Treasury bond yield
I am trying to learn about valuation and yields for treasury bonds. For the Treasury Bond maturing on 11/15/2018, initially sold in 1988 with a 9% coupon, it states that the yield to maturity is 1.66%. Now a secondary sale with an ask price of 101.856%. Last coupon was paid 5/15/2018.
Shouldn't the yield if you bought it now be (-.56)/18.56 = 0.0260 as there will be the final coupon payment and face value paid at maturity? Is the quoted yield to maturity based on buying it when initially sold in 1988 and the current price?
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When you buy a coupon bond, you pay the accrued interest in addition to the market-set price. (And correspondingly when you sell you receive it.) I assume this quote would execute Aug 13 and I make that 90 days from May 15 and 94 days to Nov 15 -- although I may be off slightly since I can never remember which way the boundary days go, or if they use the settlement date.
Thus you pay a premium of .56 and interest of (I think) .01, and at maturity get interest of , for a net gain of .43 over 94 days, which annualizes (straight-line) to .97, on 18.56 principal which gives yield of 1.666% which I think is 'close enough for government bonds' :-)
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