Buying Treasury Notes via IBKR

E

ET180

I have never traded a treasury note or any bond before. I have some extra cash that I don't plan on needing for at least the next several months and I want to beat the 1.83% rate that IB currently pays on idle cash. So I selected a treasury with maturity on Nov 15. IB order entry shows that it will pay 3.08% at midpoint.

upload_2022-9-14_12-48-53.png


However, on the order entry screen, I'm not calculating the same yield:

upload_2022-9-14_12-51-18.png


If I buy $100k worth of treasury notes for $99,769.85 including commissions (which seem rather high at least relative to what I'm used to seeing on options, stocks, and futures). I calculate a yield of only 1.346%.

If the notes pay back $100k and I purchase them for $99,769.85 including commissions, then I make a total of $228.71 from now until Nov 15. 228.71 / 100,000 is a yield of 0.002287 * 100% = 0.22871% per year, but it only took me 62 days to do that so:

0.22871% * (365 / 62) = 1.346%. What am I missing?
 
I would use TreasuryDirect to invest directly with the US Treasury. For example they are auctioning 2month bills tomorrow with an end date of 11/15/2022. The discount rate is currently 2.88 or 2.93 in yield terms. Bills are issued at a discount so your 100,000 investment has a cost of 99,552.00 and pays 100,000 at maturity. Zero fees or commission.

On a side note I bonds....a us savings bond type of tips bond is yielding north of 9%. Longer maturity and max investment 10,000 bummer.
 
Repoguy said:
I would use TreasuryDirect to invest directly with the US Treasury. For example they are auctioning 2month bills tomorrow with an end date of 11/15/2022. The discount rate is currently 2.88 or 2.93 in yield terms. Bills are issued at a discount so your 100,000 investment has a cost of 99,552.00 and pays 100,000 at maturity. Zero fees or commission.

On a side note I bonds....a us savings bond type of tips bond is yielding north of 9%. Longer maturity and max investment 10,000 bummer.
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I want to hold the treasuries in my IBKR account and not in a separate account. If I pull the money out of the account, I lose the benefit of being able to use the treasuries as collateral for other activity. Basically, buying holding treasures in my IB account instead of cash only reduces my buying power by 1%. They treat it almost like cash.

I have heard of TIPs, but not iBonds. What maturity is paying 9%? Can you buy through IBKR?
 
Ok, that makes sense then.
FSU said:
Looks like this is the answer. Note is paying 1.625% plus the discount to par (as OP calculated as 1.346) totals 2.971 about what is quoted.
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When is the coupon paid? I assume that the bond pays out 100% at maturity. Meaning, if I was to place that order and buy the bond today, I pay the 99,769.85 when I buy the bond and then get nothing until maturity on Nov 15 which would be the $100k + extra 1.625% annual rate (or $276.027 adjusted for time held)? Do all treasuries work like that or just notes?
 
ET180 said:
I have never traded a treasury note or any bond before. I have some extra cash that I don't plan on needing for at least the next several months and I want to beat the 1.83% rate that IB currently pays on idle cash. So I selected a treasury with maturity on Nov 15. IB order entry shows that it will pay 3.08% at midpoint.

View attachment 295090

However, on the order entry screen, I'm not calculating the same yield:

View attachment 295091

If I buy $100k worth of treasury notes for $99,769.85 including commissions (which seem rather high at least relative to what I'm used to seeing on options, stocks, and futures). I calculate a yield of only 1.346%.

If the notes pay back $100k and I purchase them for $99,769.85 including commissions, then I make a total of $228.71 from now until Nov 15. 228.71 / 100,000 is a yield of 0.002287 * 100% = 0.22871% per year, but it only took me 62 days to do that so:

0.22871% * (365 / 62) = 1.346%. What am I missing?
More...


That´s a wide spread, probably better looking for Bills rather than Bond/Note for short maturity (that´s what I do at least with IB, usually have to buy on the ask but can´t remember such a wide spread, plus you don´t need to complicate calculations with the coupon
 
luisHK said:
That´s a wide spread, probably better looking for Bills rather than Bond/Note for short maturity (that´s what I do at least with IB, usually have to buy on the ask but can´t remember such a wide spread, plus you don´t need to complicate calculations with the coupon
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I would agree, an extremely wide spread. I just bought some Tbills on Fidelity today and the spread was very tight. The bid yield vs the ask yield was 3.47/3.52. These were zero coupons as well
 
luisHK said:
That´s a wide spread, probably better looking for Bills rather than Bond/Note for short maturity (that´s what I do at least with IB, usually have to buy on the ask but can´t remember such a wide spread, plus you don´t need to complicate calculations with the coupon
More...

You're right. I confused notes with bills.
 
Then you can't use the margin to trade. 8f you buy tbills at IB you get to use 99% of the capital invested. Big difference for some.

Repoguy said:
I would use TreasuryDirect to invest directly with the US Treasury. For example they are auctioning 2month bills tomorrow with an end date of 11/15/2022. The discount rate is currently 2.88 or 2.93 in yield terms. Bills are issued at a discount so your 100,000 investment has a cost of 99,552.00 and pays 100,000 at maturity. Zero fees or commission.

On a side note I bonds....a us savings bond type of tips bond is yielding north of 9%. Longer maturity and max investment 10,000 bummer.
More...
 
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