Treasury Bills, Notes, and Bonds Discussion

[Spock]

Hmm. I thought the max available and min in parentheses was the parameters I had to deal with. You are saying I can put in a higher bid on the depth of book page?

Sent from my SM-T510 using Early Retirement Forum mobile app

The Fido depth of book page lists the other sellers for the same security. Some of them frequently have different qtys required and as stated they are slightly higher price/lower yield than the primary listing.
Now that I think about I'm going to have to play with the search tool to see if it will show me depth of book listings if I input a different min qty, but I don't think it does..

 

[sengsational]

T

Any TIPS people want to chime in?

Thanks guys for the posts talking about TIPS. It seems clear that buying on the secondary market isn't typical for folks here. Certainly taking the yield on the Fidelity page and adding 5% isn't the way to estimate the final yield!

Reading through some stuff yesterday, I understand that it's the face value that gets the inflation adjustment. So the inflation factor displayed is all of the inflation since issue. In this case, maturity is very close in, so no deflation worries.

My question was about trying to estimate the final yield if this instrument was purchased.

To bracket the yield, I'd need to know what inflation was already built into the "inflation factor" (how many more months were to be added before maturity) and then estimate those months inflation. Then the last coupon payment is 0.00625 times the estimated inflation factor at maturity.

Did I hear that they update the inflation factor continually? I don't know how they can do that, given they release one value per month.

Anyway, I fiddled around with XIRR for this example and it looked like Fidelity's yield calculation was close to their inflation factor * 1.00625 (face plus last coupon).

 

[jazz4cash]

Hmm. I thought the max available and min in parentheses was the parameters I had to deal with. You are saying I can put in a higher bid on the depth of book page?

Sent from my SM-T510 using Early Retirement Forum mobile app

I'm saying you can choose a seller with a lower minimum qty. I am also in the market for a treasury with a 12/15/23 maturity and the depth of book shows me there are two sellers with a minimum qty of (1) and another with a minimum qty of (10). I can click the "Buy" button next to the listing to place my order.

 

[audreyh1]

This week’s T-bill auction results:

Bills	CMB	CUSIP	Issue Date	High Rate	Investment Rate	Price per $100
4-Week	No	912796ZK8	12/20/2022	3.780%	3.844%	$99.706000
8-Week	No	912796ZU6	12/20/2022	4.060%	4.143%	$99.368444
13-Week	No	912796YL7	12/15/2022	4.270%	4.377%	$98.920639
17-Week	No	912796CU1	12/20/2022	4.440%	4.569%	$98.532333
26-Week	No	912796X53	12/15/2022	4.630%	4.807%	$97.659278

Last week’s results https://www.early-retirement.org/fo...d-bonds-discussion-115186-49.html#post2864085

Looks like all went up in rate except the 13 week which remained unchanged.

 

[Another Reader]

This week’s T-bill auction results:

Bills	CMB	CUSIP	Issue Date	High Rate	Investment Rate	Price per $100
4-Week	No	912796ZK8	12/20/2022	3.780%	3.844%	$99.706000
8-Week	No	912796ZU6	12/20/2022	4.060%	4.143%	$99.368444
13-Week	No	912796YL7	12/15/2022	4.270%	4.377%	$98.920639
17-Week	No	912796CU1	12/20/2022	4.440%	4.569%	$98.532333
26-Week	No	912796X53	12/15/2022	4.630%	4.807%	$97.659278

Last week’s results https://www.early-retirement.org/fo...d-bonds-discussion-115186-49.html#post2864085

Looks like all went up in rate except the 13 week which remained unchanged.

Thanks for doing this easy to follow chart! I will be interested in where the Fido premium MM fund goes next week. If it goes over 4 percent, it will be hard to justify buying the 4 and 8 week treasuries. Maybe the 13 week as well.

 

[audreyh1]

Thanks for doing this easy to follow chart! I will be interested in where the Fido premium MM fund goes next week. If it goes over 4 percent, it will be hard to justify buying the 4 and 8 week treasuries. Maybe the 13 week as well.

It will catch up to the Fed Funds Rate very quickly IMO. Seems to take a couple of weeks thereabouts. So I don’t think it’s that long before 4.25%.

I just copy from the Treasury auction results page which pastes nicely into the table form here. By noon on Thursday they have usually completed the auctions for each week. https://www.treasurydirect.gov/auctions/upcoming/ And click on the results tab.

 

[daylatedollarshort]

Thanks guys for the posts talking about TIPS. It seems clear that buying on the secondary market isn't typical for folks here. Certainly taking the yield on the Fidelity page and adding 5% isn't the way to estimate the final yield!

Reading through some stuff yesterday, I understand that it's the face value that gets the inflation adjustment. So the inflation factor displayed is all of the inflation since issue. In this case, maturity is very close in, so no deflation worries.

My question was about trying to estimate the final yield if this instrument was purchased.

To bracket the yield, I'd need to know what inflation was already built into the "inflation factor" (how many more months were to be added before maturity) and then estimate those months inflation. Then the last coupon payment is 0.00625 times the estimated inflation factor at maturity.

Did I hear that they update the inflation factor continually? I don't know how they can do that, given they release one value per month.

Anyway, I fiddled around with XIRR for this example and it looked like Fidelity's yield calculation was close to their inflation factor * 1.00625 (face plus last coupon).

TD has a daily index ratio. It is on a 2 month lag of the CPI, so 2 months of adjustments are likely already baked into the current price - TIPS/CPI Data — TreasuryDirect

I realized when I woke up this morning that I shouldn't have answered last night when I was tired. There doesn't need to even be deflation, just not a lot of inflation, at current yields for the near maturity TIPS to break even with nominal Treasuries maturing in the same time frame.

Today's price - TIPS 4/15/2023 = 3.776%, Treasuries 4/13/2023 = 4.298%, Difference = .522%.

ETA: More detailed explanation - TIPS Spread Definition (investopedia.com) -

• TIPS spread is the difference in the yields between U.S. Treasury bonds and Treasury Inflation-Protected Securities (TIPS) and is a useful measure of the market’s expectation of future CPI inflation.
• The TIPS spread compares the yield of TIPS and the yield of regular U.S. Treasury securities with the same maturity dates.
• If the TIPS spread is wide, this means that investors expect inflation to rise significantly and, if it is narrow, then investors expect inflation to be stagnant.

 

[copyright1997reloaded]

Yes, there would need to be deflation to have the principal lowered. But remember TIPS are inflation adjusted daily, not annually, so you only need short term CPI deflation to have the principal adjusted downward, not annual, year over year deflation. That is the only reason I can think of why the short term real yields are so high right now compared to the 5 year rates. I don't usually buy short maturity TIPS on the secondary market so maybe someone else with more experience in that area can chime in on that.

This is what Wikipedia has to say about deflation - "Throughout the history of the United States, inflation has approached zero and dipped below for short periods of time. This was quite common in the 19th century, and in the 20th century until the permanent abandonment of the gold standard for theBretton Woods system in 1948. In the past 60 years, the United States has only experienced deflation two times; in 2009 with the Great Recession and in 2015, when the CPI barely broke below 0% at −0.1%".

Check out what happened to TIPS real yields in 2009 in the chart in this article - https://seekingalpha.com/article/4083257-real-yields-on-tips-are-key-must-watch-indicator. Last recession TIPS real yields went up significantly on deflation fears because they can lose principal with deflation. We may have another good buying opportunity if history repeats itself.

Yep. I bought some individual TIPS in 2009, great time to buy. Sold the position earlier this year, hope I get a chance to reestablish a decent position again before this is all over.

 

[sengsational]

TD has a daily index ratio. It is on a 2 month lag of the CPI, so 2 months of adjustments are likely already baked into the current price - TIPS/CPI Data — TreasuryDirect

Thanks for that link. The "Inflation Factor" on the secondary market buy screen at Fidelity appears to be the following day, which makes sense, as these settle in one day. The TD.gov site gives inflation factors all the way to 1/31 right now, so if you want to estimate the value of the bond at maturity, you'd just need to add inflation factor for Feb, Mar, and half of April, which I did below (just a linear estimate, which presumes the same inflation as December and January).

That issue is showing on Fidelity as 3.567% YTM now. I don't know the intricacies of how TIPS work or if Fidelity ignores or includes the expected inflation adjustment. It just seems that 8% is too good to be true, so there's probably something amiss.

So, just for fun, I did learn more about how to estimate the yield on a TIPS bond purchased on the secondary market. I'm not 100% sure this is right, but it seems kind of rightish, anyway. The amount spent comes right out of the Fidelity "buy" screen, and it includes interest since the last coupon. Then I took the 1/31/2023 inflation factor and increased it linearly until the maturity date. To get the last coupon amount, that's the inflated face value times the coupon rate divide by two (two payments per year).

So, not 8%. But 5.3% isn't bad. If inflation in December/January (which generated the 0.00183 per month) is higher than what comes out in February, March, April, you won't be getting 5.3%, of course. For instance if inflation is 40% lower, the rate goes to 4.8%.

 

[disneysteve]

We talk a lot about buying T bills and other bonds. What about selling them? How do you figure out if it might be worth selling a bond before maturity?

I have some T bills that I bought back when interest rates first started climbing. I thought it was great to be getting 2% or so when Ally was only paying 0.6%, but obviously 2% doesn't look so great anymore.

Vanguard is showing the current value of one T bill as being just over $2 less per $1,000 than I paid. Could it be worth selling at that price to reinvest at today's rates? If I can go from 2% to 4.8%, would that offset the loss? Is there a good calculator for figuring this out?

 

[pb4uski]

We talk a lot about buying T bills and other bonds. What about selling them? How do you figure out if it might be worth selling a bond before maturity?

I have some T bills that I bought back when interest rates first started climbing. I thought it was great to be getting 2% or so when Ally was only paying 0.6%, but obviously 2% doesn't look so great anymore.

Vanguard is showing the current value of one T bill as being just over $2 less per $1,000 than I paid. Could it be worth selling at that price to reinvest at today's rates? If I can go from 2% to 4.8%, would that offset the loss? Is there a good calculator for figuring this out?

There ain't no such thing as a free lunch.

If you look to buy some more at the current market price then you'll find out that your yield for the remaining term is closer to that 4.8% and your yield from when you bought to now is much lower than the 2% YTM at purchase.

 

[disneysteve]

There ain't no such thing as a free lunch.

If you look to buy some more at the current market price then you'll find out that your yield for the remaining term is closer to that 4.8% and your yield from when you bought to now is much lower than the 2% YTM at purchase.

That's pretty much what I figured but just wanted to be sure. Thanks.

 

[Montecfo]

Yesterday's "Streetwise" column in the WSJ contains an interesting column about the Fed and interest rates.

Some of the points include:

Fed's credibility problem. It communicates rates "higher for longer", but the market believes recession and deep cuts.

Markets (as reflected in futures) expect large cuts, 2 percent by end of 2024.

Fed says it will keep raising rates till summer, peak above 5% and hold them there until at least the end of 2024. Markets believe the 1st two points and despite Meat Loaf's famed lyric that "Two out of Three Ain't Bad", failure to accept the third is undermining Fed's inflation-fighting posture.

It even points out accurately that inflation was less than zero in November on an unadjusted basis.

The author suggests that if markets are wrong and the Fed right, markets will be feeling a lot of pain in the future.

Personally, i think the Fed's posture of pretending certainty about rate direction is undermined by its own recent history. Can't blame markets for having a long memory.

Behind paywall

The Markets Don’t Believe the Fed https://www.wsj.com/articles/the-markets-dont-believe-the-fed-11671112067

 

[JoeWras]

This should be a free link. (WSJ generally provides free links to subscribers, you just have to engage the correct button. Part of tracking us, I suppose. See how many recruits we create. Ha ha.)

https://www.wsj.com/articles/the-ma...5mp97ps1nw5&reflink=desktopwebshare_permalink

 

[JoeWras]

As for the Fed and markets. I agree with the general premise of the article. I've read similar on NBC sites. Here you have the conservative and liberal media agreeing, even though they won't acknowledge they agree on something.

They both agree the Fed has credibility issues. This is having a direct impact on this thread and the steep inversion is causing us some grief.

I'm going to take the rest of my thoughts to the inflation thread since this is more about rates here.

 

[audreyh1]

This should be a free link. (WSJ generally provides free links to subscribers, you just have to engage the correct button. Part of tracking us, I suppose. See how many recruits we create. Ha ha.)

https://www.wsj.com/articles/the-ma...5mp97ps1nw5&reflink=desktopwebshare_permalink

Thanks much for posting those WSJ links.

I find that if I know the title, it’s available to me in the Apple News app.

 

[audreyh1]

As for the Fed and markets. I agree with the general premise of the article. I've read similar on NBC sites. Here you have the conservative and liberal media agreeing, even though they won't acknowledge they agree on something.

They both agree the Fed has credibility issues. This is having a direct impact on this thread and the steep inversion is causing us some grief.

I'm going to take the rest of my thoughts to the inflation thread since this is more about rates here.

Yep, that is where this discussion belongs.

 

[Montecfo]

Apologies. I meant to post this there.

 

[swk7907]

Sorry if this has been discussed before but I couldn't find anything. For people that buy TIPS at auction do you typically prefer to do it through Treasury Direct or a broker like Fidelity? Any major reasons to choose one way vs. another?

Thanks.

 

[sengsational]

^ I just got to the last screen before commiting to buy a Treasury Bond on the Fidelity site. Took about 30 seconds. It would take me 5 minutes to figure out how to log into the TD.gov site, lol! I'm not sure what happens once you own the bond, though, but locking into an auction at Fidelity is very quick.

 

[daylatedollarshort]

Sorry if this has been discussed before but I couldn't find anything. For people that buy TIPS at auction do you typically prefer to do it through Treasury Direct or a broker like Fidelity? Any major reasons to choose one way vs. another?

Thanks.

I buy them through a broker site where our IRAs and 401Ks are held.

 

[jldavid47]

As for the Fed and markets. I agree with the general premise of the article. I've read similar on NBC sites. Here you have the conservative and liberal media agreeing, even though they won't acknowledge they agree on something.

They both agree the Fed has credibility issues. This is having a direct impact on this thread and the steep inversion is causing us some grief.

I'm going to take the rest of my thoughts to the inflation thread since this is more about rates here.

I think the root of the Fed's credibility issues goes back to December, 2018 when they panicked in the face of a falling stock market. I think many (most?) market participants think they will blink again at the first sign of real trouble. Personally I don't think they will because the economic and financial backdrop is different than it was then.

Also, when Powell invokes Volcker he is providing context. Just look at interest rates and inflation in the 1970s (that's what Powell is looking at). Twice the Fed loosened prematurely in the face of inflation starting to ease and twice inflation came roaring back - the second time so viciously that Volcker had to step in and raise rates to astronomical levels. Powell really wants to avoid having to do that therefore the mindset at the Fed right now is error on the side of keeping rates too high for too long.

What does this mean for Treasuries (to try to stay on topic)? My guess is that we will see rates start to rise again within the next month or so. I highly doubt the bear market in bonds is over. But, hey, what do I know?

 

[Chuckanut]

Keep in mind that employment is still strong. Right now long lines of unemployed people are not something the Feds have to worry about. Later in 2023 or 2024? Maybe.

 

[daylatedollarshort]

I think the root of the Fed's credibility issues goes back to December, 2018 when they panicked in the face of a falling stock market. I think many (most?) market participants think they will blink again at the first sign of real trouble. Personally I don't think they will because the economic and financial backdrop is different than it was then.

Also, when Powell invokes Volcker he is providing context. Just look at interest rates and inflation in the 1970s (that's what Powell is looking at). Twice the Fed loosened prematurely in the face of inflation starting to ease and twice inflation came roaring back - the second time so viciously that Volcker had to step in and raise rates to astronomical levels. Powell really wants to avoid having to do that therefore the mindset at the Fed right now is error on the side of keeping rates too high for too long.

What does this mean for Treasuries (to try to stay on topic)? My guess is that we will see rates start to rise again within the next month or so. I highly doubt the bear market in bonds is over. But, hey, what do I know?

I think that is the most likely scenario, too. I'm still dollar cost averaging and laddering the money from our bonds funds into Treasuries, CDs and agency bonds, plus buying TIPS for the longer term maturities, while money markets for the yet uninvested funds are at around 3.7%. The rates are all great compared to a year ago, even if we are past the 2022 peak.

 

[Tom52]

Two questions about reinvesting my first chunk of 3 month treasuries that are maturing on Dec 29. They are invested thru Schwab in case that would make any difference.

Question 1. Since Dec 29 is a Thursday, will these funds be available to immediately reinvest in the next weekly auction scheduled on Jan 3, or, is there a delay before the funds are available to me?

Question 2. Is it possible, on the same 3 mo. auction date, to invest half the money to automatically rollover at maturity, and the other half to not automatically rollover at maturity?

I am sure I originally intended to do this with separate purchases on the same auction date for 3 month treasuries, $xx,xxx to auto rollover and the same $xx,xxx to not rollover, but it did not work. All came back listed as automatic rollover. Maybe I did something incorrectly.