Question on treasury bill

[boroangel]

Hi all,
getting slightly confused by the numbers on my Charles Schwab account for the treasury bills I bought.

I put in 40K into a 3 month treasury bill:

US TREASURY BILL19 U S T BILL DUE 01/10/19


Price: $99.84678
Principal: $39,938.68

the way I understand it is that I paid $39,938.68 for this treasury bill and I will get back $40K when it matures, meaning I got 40K - $39,938.68 = $61.32 at the end of 3 months.

When I check out my account, it says for this T-bill, the market value is now $39,818.31 and there is a gain of +$42.79 on this T-bill.

So I am confused now when this T-bill matures how much exactly will I be getting back?

 

[boroangel]

Bumping up this question again...need some advice please!

 

[kingboonz]

Hi. You will be getting back 40,000 at maturity.

The reason why the price rose is because price trend to maturity price as time progresses. (Think of it as acurred interest)

 

[Tiger9119]

If the USD already in Singapore, I would rather put the USD in 3 months FD @ 2.10% pa.
Nett gain for USD40k is USD210 for 3 months.

 

[BBCWatcher]

If the USD already in Singapore, I would rather put the USD in 3 months FD @ 2.10% pa.
Nett gain for USD40k is USD210 for 3 months.

That's not what you'll actually end up with net of costs, there's zero deposit insurance, and the funds are not as liquid as U.S. Treasuries. (U.S. Treasuries represent the world's largest sovereign debt market, and the secondary market is quite large.)

I do not recommend landing/keeping foreign currencies in Singapore.

 

[Maeda_Toshiie]

Hi all,
getting slightly confused by the numbers on my Charles Schwab account for the treasury bills I bought.

I put in 40K into a 3 month treasury bill:

US TREASURY BILL19 U S T BILL DUE 01/10/19


Price: $99.84678
Principal: $39,938.68

the way I understand it is that I paid $39,938.68 for this treasury bill and I will get back $40K when it matures, meaning I got 40K - $39,938.68 = $61.32 at the end of 3 months.

When I check out my account, it says for this T-bill, the market value is now $39,818.31 and there is a gain of +$42.79 on this T-bill.

So I am confused now when this T-bill matures how much exactly will I be getting back?

The current market value of a bond depend on a few factors. The first and foremost is the prevailing interest rate for a bond of that tenure and credit rating. For central banks with an interest rate policy, eg. the Federal Reserve, changes in the interest rate (in this case the Federal funds rate which is also considered the risk free rate for US dollar denominated debts) will affect the bond price correspondingly. If the interest rate rises, the value of bonds will decrease, since newly bonds will be at the new (and higher) interest rate and thus older bonds (with the same amount of tenure left, that is) will drop in value until their interest rate calculated by their existing coupon on their market value has the same interest rate.

Note that as a bond approaches its maturity date, its market value will tend move towards is par/face value. This is especially true for bonds issued by sovereign states with good credit histories, since the market is expecting the bond will be redeemed on face value at the expected date.

If the quote bond price is the dirty price (as opposed to the clean), the price will also fluctuate due to the accrued cashflow between coupon payments.

Market supply and demand too affect the price of bonds. Sudden "flight to safety" by the market can result in jumps in bonds prices.

Of course, if the bond's credit rating drops, or if there are doubts over the ability of the lender to , the price will drastically change as well. These are especially true for corporate bonds and bonds issued by sovereign states with poor records. Naturally this doesn't apply to the US right now.

-------------------------------

If you aren't trading bonds, you can expect US Treasury issued bills/notes/bonds to be redeemed at face value at the expected date.

Of course, if you wish to consider the fecal-matter-hits-moving-surfaces scenario, all bets are off if Small-hands presses the wrong buttons*, but there are lots of people around him who won't want him to that. I won't really sweat that scenario.

 

[Tiger9119]

That's not what you'll actually end up with net of costs, there's zero deposit insurance, and the funds are not as liquid as U.S. Treasuries. (U.S. Treasuries represent the world's largest sovereign debt market, and the secondary market is quite large.)

I do not recommend landing/keeping foreign currencies in Singapore.

If the USD is already in a USD current account in a bank in Singapore, there is no cost/fee involved if transfer to a FD account within the same bank. Even if you want to place the FD with another bank, use local clearing USD cheque.

 

[BBCWatcher]

If the USD is already in a USD current account in a bank in Singapore, there is no cost/fee involved if transfer to a FD account within the same bank.

There's a cost when it comes time to spend those funds on real goods and services, and that (differential) cost ought to be properly reflected in your analysis. There's also some risk weighting that you must properly give to uninsured funds versus fully, high quality, government guaranteed funds. And there's a cost to the lower liquidity.

It's just not as simple at looking at the "headline" interest rate.