3 ms·

OK, thanks. Then what would buying a 3-month one once a year give me? Still 2.32%, or 2.32% / 4? Also, since right now the 3-year bond offers more than a 5-year

• cm2187 8y ago
  2.32% / 4. Technically the "/4" may not be exactly "/4" depending on the bond. It is called day count fraction and for some bonds the rules can be quite complex. But the basic idea is to prorate ("accrue") the interest rate to the time you held the bond.
• zaroth 8y ago
  2.32% / 4. And hopefully that answers your second question as well. The rate is annualized, meaning the profit if you held the bond for 1 year. So a 3 year bond at 2.32% pays a 2.32% annual interest rate. Interest payments are made twice a year. A 5 year bond at 2.32% pays the same rate of return — 2.32% interest per year, but in that case guaranteed to continue paying at the same rate for 5 years instead of 3. The rate is the annual rate. The term is for how long interest payments are made and how long until the bond “matures” — when the face value is paid back. If people think rates are going to go down in the future, then they will accept a slightly lower rate if it is locked in for a longer term, which is the idea behind the “inversion”.
• yzmtf2008 8y ago
  >Doesn't the 3-year one offer the same (or better) return over a shorter period of time? Later part of the OP's post was mostly focused on this question :)