Brethren: is there a calculator that tells me if it makes sense to sell a bond? Example: Lets say my buddy Simon bought a US-T note last month at 6%. It has appreciated 1% in the last 30 days, which would be 12% annualized (I think). What is the right move? Should Simon take profits, sell, and roll into something new? Or hang on for another five months and collect his 3% coupon? Is there a calculator available that will tell the “break-even” point from a hold to a sell? Ty! <3 Keith
What’s his ytm Generally you want to own bonds if you think rates will fall, and sell them if you think rates will rise.
Bonds, like stocks, require a forecast. When you plug in your forecast for rates, you will know if you should buy, sell, or hold the bond. the bond price today will reflect the market’s current view of interest rates.
That’s beside the point; furthermore, I have no idea what rates will do. Very simple example: I purchase a 1Y T note with a 5% yield for $10000. I expect to be paid a total of $500. The next day, I get lucky. The market price moves, and my bond is now worth $10,512. I should sell, because I’ve already made my yield in a day. Why wait a year to make that 5%, and risk the price moving against me, when I can cash in today, make my paper, and reinvest? What if the decision is not so clear? After two months, My bond is worth $10,200? 10,150? When does it make sense to sell? I need a calculator
In the first example, you may not have somewhere else to out your money that provides a better yield going forward. same with the second example.
How are you figuring hypothetical value day later of $10512? Are you thinking $12 gain added to $10,000 initial investment added to $500 yield a year from purchase date? Because obviously $500 yield is only earned after a year has transpired.
if you are simply trying to capture a positive pnl then you can do this, but all you need is: current value > $ value ytm at purchased price However, this is not the way people trade bonds… lol. Bond yields are the “traded” component, so if you bought a bond at 5% and now it’s trading at 3% then it means you’ve made money. However, when you sell it and buy another bond, you’ll just be buying it again at 3%… you might as well hold onto your bond unless you want to shift to a different characteristic.
Trading above par and potential to pickup more yield. Model the change to your portfolio. See how duration and covexity in your portfolio changes. Return vs Risk. You decide on your risk, the market gives you the return.
I'm thinking a +$512 move in the sale price of the bond in the secondary market. Say the prevailing rate drops to 4%, and my bond is now worth an extra $512.
It would be foolish to sell and buy another bond of the same type. I'd take my profits and move the dollars to a different market at a better rate. First I'd look for other deals in the bond market. Then consider a CD, money market, muni, corporate... or even bitcoin XD