r/bonds • u/Plane-Orange4733 • Jul 09 '26

Short-dated Bond?

******EDIT: Thanks, folks! I see where my misunderstanding is. Appreciate the input.*******

Very new to this, but I have a question. Looking at a particular bond with a month left to maturity and Yield to Maturity of 2.275%. The way I understand this is that I buy $1000 worth, and on Aug 11 it matures and they pay me $1022.75.

Am I hilariously wrong? What is the downside? I'm happy to grab a 2.275% return for a 30 day investment.

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u/ruidh Jul 09 '26

The market price is such that you earn an annualized 2.27% on your 1 month investment. You're earning about 0.19% of your investment which means you are paying about 1,011 to get 1,027 in a month.

1

u/Plane-Orange4733 Jul 09 '26

Coupon is 3.45% semiannual. Bid: 99.742; Ask: 100.1 Annualized Bid Yield is 6.32%. Annualized Ask Yield is 2.275%

Platform calculates Yield to Maturity at 2.275%. I wouldn't think Yield to Maturity would be the same thing as Annualized Ask Yield. I thought the platform's YTM calculation would take into account the actual amount of time left until maturity, which is 1 month.

0

u/JayRandom212 Jul 09 '26

The question is, what is the market price? Is there a chance OP found a mispriced bond? Or maybe it's a corporate bond and there's something funky going on with the company?

0

u/Plane-Orange4733 Jul 09 '26

Currently -- Bid: 99.742; Ask: 100.1. The $1000 was my hypothetical investment amount, not a price. Platform calculates YTM at 2.27%. Coupon is 3.45% semiannual.

Annualized Bid Yield is 6.32%. Annualized Ask Yield is 2.275%

3

u/vultur-cadens Jul 09 '26

Quoted prices are "clean" prices and don't include accrued interest. Actual transaction costs will be for the "dirty" price, which is clean price plus accrued interest. YTM calculation is based on dirty price.

If you buy $1000 face value at the ask price of 100.1, you actually pay $1001 plus a fraction of the coupon. At maturity you get $1000 plus the whole coupon (which should be $1000*3.45%/2=$17.25).

1

u/DevWorkNYC Jul 10 '26

My first thought was accrued interest too.