Treasury Bills, Notes, and Bonds Discussion

[Marc]

I stand corrected; sorry about my post.

 

[copyright1997reloaded]

Can somebody help me understand this zero coupon order I just placed at Fidelity?
US Treasury Zero CPN 0.00% 2/22/2024
Quantity 10,000
Order Type Market
Good 'til Canceled
Conditions None
YTM 5.05
Settles 2/23/2023
Funds coming from SPRXX

I'm a newbie and just took the plunge. What could I do better?

You will be buying $10,000 (at maturity on 2/22/2024) worth of the 52-week T-Bill, CUSIP 912796Z28 with the auction on Tuesday February 21, 2023 and which will settle on February 23, 2023. Fidelity is indictating that it will take the funds for this from your SPRXX holding.

The yield to maturity (YTM) is NOT set until the auction closes at 1PM on Tuesday. T-BILLs price at a discount and no interest is paid, instead you will get the $10,000 returned at maturity but actually pay LESS than that on settlement. For example, last month (1/26) the auction results were that you would have paid 95.480333 per $100, resulting in an annualized return of 4.692%. Based on trading in the secondary market, the ESTIMATED yield on the new auction will be 5%, so your pricing will be (approximately) $95.25 per $100, i.e. $9525 for your 10k (at maturity) T-bills.

 

[copyright1997reloaded]

...
But the YTM in post #1423 has me confused. I have never seen a YTM listed when ordered for auction. But it is settling on Thursday which is when the next 52 week T-bill settles, and maturity date is 2/22/2024. So it must be for the upcoming auction.

I am also confused as my open order for this very CUSIP (at Fido) doesn't show a YTM.

Side discussion that will just likely confuse things further:
Hm, is it possible that these can trade in the secondary (e.g. on some sort of when-issued basis) even though the auction hasn't taken place? I don't think so, and since T-Bills settle T+1 a trade today would require settlement on Tuesday by market open (Monday is a holiday) which is impossible. None of this explains where the poster is seeing this YTM value.

 

[audreyh1]

I stand corrected; sorry about my post.

Well it usually freaks me out each time, but I also usually have a screenshot of the preview.

 

[audreyh1]

I am also confused as my open order for this very CUSIP (at Fido) doesn't show a YTM.

Side discussion that will just likely confuse things further:
Hm, is it possible that these can trade in the secondary (e.g. on some sort of when-issued basis) even though the auction hasn't taken place? I don't think so, and since T-Bills settle T+1 a trade today would require settlement on Tuesday by market open (Monday is a holiday) which is impossible. None of this explains where the poster is seeing this YTM value.

I don’t see how these can trade on the secondary pre-auction. And right, the timing indicates auction.

The only thing I can think of is following a slightly different path to place the order you get a slightly different order status, but I also find that hard to believe.

 

[Retired2021]

You will be buying $10,000 (at maturity on 2/22/2024) worth of the 52-week T-Bill, CUSIP 912796Z28 with the auction on Tuesday February 21, 2023 and which will settle on February 23, 2023. Fidelity is indictating that it will take the funds for this from your SPRXX holding.

The yield to maturity (YTM) is NOT set until the auction closes at 1PM on Tuesday. T-BILLs price at a discount and no interest is paid, instead you will get the $10,000 returned at maturity but actually pay LESS than that on settlement. For example, last month (1/26) the auction results were that you would have paid 95.480333 per $100, resulting in an annualized return of 4.692%. Based on trading in the secondary market, the ESTIMATED yield on the new auction will be 5%, so your pricing will be (approximately) $95.25 per $100, i.e. $9525 for your 10k (at maturity) T-bills.

Thanks! You were a big help.

 

[jim584672]

Just a tax question. A T-Bill held to maturity shows as Treasury interest on the 1099-INT and therefore no state tax. A T-Bill sold prior to maturity shows as a capital gain, so it loses its state tax exemption? That is how my tax program is showing it, is that right?

 

[JoeWras]

Just a tax question. A T-Bill held to maturity shows as Treasury interest on the 1099-INT and therefore no state tax. A T-Bill sold prior to maturity shows as a capital gain, so it loses its state tax exemption? That is how my tax program is showing it, is that right?

It can get complicated. Confession: I have yet to play the secondary market because of additional tax complexity, but I hope to dip in this year.

You may get some simple answers here for this specific case. In the meantime, you can read a recent Bogleheads thread that gets way down into the dirt. TL/DR: you'll probably need to make some adjustments and not just take the tax program default. You know, on TurboTax the question usually says "This is not common." That doesn't mean "ignore."

https://www.bogleheads.org/forum/viewtopic.php?p=6964548#p6964548

 

[jldavid47]

There's a really good chance we'll see a 5 handle on the 52 week bill at auction today. I'm glad I'm in.

 

[Marc]

With $142B in auctions today and another $100B later this week; could that amount be the partial cause for rates to jump today?

 

[finnski1]

There's a really good chance we'll see a 5 handle on the 52 week bill at auction today. I'm glad I'm in.

You could also just buy cusip 91282CBR1 right now for a yield of 5.182.
Matures on 3/15/24 US treasury with a .25% coupon.
In fact there are 4 right now yielding over 5.1% maturing within the next 8 to 13 months. All well under par.
In fact I counted 35 over 5% right now.
ETA. I should have said attempt to buy at the ask price. Trying for that one right now.

 

[COcheesehead]

There's a really good chance we'll see a 5 handle on the 52 week bill at auction today. I'm glad I'm in.

There are 5%+ options in the treasury secondary market right now. I just bought some this morning. The lot sizes change by the minute and you can also search depth of book to find the quantity you desire.

 

[audreyh1]

There's a really good chance we'll see a 5 handle on the 52 week bill at auction today. I'm glad I'm in.

Oh for sure. It’s already there on secondary and has even surpassed the 26 week.

Well, they are neck and neck.

 

[finnski1]

You could also just buy cusip 91282CBR1 right now for a yield of 5.182.
Matures on 3/15/24 US treasury with a .25% coupon.

Mine just filled. Only took 25 minutes from order placement to fill. Yield of 5.182%

 

[jim584672]

You could also just buy cusip 91282CBR1 right now for a yield of 5.182.
Matures on 3/15/24 US treasury with a .25% coupon.

Mine just filled. Only took 25 minutes from order placement to fill. Yield of 5.182%

I'm looking at Schwab for that CUSIP but the YTMs are 5.083-5.003. Strange.

Did you do a limit order or something?

 

[jldavid47]

There are 5%+ options in the treasury secondary market right now. I just bought some this morning. The lot sizes change by the minute and you can also search depth of book to find the quantity you desire.

I'm well aware of that. Many of those in the 1 year range yielding 5%+ actually have a maturity of 54-55 weeks, not 52. My strategy has been to buy 26 and 52 week maturities at auction and I have yet to be screwed relative to the secondary market. In fact, I normally do a bit better. YMMV.

 

[COcheesehead]

I'm looking at Schwab for that CUSIP but the YTMs are 5.083-5.003. Strange.

Did you do a limit order or something?

Pricing is dynamic.

 

[audreyh1]

There's a really good chance we'll see a 5 handle on the 52 week bill at auction today. I'm glad I'm in.

Oh for sure. It’s already there on secondary and has even surpassed the 26 week.

Well, they are neck and neck.

52 week results not available yet (after 1pm ET), but the 26 week came in at 5.110%.

ETA: Yep, 52 week came in at 5.046%, so 26 week still ahead.

Bills	CMB	CUSIP	Issue Date	High Rate	Investment Rate	Price per $100
13-Week	No	912796ZF9	02/23/2023	4.720%	4.843%	$98.806889
26-Week	No	912796Z44	02/23/2023	4.915%	5.110%	$97.515194
52-Week	No	912796Z28	02/23/2023	4.795%	5.046%	$95.151722

 

[Vincenzo Corleone]

I think the 52-week came in at 5.046%. Funny. I had originally placed my orders for the 26-week but cancelled and placed orders for the 52 week instead because I thought the 52-week would come in higher. Meh - what's a few basis points.

 

[finnski1]

I'm looking at Schwab for that CUSIP but the YTMs are 5.083-5.003. Strange.

Did you do a limit order or something?

Yes. Managed to fill at $94.985.
Not strange. This is the secondary market. Prices change constantly.

 

[copyright1997reloaded]

I think the 52-week came in at 5.046%. Funny. I had originally placed my orders for the 26-week but cancelled and placed orders for the 52 week instead because I thought the 52-week would come in higher. Meh - what's a few basis points.

Still, a nice run up in yield from a month ago for Mr. 52.
(ETA it was in the 4.65-4.7 range)

 

[audreyh1]

I think the 52-week came in at 5.046%. Funny. I had originally placed my orders for the 26-week but cancelled and placed orders for the 52 week instead because I thought the 52-week would come in higher. Meh - what's a few basis points.

Seriously, close enough.

And opportunities to buy 52 week at auction only come every 4 weeks.

 

[jldavid47]

I think the 52-week came in at 5.046%. Funny. I had originally placed my orders for the 26-week but cancelled and placed orders for the 52 week instead because I thought the 52-week would come in higher. Meh - what's a few basis points.

I bought both the 26 and the 52 week bills at auction this week. I'm happy with the yield on both even if rates continue a steady rise. Just a year ago I don't think any of us imagined a 5 handle on either of these in the foreseeable future.

 

[Trooper]

^ True dat.

 

[jldavid47]

FWIW, the 2-year auction came in at 4.673% today. I was debating getting into it but ultimately decided not to because I don't believe getting even 4.70-4.75% (which is where I thought it would land) for 2 years is good enough at the moment. Maybe it is, but the spread between even the 26 week and 2 year is more than I want to give up right now (43.7 basis points based on today's auctions).