Treasury Bonds

Options

I began investing in US treasuries zeros. Here is my problem:

  1. Buy a bond in January for 20000
  2. Bond matures July 1 (6 months) @ ~ 5% and redeems at 20500

Quicken handles the buy and sell OK, except it shows a 20500 realized gain. When in therory it should be a swap of the 20K and show ~ 500 realized gain? I found this by trying to add realized gains as a line item in my budget - which showed the 20500 as income?

What am I doing wrong? How do I fix it?

Answers

  • Tom Young
    Tom Young SuperUser ✭✭✭✭✭
    edited June 29
    Options

    "Quicken handles the buy and sell OK, except it shows a 20500 realized gain."

    Well obviously one part or the other of the transaction (most likely the "sell") is wrong since the gain is wrong.

    The first thing you need to do is to NOT rely on "downloads" to "do your accounting for you." This probably will require that you delete whatever "maturity" information is being sent to you.

    When a US Treasury zero bond matures you get your initial money back plus interest, so you need to create on your own the transactions that reflect what's really going on here. In most cases you'll "sell" the bond for exactly what you initially paid for it, for no gain or loss. Then you'll create an IntInc transaction for the interest portion of the remittance to you. The two transactions will create the proper accounting, correctly assigning the cash received between "return of principal" and "interest income."

  • aLfGordon
    aLfGordon Member ✭✭
    Options

    I thought of that, except that when reconciliation time comes. The brokerage will show a drop of 20500 and quicken will show two entries, i.e., 20000 (principal) and 500 (interest). I guess not the end of the world, but still two entries. I just tried this on one and noted the following:

    1. The interest (when added through the sale entry) is added to MiscInc rather than IntInc. Easy enough to modify, but again another entry/modification.
    2. The "sale" of the bond entered as the purchase price (zero sum diff), still shows as a realized gain in the amount of the purchase and now identical sale price.
    3. Neiter the buy nor sell entry allows the boxes (greyed out) to enter when purchaed.

  • Tom Young
    Tom Young SuperUser ✭✭✭✭✭
    edited June 30
    Options

    "I thought of that, except that when reconciliation time comes. The brokerage will show a drop of 20500 and quicken will show two entries,
    i.e., 20000 (principal) and 500 (interest)."

    If the broker is creating erroneous accounting entries in Quicken then you have no choice other than deleting what's been posted and making correct entries. Overall there should be no "drop" of value in your Quicken Account, you've replaced a bond worth $20,500 for $20,500 in cash.

    I's not uncommon that brokers feed "bad" accounting entries to Quicken so deleting their download and replacing that with your own transaction(s) is a fact of life for most of us. As long as the value of the securities held by the broker and the cash held by the broker are the same as what you have in Quicken, you're "reconciled"; the transactions reported by the broker don't have to agree to Quicken. Brokers aren't accountants, they focus on "balance" and frequently resort to sending what amounts to "balance adjustments" (maybe that's what you're referring to with the "will show a drop of 20500"?) instead of accurate accounting entries.

    "The interest (when added through the sale entry) is added to MiscInc rather than IntInc. Easy enough to modify, but again another entry/modification."

    A recognized flaw in Quicken. That's why I didn't suggest the "Bonds Sold" action. A simple sale with the correct quantity and price will remove the security and the IntInc action will avoid the need to adjust anything."

    "Neiter the buy nor sell entry allows the boxes (greyed out) to enter when purchaed.

    I'm not understanding that, not sure what you're referring to here.

  • aLfGordon
    aLfGordon Member ✭✭
    Options

    Tom: Thanks. I redid the entries. Quicken still posts the zeros as a realized gain even though I buy and sell at the same price. You say you don't like to use the buy bonds/sell bonds entry. What should I use?

  • aLfGordon
    aLfGordon Member ✭✭
    Options

    Also I noted if I do a report for gains, it shows zero sum dif, but the only place I'm seeing the wrong numbers is in the budget.

  • Tom Young
    Tom Young SuperUser ✭✭✭✭✭
    Options

    I haven't bought and sold a bond for a while now. I do use the Bonds Bought action for the purchase and that identifies the security as a "bond." For the sell I just use the standard Sold action. So the purchase of 5 discounted T-bills at 97 using the Bonds Bought action is entered into the Transaction List (Register) as "50 at 97." So the Sold action uses the same numbers, 50 units at $97. Then a separate IntInc action of the same date using that same bond.

    I'm not sure what you're looking at when you refer to "in the budget." Is that a Report (Reports > Spending > Current Budget) or on the Planning tab (Planning > Budgets)? The net effect of the maturity is $0 capital gains and $XXX interest income and that's what you should be seeing in both places. Maybe something's wrong with your setup?