I'm just ask here instead of opening a new thread:
So this is my question:
I'm new to bond trading but is it possible to buy bonds near maturity (maybe 1 or 2 days before maturity) if it's trading at discount or even at a premium below it's yield just to get the yields? Could it be profitable? And almost risk-free? I've been looking for bonds in a IB demo account and it seems possible, I guess.. Despite that, IB allows me to buy bonds on margin, so I could make a 1% yield in a 10% yield in a couple of days.. If I do an all-in, I could easily increase my account by 10% without any efforts. That's pretty cool even if you do it once or twice a year. I'd never touch stocks or futures again
For example, there is a US Note 2.125 maturing at Dec31'15 and trading at 100.238 (ask). So, if I bought that at that price, it would be a yield of 2.125/2 - 0.238 = "0.8245" .. with 10x leverage, that would be 8.245% in a month and a half. Even if I don't use that leverage, there are plenty of bonds maturing almost every day.
What do you think about this? Is this a thing? Am I missing something?
What kind of brokerage/investment bank is the most appropriate for this kind of stuff?
How does exactly the yields be paid to me? How long does it takes between maturity and my account be ready to enter in another bond? And (the other way), how long may I wait until buying the bond? May I buy it in the maturity date in the last minute of trading before the closing bell?
I know it's a long post, But I really appreciate if you could explain me all this stuff.
Platform: Sierra Chart, TOS, Tradestation, NinjaTrader
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The peice you are missing is that most bond quotes are lies or estimates. In order to get a real money fill, you have to go through the RFQ process, where you will come to find out that the liquidity you think is there, is not. half the bond centers are literally manual clearing and can take 5 minutes. It is possible to find inefficient markets as long as you are looking at odd lots, but you are going to spend hours and days fishing for small bonds. IB is a good platform for bond work and has a bunch of features to help you. as far as how you are paid, you can start your web research with the term Original Issue Discount. Some bonds pay out regularly like treasurys every six months, some are zero coupon bonds.
Keep digging and sniffing around. if you have capital to sink, there is certainly a reasonable 6-8% return at very very low risk available for a wise bond investor.
Lol- that would be awesome, however, when you buy a bond you pay for the accrued interest on top of the price of the bond- unless it's a zero coupon. Treasuries should be priced to perfection as the most liquid security in the world but as a retail investor you also have to pay the bd's markup.
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Ok, so what's exacly "accrued interest"? Is that the premium above the 100 issue price? theoretically, if I could buy a bond for 101.2 that have a coupon of, let's say, 6% and paid semi-anual, that would still be a 3-1.2= 1.8%, right?
If it's not this, how can I know how much is that value? The thing here is to join the BID to try to get a fill at a nice price (once bonds are very liquid, that would not be a problem).
If you guys could provide me a website that explains all this fixed income stuff, i'd really appreciate. I've been searching but haven't found yet something besides the theory..
Accrued interest is the interest the current holder of the bond has earned. For treasuries- it the rate/365 * number of days since last payment. Has nothing to do with the price quoted- you make the current holder whole on the interest they have earned- price is what you pay for the bond itself
I see, thank you! So, regarding STRIPS, they are zero-coupon, so does that means no accrued interest? If so, you could buy STRIPS near it's maturity and still make some money.. For example, last Thursday US-T Note 30Nov'15 was Bid 99.3175 and 99.3175 Ask. It's a 11Days risk. If you use IB you just need 1% Margin. So you could get 100-99.3175= 0.6825 (-0.0002 commission) = 0.6823 x 100 = 68.25%
You would get in a margin call if the price dropped 1$. But looking at the chart, it took almost 2years to the price increase 1$.
It was seen in Thomson Reuters Eikon platform. The source was Tradeweb. IB Platform was a little bit higher, but can't remember by how much.. It's already trading at par, so, it's useless now.. But there are others coming.
Even so, if this is like I've said before, is it possible to be made? Was my thinking right?