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Since when have treasury bonds gone above 6%?
Apparently this was a failed attempt at a joke.
https://www.crossingwallstreet.com/archives/2024/04/cws-market-review-april-2-2024.html
Oh, I get it now! 8%! How droll!
(What the fuck is he talking about?)
Three million is the joke, 8% is the hint that it’s a joke. It’s the same sort of satire that Lemmy frequently reposts. “I became wealthy with hard work, determination, and a small loan of a million dollars.”
How I became a Tech VP at age of 30
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Wake up at 5am
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Only take cold showers
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Have a dad that owns a tech firm
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Well, both of us are socialists (I can’t comment on the other person). We think about money in such a different way that any money joke about investment is going to lose it’s humor. I don’t understand it as a joke either, but I definitely understood the financial advice. He selected some large, relatively uncontroversial companies that will pay you part of the quarterly profits based on the number of stocks you own. Tbh I’d avoid the day trading and choose high dividend ETFs instead. $100k is still very out of reach for most people, but it’s a reasonable investing portfolio.
It’s like those educational explanations of compound interest I remember from childhood that tried to encourage you to save money. They would always start with 1 dollar and a savings account with 20% interest, and end up retiring as a millionaire.
I remember getting really frustrated as a young man when I decided to take that advice, and wasted hours looking for these mythical 18% return accounts.
Yep those 10 percent accounts got me laughed out of the bank. One banker did helpfully ask how much I made though. Actually that was what set off the laughing. At any rate that was the year I learned rice stretches any food. No relation I’m sure.
In college I was frequently hungry without any food. One of my friends said “buy a 20 pound bag of rice and you’ll never go hungry again”, and he was right. Idk how I forgot that, considering I was raised on beans, rice, and government cheese. I just needed someone to connect the dots for me.
A treasury bond delivering 8% is probably one from a dangerous country to invest in.
US I bonds were at like 9 back in 2022.
Well, it fits.
I bonds have variable rates. If you buy an i bond at a certain rate it only keeps that rate for 6 months.
and 9% back in 2022 was about in line with inflation anyway.
Which is literally the point of I bonds. They match inflation exactly. That’s why the rate is variable.
(I’m pretty sure you knew this, just explaining for other readers)
Sweet, I just need a small, interest-free loan of 3 million dollars and I’ll pay you back $10,000 a month for 300 months. Don’t believe me? Here, check out my credit report.
Credit report: trust me bro
I didn’t buy Twitter and saved over $40B now I don’t have to work my entire life
The real LPT is in the comments once again
This is a person who doesn’t understand how the fixed income market works.
He’s assuming he’s buying $3m notional of a bond yielding 8% and paying for the face value $3m (i.e., he’s buying it at par). This is not how it works, even if you’re somehow subscribing at issuance as a retail investor.
You’re going to be buying the bond at bid, which is going to be higher than par when prevailing future yield expectations are lower than the coupon rate of the bond.
TL,DR: You can’t buy $3m of a high-yielding sovereign bond for $3m today. You’ll get less of the bond for the money if it’s yielding more than the market is expecting base rates to be in the future.
So let’s say I have the $3m and buy the bond. Will I have a monthly return and for how much?
It depends! Let’s say a 8% Treasury exists and you want to buy it today. To establish its price, you need to know:
- What is today’s yield curve? (i.e., what is the market’s expectation for interest rates at different points in the future?)
- When does the bond mature? (i.e., how long until the face value of the bond is paid out back to the bond holder?)
- How frequently does the bond pay interest payments (coupons)?
I’ve put together a quick calc based on Federal Reserve yield curve data as at 27 Sept, assuming an 8% Treasury maturing in exactly 20 years, with semi-annual coupons (as most government debt is semi-annual). Google sheet calc
If you bought $3m worth of this fictional bond today, you would own $1.95m notional of the bond. You paid $3m for $1.95m of US gov’t debt effectively because the bond was issued in the past at a higher yield that what the market is expecting the government to issue bonds at in the future.
Every 6 months, you would receive a coupon of c. $78,000, or effectively $13,000 per month. This is interest the gov’t pays you for having lent it money (or rather having bought the debt from whoever lent it money.) These payments are guaranteed as long as the US gov’t remains solvent.
Finally, in 20 years’ time, you would also receive the principal payment of $1.95m. This is the government paying back the amount it originally borrowed. Note that it will likely be worth significantly less in real terms in 20 years!
Importantly, you don’t have to hold the bond to maturity and wait 20 years to get your $1.95m. Just like you bought the bond at a bid price of $3m today because rates are lower than the coupon yield of the bond, if the yield curve decreases further, the price of your bond in the open market will increase. E.g., if yields went down 1% across the curve, your $3m investment would now be worth $3.4m and you could sell it for a tidy $400k profit!
Thank you. That was a really good explanation. I don’t know much about the way this shit works, and I probably would have tried what the original post suggests if I had that kind of money.
Hey if you don’t have 3million stuck between your couch then that’s your problem.
I would simply inherit my father’s couch.
The opposite end of “The most expensive thing is to be poor”.
It’s a common image for so many millionaires to have a Scrooge McDuck vault, but that’s the thing; so often their millions are out earning them further millions.
yeah i’ll get right on that
So I know this is satire but I wouldn’t buy a us bond. I would much rather buy one from a stable country.
