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Thread: Good idea or no? Buy 30 year T-Bond with 18 month 0% credit loan

  1. #1

    Good idea or no? Buy 30 year T-Bond with 18 month 0% credit loan

    If I can get a 18 month 0% loan (as an introductory credit card rate), for lets say $20,000, would it be a good idea to buy 30 year T-Bonds with it and sell it at the 18 month mark?

    http://www.treasury.gov/resource-cen...spx?data=yield

    The rate is at about 3%. Free $900? Or terrible idea?
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  3. #2
    As the bond makes coupon (interest) payments, the price is adjusted down accordingly.

    I believe you would find this to be a wash, or even cost you money due to secondary market fees, provided interest rates do not change.

  4. #3
    You would be buying at the peak of the bubble, so best case you only lose a little money vs. inflation, worst case, you can't give the $#@!ing thing away.

  5. #4
    ^^ Yeah, the peak of the government bond bubble (everywhere around the world) is beginning to round off it's top.

    In an orderly default, the USA will be last to go. In a market driven disorderly default, most of the govt bonds will collapse together (all currencies being tied to the USD and all)...That seems likely to me.

  6. #5
    I wouldn't, who knows how long the Fed can keep interest rates down like this. We don't know what interest rates will be in mid 2013.

  7. #6
    Well, we know that in 2013 the "Primary Dealers" will still have 0% financing from the Fed - short of a total collapse of the USD.

    Quote Originally Posted by matt0611 View Post
    I wouldn't, who knows how long the Fed can keep interest rates down like this. We don't know what interest rates will be in mid 2013.

  8. #7
    bad idea. if rates go up, the value of your position goes down. You could end up selling for much less than you bought. You are thinking of a CD or savings bond.
    What I say is for entertainment purposes only!

    Mark 10:45 The Son of Man did not come to be served, but to serve, and to give His life as a ransom for many.

    "If you want to make a lot of money, resist diversification." - Jim Rogers

  9. #8
    LibForestPaul
    Member

    0%, buy some options, tech sector... from now to Nov expect record earnings...



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  11. #9
    you guys are so rich
    I wish I could afford a cool Ron Paul T-shirt or bumper sticker. :-(

  12. #10
    Quote Originally Posted by bxm042 View Post
    If I can get a 18 month 0% loan (as an introductory credit card rate), for lets say $20,000, would it be a good idea to buy 30 year T-Bonds with it and sell it at the 18 month mark?

    http://www.treasury.gov/resource-cen...spx?data=yield

    The rate is at about 3%. Free $900? Or terrible idea?

    unless you have about 100k sitting around you won't be able to buy any bonds. They are sold in closed bid auctions- they really only let institutions take part.

  13. #11
    There sure is a lot of misinformation in this thread.
    Anyone can buy treasuries at Treasurydirect. There may be commission if you do it through a broker. If you plan on selling them in a couple of years, then you probably need a broker to sell them, I don't know if you can through treasury direct.
    The value of the t-bonds will depend on the interest rate in 18 months. It might be higher. It might be lower. No one can predict what they will be in the future, and many great investors have lost a lot of money trying to predict it.
    Unfortunately, there are not a lot of great safe, short-term places to put money and earn any kind of significant return on it. Part of the way Bernacke is indirectly stealing money from savers to help borrowers.

  14. #12
    Arklatex
    Member

    If you don't mind a lower credit score. Pick something better though, even some checking accounts are paying 4% in interest

  15. #13
    Arklatex
    Member

    If it were me I'd buy Silver and Gold Bullion =)

  16. #14
    Quote Originally Posted by bxm042 View Post
    If I can get a 18 month 0% loan (as an introductory credit card rate), for lets say $20,000, would it be a good idea to buy 30 year T-Bonds with it and sell it at the 18 month mark?

    http://www.treasury.gov/resource-cen...spx?data=yield

    The rate is at about 3%. Free $900? Or terrible idea?
    This is a horrible idea.

  17. #15
    TANSTAAFL

    buying a 30-year bond with a 2% coupon is IMO insane, you are guaranteed to lose money even against the official inflation rate

  18. #16
    A roll of silver ounces is a better idea.

    Borrowing to invest is OK if you do it right...borrowing to invest in government debt...is...madness...



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  20. #17
    If it is a credit card loan, I suspect you probably cannot convert it to cash without some associated cash-advance fees. That would eat from your return as well.

  21. #18
    Quote Originally Posted by Arklatex View Post
    If it were me I'd buy Silver and Gold Bullion =)
    ^This.
    Click here for a free copper round. Every three people you get signed up, you get another free round! NO PURCHASE NECESSARY!

  22. #19
    Your "free" loan has to be paid back in full within the 18 months (which probably began the day your card was issued, not from the time of purchase so that is ticking down already) and since you are thinking about buying a 30 year bond you will be selling it long before it matures. Prices of Treasury notes move inversely with interest rates- if interest rates rise, your bond becomes worth less and you will end up selling at a loss- if they do down (they are already quite low) then you can make money.

    Here is some info from TreasuryDirect: http://www.treasurydirect.gov/indiv/..._tbond_faq.htm
    Depending on when you by, you may also have to pay the "acrued interest"- the interest the bond paid between when it was issued and when you bought it (Treasuries are issued at certain months- four times a year typically). They say you get this credited towards your first coupon payment.

    From what it says you cannot directly sell your note back to them meaing you have to go to a broker, bank, or dealer who may charge you a fee.

    For the risks and efforts involved, to me, the return seems pretty small. 30 year yields are roughly 3%. For a $1000 investment, you will get about $45- less all expenses. But the coupon is every six months after the bond is issued so within 18 months you will probably only qualify for two payements before you had to try to resell it so your gain would really only be $30 before costs (assuming that bond prices don't change during that time).

  23. #20
    If rates go up 1% you stand to lose 15% of your capital. I dare you to do it!

  24. #21
    I think you're oversimplifying a bit with the assumption you would buy and sell the bond at par, which is not the case. Bonds, like any other instrument, have prices. Yields are at almost historical lows right now, and if the yield heads higher, the price of your bond would decline causing you to take a capital loss on the sale of your bond, and forcing you to draw cash to pay down your credit card loan.
    "Your mother's dead, before long I'll be dead, and you...and your brother and your sister and all of her children, all of us dead, all of us..rotting in the ground. It's the family name that lives on. It's all that lives on. Not your personal glory, not your honor, but family." - Tywin Lannister


  25. #22
    You are mixing concepts, only guarantee is a bond that matures the same day as your free money in which the yields are virtually nil already. The 30 year 3% can easily move a few points against you and cause a loss in that time frame. Better to take the 20k and use it to finance work and pay it back once you made your 900 you seek. IE going to an auction and buying something worth 5k for 4 or fixing up a car you bought for 1500 and sell it for 2400 etc. Usually those free rates a for a purchase, NOT cashing the check that comes in the mailer. Read it carefully, I have not seen 1 in 5 years that is truly zero for cash.

  26. #23
    One big thing that people are missing is that both the debt and the bond are denominated in nominal terms. If you bought an 18 month zero coupon bond to match maturities with the loan, the position would be hedged against inflation. If inflation rises, long term interest rates will rise and bond prices will fall, but a bond with the same maturity as the loan doesn't have this problem.

    I agree with everyone talking about cash advance fees, however.

    The way to get around this is just to buy your regular goods with the card and use other money to buy the bond. You really don't need to segment the position.
    Last edited by ababba; 02-11-2012 at 06:40 PM.

  27. #24
    Quote Originally Posted by bxm042 View Post
    If I can get a 18 month 0% loan (as an introductory credit card rate), for lets say $20,000, would it be a good idea to buy 30 year T-Bonds with it and sell it at the 18 month mark?

    http://www.treasury.gov/resource-cen...spx?data=yield

    The rate is at about 3%. Free $900? Or terrible idea?

    Terrible idea. Buying bonds now is akin to buying houses at the peak of the real estate bubble.



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  29. #25
    Quote Originally Posted by Revel8 View Post
    Terrible idea. Buying bonds now is akin to buying houses at the peak of the real estate bubble.
    If you believe a major increase in inflation is coming, then not taking out enormous quantities of nominal debt is also horrific.

  30. #26
    Horrible idea. Personally, I wouldn't invest or touch a USG treasury bond without the assumption and plan of holding it to maturity. Without mentally starting at that point, you are just speculating and much of your initial $20,000 is at risk of loss. The money you could receive from the coupon payments should not be your focus. Because you would be buying a long term treasury bond, but have a set period of time well before that bond matures in which to sell, what really matters is the price of the bond when you do sell.

    The Fed has been buying long term Tbonds and selling short term Tbonds the past 5 months and will continue for another 3 or 4. This has the effect of putting downward pressure on yields for long term Tbonds, which the Fed wanted to influence as such since most mortgage rates are based on the 10y Tbond(lower rates there presumably stimulate the housing market).

    Yields seem to have nowhere to go but up in the next 18 months anyway. Your best case scenario is a few hundred dollars. Your most likely scenario is losing more than $1000, and you could easily lose much more than that.
    Last edited by Aurave; 02-12-2012 at 05:34 AM.
    E che sospiri la libertà!

  31. #27
    This thread is so wrong it makes my head hurt.

    Firstly,

    You can buy treasury bills directly through a Primary Broker or place a bid against them.

    Most Importantly

    Treasury Bills are sold in denominations of $100,000. All bonds are quotes on the basis of x/$100. You're out of luck.

  32. #28
    Quote Originally Posted by Mashedtaders View Post
    This thread is so wrong it makes my head hurt.

    Firstly,

    You can buy treasury bills directly through a Primary Broker or place a bid against them.

    Most Importantly

    Treasury Bills are sold in denominations of $100,000. All bonds are quotes on the basis of x/$100. You're out of luck.
    He could just buy TLT.
    What I say is for entertainment purposes only!

    Mark 10:45 The Son of Man did not come to be served, but to serve, and to give His life as a ransom for many.

    "If you want to make a lot of money, resist diversification." - Jim Rogers

  33. #29
    Quote Originally Posted by ababba View Post
    If you believe a major increase in inflation is coming, then not taking out enormous quantities of nominal debt is also horrific.
    Sure, if you buy something that has value with the debt. Otherwise you are just flushing money down the toilet, even if it devalued money.

  34. #30
    Said this in another thread, but I don't get bonds at the current levels...

    10 year notes are paying around 2%...

    There are numerous companies, good, low risk, companies with simple business models and stable balance sheets that will pay you more than that just to hold their stock, not even factoring in growth.

    Conoco Phillips, Wal Mart, Coke, Mcdonalds all do better than that, and you have MLPs out there over 5%...

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