Howdy, Stranger!

It looks like you're new here. If you want to get involved, click one of these buttons!

In this Discussion

Here's a statement of the obvious: The opinions expressed here are those of the participants, not those of the Mutual Fund Observer. We cannot vouch for the accuracy or appropriateness of any of it, though we do encourage civility and good humor.

    Support MFO

  • Donate through PayPal

Need help on Bond Purchase

I've not purchased any Treasury instruments through Schwab, and today I was looking at this:
US Treasury TIP 0.125% 01/15/2023

Detailed Info
Maturity: January 15, 2023 (4 months and 14 days from today)
Quoted Price: $98.630
Yield to Maturity YTM: 4.028%
Coupon Rate 0.125%
Coupon Frequency Semi-annually

Order Summary
Buy $100,000 CUSIP 912828UH1 @ 98.630 Limit, Fill or Kill
Settlement Date: 09/06/2022

Market Price: $98,630.00
Estimated Markup: $0.00
Principal Amount: $98,630.00
Accrued Interest: $23.11
Estimated Total Cost: $126,634.44
I don't understand how or why the Estimated Total Cost is $126,634.44. I'm sure that some of you who are eperienced in this sort of thing will be able to help on this.

Thanks- OJ

Comments

  • This TIPS was issued on 1/31/2013. It has accumulated annual inflation-adjustments since then. TIPS pay all inflation-adjustments at maturity only.

    Contact: Office of Financing 202-504-3550
    DESCRIPTION: A-2023
    CUSIP NUMBER: 912828UH1
    DATED DATE: January 15, 2013
    ORIGINAL ISSUE DATE: January 31, 2013
    ADDITIONAL ISSUE DATE: March 28, 2013
    May 31, 2013
    MATURITY DATE: January 15, 2023
    https://www.treasurydirect.gov/instit/annceresult/tipscpi/2014/tipscpi_912828uh1_092014.htm
  • edited September 2022
    @yogibearbull-

    Thanks for your response. Can you possibly advise on how to calculate actual return on maturity date of January 15, 2023? Is the 4.028% the actual return that would be received? If so, would that translate into a total received amount of approximately $131,734 ?

    As per: $126,634.44 • .04028 =~ $5100, 126,634 + 5100 = 131734

    Or is that 4.028% the annualized yield, in which case the return would be much smaller.
  • Well, that "estimate" is just extrapolating the current CPI rate to 1/15/23. If you believe the Fed, inflation should be coming down, so the actual inflation-adjustment may be a bit less.
  • edited September 2022
    @yogibearbull- I apologize for my ignorance in this area, but I'm still unclear on what the approximate actual return would be. Do you mean that it would be approximately $5100, subject to the actual inflation-adjustment?

    Thanks again, sir.
  • @msf- I wonder if you could help on this?
    Thanks-OJ
  • Yogi explained things very well. It looks like the only thing you're missing is the definition of YTM (yield to maturity). That's an annualized yield.

    So for a bond maturing in 135 days, a 4.08% annual yield translates into approximately 4.08 x 135/365 ≈ 1.51%. (One could do a more precise calculation, but this is close enough, especially since as Yogi said, the future inflation adjustment is just an estimate itself.)

    1.51% x $126,634.44 ≈ $1,911.
    $1,911 + $126,634.44 ≈ $128,545 proceeds.
  • edited September 2022
    @msf-

    "is that 4.028% the annualized yield, in which case the return would be much smaller"

    That was the question that I didn't have the answer to: 4.08 x 135/365 ≈ 1.51%. I had a hunch that $5100 was way too much for such a short period.

    The question had well over a hundred views, but no one other than you actually answered my question, so evidently I'm not the only one unclear on the concept. I guess Yogi just wrote me off as an idiot.

    Thank you very much.
    OJ
  • edited September 2022
    Hi sir you get around ~ 207 dollars return daily until it mature on your investment ( if calculating nearly corrected) . Enough for little gas coverage.

    Not bad and almost guaranteed.

    Reversed situation what we have owe 15k margin several wks ago 8.2% interest rates annual... Lucky stock bounces and sold it off. Margin rates likely higher 3rd wk of September after feds smack downs meetings.
  • Well, $207 per day would be great, but since we're talking about $1911 return over 135 days, unfortunately that's only about $14 per day, right?
  • edited September 2022
    Right sir sorry thought you collect over 5k lol

    Wonder why they charge > 5k extra for inflation issues...

    Sometimes maybe better to get corp bonds least they give you ytm and final costs/ expected returns info /extra fees - no gimmicks.... Just need keep track (worries) that corp bonds do not file title 7 or 11 before maturity year.

    Once things more stabilize if find more good corp bonds/start buy more will pm you.

    I may call schwab or vanguard bonds desks they usually give lots info Tues or weds if have time
Sign In or Register to comment.