Treasury Bills, Notes, and Bonds Discussion 2024+

[copyright1997reloaded]

I continue to be surprised at how much 4 week, 42 day, 8 week, and 13 week inventory is being sold at higher rates than one year or longer; why is the government paying more than they need to? I know I should be looking at one year CDs but I like the income from 42 day and 26 week Treasures; this is in IRA so no state tax savings. A very large position in FTBFX covers the longer durations.

Marc

Answers:
1) Who really knows?
2) Because if they shifted their selling to longer maturities it would drive up long term rates and have a greater impact on things like mortgage rates and capital investment costs.
3) If they think inflation has been "beat", then borrowing short will be cheaper in the long run. If they are incorrect (and inflation isn't beat), then this will be a very costly (to us citizens) decision.

 

[calmloki]

First, the trade is technically not complete until the settlement date which in this case is 3/7. You can put in the order to buy at auction any time between the time the auction appears on Schwab on 2/29 and 9:30AM on the date of the auction (3/4 in this case).

About mid-day on 3/4 the trade is shown as filled on Schwab and if you have insufficient funds to cover it at that time your account will show a negative cash balance. Don't panic. As long as the amount is covered by the day of settlement, you are not charged margin interest (in a margin account) or penalized (in a non-margin account which means you will have to have funds in the account up-front going forward). That means you can sell the shares in SWVXX on 3/6 (the day before the T=Bill settlement) which will settle on 3/7 and cover the purchase.

I do this all the time at Schwab in both my margin and retirement accounts. It's a matter (for me) of setting reminders to put in the SWVXX sale order.

Another scenario is using the funds of a maturing T-Bill to cover the auction purchase of a new T-Bill. Just yesterday I bought an 8-week T-Bill at auction that settles on Tuesday, 3/5. I have a previous 8-week T-Bill maturing that day. My account currently shows a negative cash balance which is fine since the funds from the maturing T-Bill will be in the account on settlement day to cover the new purchase. I will confess it took me a couple of tries before I became comfortable with this process, but it works.

I tried rolling over T-bills back when I first went to Fidelity back in October. Knew I had a T-bill maturing, so wanted to buy online at auction and settle the purchase with the bill that matured on settlement day. After repeated attempts over some weeks I couldn't seem to make that happen, even though there was a substantial amount of our investments with Fidelity. Had to have enough to cover the purchase sitting in our cash account or spend time on the phone.

Auto-rollovers, giving Fidelity the green light to buy the same duration T-bill with a maturing bill, could be done so I grudgingly have been buying auto-rollover bills, though I'd like to choose the duration bill at time of auction, not 6 months prior. In April our first 26 week auto-rollover bills start maturing - and I may want to buy shorter duration replacements. I know it's doable, just not as simple as I'd hoped. Being able to buy T-bills of any duration without having the full purchase price languishing in the cash account would be the bee's knees.

 

[audreyh1]

Just to be clear the cash account is not languishing these days nor has been for a couple of years. I generally have enough to cover in FZDXX anyway, it’s just a few points lower - that’s a tiny difference, especially over a short period of time.

You can call in to cancel Autoroll on any given T-Bill. You might have call in to get them to switch to a shorter T-Bill maturing/settling on the same day. 13 week and 26 week T-bills have the same schedule, as do 4 and 8-week. Switching to another T-bill maturity might mean waiting a week.

 

[Marc]

Just to be clear the cash account is not languishing these days nor has been for a couple of years. I generally have enough to cover in FZDXX anyway, it’s just a few points lower - that’s a tiny difference, especially over a short period of time.

You can call in to cancel Autoroll on any given T-Bill. You might have call in to get them to switch to a shorter T-Bill maturing/settling on the same day. 13 week and 26 week T-bills have the same schedule, as do 4 and 8-week. Switching to another T-bill maturity might mean waiting a week.

Fidelity actually pulls from FZDXX (at least in my rollover IRA), no need to move funds to a lower paying MM account.

 

[audreyh1]

Fidelity actually pulls from FZDXX (at least in my rollover IRA), no need to move funds to a lower paying MM account.

Yes, same here in my taxable brokerage accounts. Although in practice you are currently talking 5.16% versus 4.96%. Very slightly lower paying.

 

[calmloki]

The lower paying account I was referring to is the core position sweep account, which they stick in a number of banks to keep insured. Having 21 cents interest coming from Citi and $34.62 coming from Barclay's just bugs me - as well as having it make 2.7% vs over 5 in FZDXX. Frankly, I'd prefer to have nothing in either account and have it only in state tax free T-bills. Instead I'm running with about a T-bill's worth of normal purchase amount in FZDXX and a week of T-bill interest in the sweep account. Not a huge deal, just not the ideal I'd fantasized.

 

[Sunset]

.....
I'm having trouble buying a 26 week when VMFXX is paying more now...

I am thinking the fed isn't going to lower for more than 6 month.

Are you buyers of 26 weekers locking in just in case fed does lower rates or am I missing something?
........

Do you pay state income tax? In my case T-Bills are better after accounting for state income tax.
.......

+1
I pay State income tax, and only ~50% of VMFXX is tax free, so a Treasury paying little less can still be a better buy.

Plus I like to spread the money over various time spans, in case rates drop fast.

I suspect with a name: WallyGator69 that FL is a likely residence.

 

[audreyh1]

The lower paying account I was referring to is the core position sweep account, which they stick in a number of banks to keep insured. Having 21 cents interest coming from Citi and $34.62 coming from Barclay's just bugs me - as well as having it make 2.7% vs over 5 in FZDXX. Frankly, I'd prefer to have nothing in either account and have it only in state tax free T-bills. Instead I'm running with about a T-bill's worth of normal purchase amount in FZDXX and a week of T-bill interest in the sweep account. Not a huge deal, just not the ideal I'd fantasized.

I don’t have a core bank cash account except in my cash management account which I only use for short term funding. My taxable brokerage accounts where I buy treasuries have SPAXX as their core, so yielding just slightly lower.

Important to realize that you can park funds in SPAXX or FDRXX instead in an account with core as cash, and Fidelity will automatically draw from those when the core is depleted. I park all my funds in FDRXX in my cash management account.

Can you change your core account to one of the MM Funds? The cash management account has to stick with the bank core, but the regular brokerage accounts have options.

If you have a T-bills worth in FZDXX then you can cover a treasury auction at any given time anyway. They will draw from that fund automatically to fulfill the order once the core is depleted.

 

[bjorn2bwild]

For tax planning strategy, buying 52 week T-bills puts the interest payment into next year.
I cashed in a number of I-bonds this year, so am using this angle for some of my purchases.

 

[calmloki]

I don’t have a core bank cash account except in my cash management account which I only use for short term funding. My taxable brokerage accounts where I buy treasuries have SPAXX as their core, so yielding just slightly lower.

Important to realize that you can park funds in SPAXX or FDRXX instead in an account with core as cash, and Fidelity will automatically draw from those when the core is depleted. I park all my funds in FDRXX in my cash management account.

Can you change your core account to one of the MM Funds? The cash management account has to stick with the bank core, but the regular brokerage accounts have options.

If you have a T-bills worth in FZDXX then you can cover a treasury auction at any given time anyway. They will draw from that fund automatically to fulfill the order once the core is depleted.

I picked up a bonus for moving a number of things to Fidelity - seems like maybe a negative for getting that bonus is that I'm not allowed to change the core account ("There are no new core positions to select".) . I do have FZDXX as well, and can move money from the core account to there, but it would sure be handier if FZDXX was the core. When I buy a T-bill I seemingly have to have the purchase amount in the core and/or FZDXX, which is why I'm running with a T-bill's worth in FZDXX. Fidelity does pull from the core first, so T-bill interest only sits there for a week at a time if I'm buying weekly, but that week rolls over every week, so it's effectively sitting there all year, ditto the purchase amount in FZDXX. So some low interest and state tax on a full year of my normal T-bill purchase amount. Not huge, but I pick up dimes in the street..

 

[audreyh1]

You might be able to open a second brokerage account and have SPAXX as the core?

 

[aja8888]

I placed an order for the 17 week bill today. Hope to get 5.4%.

 

[Chuckanut]

I placed an order for the 17 week bill today. Hope to get 5.4%.

The yield difference between the shorter term treasuries and those that go out 3+ years is getting too tempting. A recent 3 month purchase is 1.2% more than I could get at 3 years. I think I will start rolling over shorter term treasuries in the area of 3 to 6 months. If inflation starts to approach the 2% range and interest rates thus fall, then I may go back to filling in the longer term steps in the ladder.



The above is about as complicated as I wish to get.

 

[audreyh1]

This week’s T-bill auction results:

Bills	CMB	CUSIP	Issue Date	High Rate	Investment Rate	Price per $100
4-Week	No	912797JM0	03/12/2024	5.280%	5.375%	$99.589333
8-Week	No	912797JV0	03/12/2024	5.280%	5.398%	$99.178667
13-Week	No	912797HT7	03/07/2024	5.240%	5.384%	$98.675444
17-Week	No	912797KN6	03/12/2024	5.205%	5.370%	$98.279458
26-Week	No	912797GL5	03/07/2024	5.105%	5.313%	$97.419139

 

[audreyh1]

PSA: Autoroll Cancellation new online option

PSA: Autoroll Cancellation new online option at Fidelity

I just noticed that you can now cancel Autoroll on a Treasury from your positions view online at Fidelity. It used to be that you had to call in to turn off Autoroll on a specific T-Bill.

Generally with Autoroll which works with the same maturity - using proceeds of one maturing treasury to cover the settlement of the next - Fidelity will place an order for the new one at auction shortly after the announcement. At this point you have an option to change your mind.

The tricky thing can be the timing. I generally have 26 week T-bills on Autoroll. These are announced on a Thursday, auction the following Monday (or Tuesday if holiday) and settle the following Thursday. I usually get a a notification from Fidelity on the Friday after the announcement and an order for the new T-Bill has been placed in my orders view. So I have Friday through the weekend to cancel if I wish.

But one time I didn't see this, as the notification didn't happen until early Monday morning just before the auction. So in this case I had a very short window to cancel if I'd changed my mind. This only has happened once.

Whatever - now there is a little more flexibility in terms of cancelling.

I have also ordered additional T-bills along with an existing Autoroll order. That has worked fine too.

 

[Phroig]

I bought a 42 day bill this past week, and for some reason, Fidelity wouldn't allow Auto Roll.

 

[RetiredAndLovingIt]

I bought a 42 day bill this past week, and for some reason, Fidelity wouldn't allow Auto Roll.

I'm assuming it was a Cash Management Bill (CMB). Since these are not auctioned on a regular schedule they don't qualify. You can auto roll a 4 or 8 week Bill.


https://www.treasurydirect.gov/auctions/announcements-data-results/

 

[audreyh1]

I bought a 42 day bill this past week, and for some reason, Fidelity wouldn't allow Auto Roll.

I'm assuming it was a Cash Management Bill (CMB). Since these are not auctioned on a regular schedule they don't qualify for auto roll.

Exactly.

 

[Phroig]

I see, thank you both.

 

[calmloki]

I'm a couple weeks from getting into a whole series of auto-rolls. Mostly they are 26 week bills, but I was just reviewing and see that several had an earlier issue date of 52 weeks, even though I bought a 26 week span re-issue. Anyone know if the auto-roll would be for the re-issue span duration I bought or for the original T-bill span?

 

[audreyh1]

I'm a couple weeks from getting into a whole series of auto-rolls. Mostly they are 26 week bills, but I was just reviewing and see that several had an earlier issue date of 52 weeks, even though I bought a 26 week span re-issue. Anyone know if the auto-roll would be for the re-issue span duration I bought or for the original T-bill span?

Autoroll is always the same duration as what you originally purchased.

 

[calmloki]

Excellent. Not having to have an eagle eye on the re-investing was the primary reason for moving the T-bill purchasing from Vanguard over to Fidelity with its auto-roll. Thanks Audrey

 

[audreyh1]

It’s common practice for the Treasury to reuse CUSIPs for different maturities as long they have the same maturity date. So you’ll see a 52 week, then 26 weeks later a 26 week, then 13 weeks later a 13 week all using the same CUSIP. Regardless all the auctions are independent.

52 week T-bills are only auctioned every 4 weeks, so this only happens 1/4 of the time.

But 26-week and 13-week are auctioned every week same schedule, so I don’t know if you always see CUSIP sharing between them

 

[audreyh1]

This week’s T-bill auction results:

Bills	CMB	CUSIP	Issue Date	High Rate	Investment Rate	Price per $100
4-Week	No	912797JN8	03/19/2024	5.280%	5.375%	$99.589333
8-Week	No	912797JW8	03/19/2024	5.275%	5.393%	$99.179444
13-Week	No	912797FS1	03/14/2024	5.250%	5.395%	$98.672917
17-Week	No	912797KP1	03/19/2024	5.210%	5.375%	$98.277806
26-Week	No	912797KK2	03/14/2024	5.100%	5.308%	$97.421667

 

[RetiredAndLovingIt]

This week’s T-bill auction results:

Bills	CMB	CUSIP	Issue Date	High Rate	Investment Rate	Price per $100
4-Week	No	912797JN8	03/19/2024	5.280%	5.375%	$99.589333
8-Week	No	912797JW8	03/19/2024	5.275%	5.393%	$99.179444
13-Week	No	912797FS1	03/14/2024	5.250%	5.395%	$98.672917
17-Week	No	912797KP1	03/19/2024	5.210%	5.375%	$98.277806
26-Week	No	912797KK2	03/14/2024	5.100%	5.308%	$97.421667

Audrey, thanks for taking your valuable time to post these results every week.
Much appreciated..