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

Illya Gerasymchuk 2025-08-13 00:10

let's develop on this simple bank example

assume a brand-new bank with an empty balance sheet, no revenue, no deposits, no cashflow and no regulations

the bank is about to finance its first asset - a UST bond with a liability - bonds issued by the bank