Question about bond rates

Submitted by rwaterbender t3_11ei2kr in personalfinance

I'm looking at buying a tbill, never done this before. For this week's auction, the 30day note is paying a yield of 4.382%, compared to 4.692% for 60 and 4.801% for 120 day. My understanding is that the yield isn't annualized, but I'm confused about these rates. If I invest 10k at 4.382%, then reinvest everything after 30 days, the effective yield is like 9%, right? That seems way too high, so is it actually an annualized yield that is being reported, and does that include compounding? How do I find out what I would actually make from investing 10k in a 30day note after the 30 days are up?

0

Comments

You must log in or register to comment.

nkyguy1988 t1_jae72ko wrote

Unless it's stated otherwise, yields and rates are annualized.

2

MGK_1223 t1_jae7net wrote

These are annualized. To find what you'd actually make, you can take the par value ($100), subtract the price you're paying for the T-Bill, and divide by the price you're paying. That'll get you the yield for the period between you buying the bill and the maturity date (30 days for yours).

2

MGK_1223 t1_jae8x06 wrote

Replying to rwaterbender (#2,122,491)

Are you buying on Treasury Direct or on a brokerage? If TD and you have the discount rate, you can use the following formula with $100 as face value and 30 days as time: Price = Face value (1 – (discount rate x time)/360).

If through a brokerage, the price should be directly listed.

1

drewc99 t1_jaedowe wrote

The yields are absolutely annualized. Not sure why you would think otherwise. I've never heard of a bond yield of any duration listed at anything other than a 12 month rate.

To find out what you would get for a 30 day, type in the yield of 4.382 and divide by 12. You get a 0.365 return. So for a $1000 purchase, you get about $1003.65 after it matures in 1 month.

2

Khyron_2500 t1_jaefz1o wrote

Replying to rwaterbender (#2,124,062)

The auction hasn’t happened yet. T-Bills have the rate set at auction, so it’s TBD.

They match the rates based on how much funds they need to raise, and what institutional investors offer. Everyone else gets the same rate based on that.

Won’t likely vary much from other auctions, marginal increase or decrease.

1

Admirable_Nothing t1_jaeghxy wrote

Annualized yields are what you are seeing. Why buy at Auction? Are you buying from Treasury Direct? Buying treasuries at the market is the easy way.

2