#termmax When I see that FT is trading at a discount in the secondary market, the first instinct is often to “pick up a bargain.” But after running a few rounds of calculations on @TermMax , I found that the discount amount itself carries no information—you have to convert it into an annualized figure before it becomes meaningful.
The logic starts with FT’s redemption method: at maturity, it is redeemed 1:1 at par value to the underlying assets. Therefore, any FT that has not yet matured must trade below par. That discount is the holding return for the buyer; the remaining time determines how much it turns into after annualization. $SPCXB
Test two groups with the same 2% discount but different remaining terms. Suppose an FT with par value of 1 USDC is trading at 0.98 and has 30 days to maturity. If you hold it until redemption, the yield is 0.02 divided by 0.98, about 2.04%, which annualizes to roughly 24.8%. With the same 0.98 price but 180 days remaining, the annualized rate drops to around 4.1%. The first case is likely clearly better than simply doing lending for the same maturity. The second case is very likely worse. Even though the discount number is identical, the actual appeal differs by about six times—that’s the trap you fall into if you only look at the discount.
The reverse is also true. For an FT with a very short remaining term, even a small discount of 0.3% can still produce a decent annualized number. But for long-term FTs, a discount that looks large may not be worthwhile once spread across the annualized basis. So the first thing I do on TermMax is not to compare prices, but to line up each candidate FT’s discount, remaining days, and implied annualized rate together, then compare it against the lending-side quote for the same Maturity. This tells me whether buying the existing FT is cheaper, or whether it’s better to place a lending order myself. $SNDKB
The second thing is to confirm the exit path. The return from holding to maturity and redeeming is certain. But if you plan to sell before maturity, you have to look at the market’s bid depth at that time—the realized return depends on the execution price, not on the implied annualized rate at the time you bought. The risks of these two paths are completely different, so they shouldn’t be evaluated with the same number. Next, what I’m more interested in is the speed at which FT discounts converge as maturity approaches, and how different that convergence cadence is across different underlying assets.
#TermMax @TermMax