In August of 2018 I purchased a TNote thinking it was a wise move. Now I am questioning why I did it.
The settlement date was 8102018, coupon rate 1.625%, maturity date 07/31/2020, yield to maturity, 2.65%. I paid $98.042 per bond for a principal amount of $98,042 plus interest of $44.16 for a total settlement amount of $98,086.16.
Today I received my first SA interest payment of $812.50. After doing some simple calculations, I think I would have been ahead by buying a one year CD. Guess maybe I was looking at the yield to maturity of 2.65% when I purchased it.
Maybe someone can enlighten me as to how the interest works on a TNote. Even by reinvesting the interest I don't think I could do as well as a CD.
Thanks.
Treasury note question?

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Re: Treasury note question?
Interest earned on Treasury securities are tax exempt at the state/local level. How do you figure you would come out ahead with a fully taxable CD with a 1 year maturity? In August what was the yield to maturity on a 1 year CD? Was it higher than 2.65%? How much higher on an aftertax basis?Oilcans wrote: ↑Thu Jan 31, 2019 11:39 am In August of 2018 I purchased a TNote thinking it was a wise move. Now I am questioning why I did it.
The settlement date was 8102018, coupon rate 1.625%, maturity date 07/31/2020, yield to maturity, 2.65%. I paid $98.042 per bond for a principal amount of $98,042 plus interest of $44.16 for a total settlement amount of $98,086.16.
Today I received my first SA interest payment of $812.50. After doing some simple calculations, I think I would have been ahead by buying a one year CD. Guess maybe I was looking at the yield to maturity of 2.65% when I purchased it.
Maybe someone can enlighten me as to how the interest works on a TNote. Even by reinvesting the interest I don't think I could do as well as a CD.
Thanks.
"One should invest based on their need, ability and willingness to take risk  Larry Swedroe" Asking Portfolio Questions
Re: Treasury note question?
I don't know exactly what the rate on a CD would have been in August but here is what I'm looking at. I will receive two SA interest payments of $812.50 which total $1,625 per year. Divide this by my investment of $98,086.16 = 1.65% interest. Even after taking into consideration state taxexemption on the bond I think the CD would do better. But more than that I'm wondering how you arrive at the 2.65% which is the YTM? After reinvesting the interest it wouldn't work out to 2.65%.
This is probably an easy question but It's just not clear to me how to arrive at the 2.65%?
Thanks for your response Grt2bOutdoors.
This is probably an easy question but It's just not clear to me how to arrive at the 2.65%?
Thanks for your response Grt2bOutdoors.
Re: Treasury note question?
You are leaving out that when the bond matures you will get back $100,000. So the discount element of nearly $2,000 needs to be amortized into the yield as well. At a very high level, juice the annual return by $1,000 and redo the math. You'll get much closer to the 2.65% annualizedOilcans wrote: ↑Thu Jan 31, 2019 1:34 pm I don't know exactly what the rate on a CD would have been in August but here is what I'm looking at. I will receive two SA interest payments of $812.50 which total $1,625 per year. Divide this by my investment of $98,086.16 = 1.65% interest. Even after taking into consideration state taxexemption on the bond I think the CD would do better. But more than that I'm wondering how you arrive at the 2.65% which is the YTM? After reinvesting the interest it wouldn't work out to 2.65%.
This is probably an easy question but It's just not clear to me how to arrive at the 2.65%?
Thanks for your response Grt2bOutdoors.
Keep in mind the state tax savings too.
Real Knowledge Comes Only From Experience
Re: Treasury note question?
Wow. How could I have overlooked the $100,000 at maturity? Now it makes sense why I purchased it in the first place.
Thanks Mike G62 for pointing out the obvious!
Thanks Mike G62 for pointing out the obvious!
Re: Treasury note question?
You bought a bond with a "1.65% coupon". That means that you should expect to receive 1.65% (of $100000) every year, which seems to be in agreement with what you are getting.