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Need help on Bond Purchase

Old_JoeOld_Joe
in Other Investing
I've not purchased any Treasury instruments through Schwab, and today I was looking at this:
US Treasury TIP 0.125% 01/15/2023

Detailed Info
Maturity: January 15, 2023 (4 months and 14 days from today)
Quoted Price: $98.630
Yield to Maturity YTM: 4.028%
Coupon Rate 0.125%
Coupon Frequency Semi-annually

Order Summary
Buy $100,000 CUSIP 912828UH1 @ 98.630 Limit, Fill or Kill
Settlement Date: 09/06/2022

Market Price: $98,630.00
Estimated Markup: $0.00
Principal Amount: $98,630.00
Accrued Interest: $23.11
Estimated Total Cost: $126,634.44
I don't understand how or why the Estimated Total Cost is $126,634.44. I'm sure that some of you who are eperienced in this sort of thing will be able to help on this.

Thanks- OJ

Comments

  • yogibearbullyogibearbull
    This TIPS was issued on 1/31/2013. It has accumulated annual inflation-adjustments since then. TIPS pay all inflation-adjustments at maturity only.

    Contact: Office of Financing 202-504-3550
    DESCRIPTION: A-2023
    CUSIP NUMBER: 912828UH1
    DATED DATE: January 15, 2013
    ORIGINAL ISSUE DATE: January 31, 2013
    ADDITIONAL ISSUE DATE: March 28, 2013
    May 31, 2013
    MATURITY DATE: January 15, 2023
    https://www.treasurydirect.gov/instit/annceresult/tipscpi/2014/tipscpi_912828uh1_092014.htm
  • Old_JoeOld_Joe
    edited September 2022
    @yogibearbull-

    Thanks for your response. Can you possibly advise on how to calculate actual return on maturity date of January 15, 2023? Is the 4.028% the actual return that would be received? If so, would that translate into a total received amount of approximately $131,734 ?

    As per: $126,634.44 • .04028 =~ $5100, 126,634 + 5100 = 131734

    Or is that 4.028% the annualized yield, in which case the return would be much smaller.
  • yogibearbullyogibearbull
    Well, that "estimate" is just extrapolating the current CPI rate to 1/15/23. If you believe the Fed, inflation should be coming down, so the actual inflation-adjustment may be a bit less.
  • Old_JoeOld_Joe
    edited September 2022
    @yogibearbull- I apologize for my ignorance in this area, but I'm still unclear on what the approximate actual return would be. Do you mean that it would be approximately $5100, subject to the actual inflation-adjustment?

    Thanks again, sir.
  • Old_JoeOld_Joe
    @msf- I wonder if you could help on this?
    Thanks-OJ
  • msf
    Yogi explained things very well. It looks like the only thing you're missing is the definition of YTM (yield to maturity). That's an annualized yield.

    So for a bond maturing in 135 days, a 4.08% annual yield translates into approximately 4.08 x 135/365 ≈ 1.51%. (One could do a more precise calculation, but this is close enough, especially since as Yogi said, the future inflation adjustment is just an estimate itself.)

    1.51% x $126,634.44 ≈ $1,911.
    $1,911 + $126,634.44 ≈ $128,545 proceeds.
  • Old_JoeOld_Joe
    edited September 2022
    @msf-

    "is that 4.028% the annualized yield, in which case the return would be much smaller"

    That was the question that I didn't have the answer to: 4.08 x 135/365 ≈ 1.51%. I had a hunch that $5100 was way too much for such a short period.

    The question had well over a hundred views, but no one other than you actually answered my question, so evidently I'm not the only one unclear on the concept. I guess Yogi just wrote me off as an idiot.

    Thank you very much.
    OJ
  • johnNjohnN
    edited September 2022
    Hi sir you get around ~ 207 dollars return daily until it mature on your investment ( if calculating nearly corrected) . Enough for little gas coverage.

    Not bad and almost guaranteed.

    Reversed situation what we have owe 15k margin several wks ago 8.2% interest rates annual... Lucky stock bounces and sold it off. Margin rates likely higher 3rd wk of September after feds smack downs meetings.
  • Old_JoeOld_Joe
    Well, $207 per day would be great, but since we're talking about $1911 return over 135 days, unfortunately that's only about $14 per day, right?
  • johnNjohnN
    edited September 2022
    Right sir sorry thought you collect over 5k lol

    Wonder why they charge > 5k extra for inflation issues...

    Sometimes maybe better to get corp bonds least they give you ytm and final costs/ expected returns info /extra fees - no gimmicks.... Just need keep track (worries) that corp bonds do not file title 7 or 11 before maturity year.

    Once things more stabilize if find more good corp bonds/start buy more will pm you.

    I may call schwab or vanguard bonds desks they usually give lots info Tues or weds if have time
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