assume that both start simultaneously and mature in 1 year without any periodic payments

this means that today the bank borrows $100M at 3% APY and invests it at 4%

in exactly 1 year the bank receives $104M from the UST bond, repays $103M to bondholders and keeps $1M profit

Illya Gerasymchuk 2025-08-13 00:18

let's say the bank issued bonds (liability) at 3% and acquired UST bonds (asset) with a 4% yield

both assets and liabilities have a transaction amount of $100 million

the bank uses the loan (issued bond) to purchase higher yield UST bonds, thus profiting a ≈1% spread