502
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....
- 10.2k
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 ...
- 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 ...
- 31.6k
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 ...
- 16.9k
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 [...
- 42k
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'...
- 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 ...
- 29.4k
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 ...
- 75.8k
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%. ...
- 2,461
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 ...
- 4,413
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. ...
- 124
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 ...
- 136k
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, ...
- 1,527
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 ...
- 29.4k
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 ...
- 96
Only top scored, non community-wiki answers of a minimum length are eligible