Treasury Bills, Notes, and Bonds Discussion

[audreyh1]

Yes, that was the big jump in rate at the auction on 9/8, and the Treasury page switched to tracking the newer t-bill.

But it had been close on 9/1, so it wasn’t that far from recent history.

 

[sengsational]

I bought some T bills today on the secondary market. I don't understand the yield. Here's the specs:

The bill listed the YTM/YTW as 2.375% which I thought was OK. I bought them immediately, this was around 3:30 ET and when it was done I ran the details through the calculator Audreyh1 posted a link and I got a yield of 2.30%.

I'm pretty sure I entered the correct info into the calculator.

24 T bills
the cost was $23,950.12
they mature in 33 days

This is the calculator. https://goodcalculators.com/treasury-bills-calculator/

Is it possible that the Vanguard screen that lists the secondary market treasuries refreshes every 15 minutes or longer? Maybe the yield changed and I did not know when I bought them?

I know there is a bid and ask spread, the yield I am quoting was the ask, the bid was about 10 bp higher. I thought I was getting 2.375%.

I have found that calculating returns for short duration bonds are excruciating sensitive to date assumptions. Here's what you do: convert the discrepancy to dollars. It probably will be a cup of coffee's worth, and will be easy to ignore.

ETA: After re-reading your post, I realize you might not have got the price that was used to calculate the yield. I'm not sure what the trading platform looks like, but in Fidelity, you can create an order for a specific price or specific yield or you can go for a market order. If the latter, there's no guarantee you'll get the same price they used in the YTM calculation.

 

[audreyh1]

4 week t-bills offer a little over what the Vanguard settlement fund offers in yield, and the settlement fund will move up sharply as the Fed raises rates. So I wonder if it’s worth bothering with 4 week t-bill which you also have to renew every 4 weeks.

 

[MarieIG]

4 week t-bills offer a little over what the Vanguard settlement fund offers in yield, and the settlement fund will move up sharply as the Fed raises rates. So I wonder if it’s worth bothering with 4 week t-bill which you also have to renew every 4 weeks.

That is one thing I like about Vanguard - the rate on their settlement fund. My settlement fund at TD Ameritrade pays next to nothing; but I have to leave money in it in case my limit orders go through.

The treasuries do give me the benefit of saving NYS income tax; but I have been liking the 26 week duration. I have a a few CDs coming due this month, and also may look to see (well more like will look than "may" look) what is available after the next rate hike.

 

[jazz4cash]

I learned a lot from this exercise. I hope you did too.

It’s all very compelling. Thanks for the detailed posts.

 

[jazz4cash]

All this time my ONLY interest in the 4 week bill has been to understand more about the auction process and the bond market. Now I am rethinking my position. These rates make me want to create my own money market account in lieu of Marcus and other HYS accounts. Buying at the auction using Fido’s automated treasury roll feature that others have suggested is making more sense. All of these situations are fluid and require flexibility and an open mind, I guess.

 

[Another Reader]

4 week t-bills offer a little over what the Vanguard settlement fund offers in yield, and the settlement fund will move up sharply as the Fed raises rates. So I wonder if it’s worth bothering with 4 week t-bill which you also have to renew every 4 weeks.

My thoughts exactly. Too much babysitting for a few pennies.

 

[pb4uski]

I bought some T bills today on the secondary market. I don't understand the yield. Here's the specs:

The bill listed the YTM/YTW as 2.375% which I thought was OK. I bought them immediately, this was around 3:30 ET and when it was done I ran the details through the calculator Audreyh1 posted a link and I got a yield of 2.30%.

I'm pretty sure I entered the correct info into the calculator.

24 T bills
the cost was $23,950.12
they mature in 33 days

This is the calculator. https://goodcalculators.com/treasury-bills-calculator/

Is it possible that the Vanguard screen that lists the secondary market treasuries refreshes every 15 minutes or longer? Maybe the yield changed and I did not know when I bought them?

I know there is a bid and ask spread, the yield I am quoting was the ask, the bid was about 10 bp higher. I thought I was getting 2.375%.

I usually use the XIRR function in Excel. I get 2.328% assuming that you bought them on the date of your post and that they mature on 10/11/22.

	2.328%
09/08/22	-23,950.12
10/11/22	24,000.00
33

But segsational is right... if you are one day off it makes a big difference.

	2.401%
09/08/22	-23,950.12
10/10/22	24,000.00
32

	2.259%
09/08/22	-23,950.12
10/12/22	24,000.00
34

 

[John Galt III]

Can anyone please tell me what the settlement fund rate is Now? I poked around in my new Vanguard brokerage acct and all I could find was VMFXX and the rate was very low, either .05% or 0.5%. Could not find the word 'settlement' anywhere on the site.

 

[disneysteve]

Can anyone please tell me what the settlement fund rate is Now? I poked around in my new Vanguard brokerage acct and all I could find was VMFXX and the rate was very low, either .05% or 0.5%. Could not find the word 'settlement' anywhere on the site.

2.15% as of the moment.

 

[John Galt III]

2.15% as of the moment.

Thank you very much. That is much higher than the VMFXX 0.51% YTD return as of 9/6/2022. I guess Vanguard treats the settlement fund differently from VMFXX somehow. I thought VMFXX was supposed to be the settlement fund. Perhaps the YTD is so low because it incorporates so many days of very low rates earlier in the year? And 2.15% is the current annualized rate for VMFXX ? Have I answered my own question?

 

[disneysteve]

Thank you very much. That is much higher than the VMFXX 0.51% YTD return as of 9/6/2022. I guess Vanguard treats the settlement fund differently from VMFXX somehow. I thought VMFXX was supposed to be the settlement fund.

YTD return and 7-day SEC yield are not the same thing. Rates were much lower earlier this year so the YTD return is lower than the current yield.

 

[audreyh1]

Thank you very much. That is much higher than the VMFXX 0.51% YTD return as of 9/6/2022. I guess Vanguard treats the settlement fund differently from VMFXX somehow. I thought VMFXX was supposed to be the settlement fund.

Year to date return is not the yield/interest rate. For a money market fund it is just how much has been paid in interest so far this year. The interest rate has been increasing during the year, so a higher rate is being paid now compared to say January.

I believe VMFXX is the settlement fund.

 

[John Galt III]

Year to date return is not the yield/interest rate. For a money market fund it is just how much has been paid in interest so far this year. The interest rate has been increasing during the year, so a higher rate is being paid now compared to say January.

I believe VMFXX is the settlement fund.

Yes, I see. I figured it out 30 seconds ago and edited my previous post, but you guys were as fast as lightning on the draw! Thank you !

 

[Graybeard]

The Settlement Fund and VMFXX are not the same thing. The Settlement Fund uses VMFXX to hold the money and for its yield. You need money in the Settlement Fund to buy bills/notes/bonds and probably CDs. You can't buy those if the money is in VMFXX.

It sounds like a contradiction but I fell afoul of this the first time I tried to buy a T bill and that is how I know for sure. I transferred money to Vanguard and put it into VMFXX for the T bill purchase. I "bought" a T bill but when I checked the next day it never happened. I called and was told the money needs to be in the Settlement Fund but I put it into VMFXX. I said they are the same and he said no they are not.

So while money in either earns the same yield, there is a difference and if you want to make a purchase it comes out of your Settlement Fund..

 

[RetireAge50]

Hmm. In my Vanguard when I have been buying treasuries lately the money automatically comes out of VMFXX. It is listed as the settlement fund.
I don’t think I have ever actually called Vanguard. Sounds like people get random answers so I hope I never have to call them.

 

[audreyh1]

At least at Fidelity brokerage accounts they will pull from any money market fund to fulfill an order. If your core (settlement) fund is not sufficient for the order, they pull it from one of the other money market funds if you have them. They treat all money market funds as cash available to trade.

 

[MBSC]

This has got me scratching my head a bit - if this auction purchase does not settle until next week (Tuesday 9/13), how can it be trading already

Treasury tracking site for the most recent issue t-bills: https://home.treasury.gov/resource-..._bill_rates&field_tdr_date_value_month=202209

Stock quotes are the result of a trade. UST rates are the Bid offers for the new 4-week on the secondary market inventory page from dealers willing to make a trade. It does not mean someone has accepted the offer and created a trade where the T-bill is issued to the new owner on the issue/settlement date. Although outdated, Fidelity secondary market shows Bid quotes in the 2.53%-2.54% range. There are also multiple Ask quotes in the 2.44% range from dealers willing to sell it to us.

"U.S. Treasury Rate" on any date means the yield as calculated by reference to the bid price quotation...as such bid price quotation is published by the Federal Reserve Bank of New York in its Composite 3:30 P.M. Quotations for U.S. Government Securities report.

The bid price is the price at which the dealer is willing to buy the bond from you. The ask price is the price at which the dealer is willing to sell the bond to you.

 

[JoeWras]

Hmm. In my Vanguard when I have been buying treasuries lately the money automatically comes out of VMFXX. It is listed as the settlement fund.
I don’t think I have ever actually called Vanguard. Sounds like people get random answers so I hope I never have to call them.

As long as it is your settlement fund, you are OK.

Graybeard brings up a case where someone could actually buy VMFXX and you'll see it listed separately as a position in your brokerage. In Vanguard's case, they won't pull from that.

Apparently at Fidelity is is different as audrey points out.

To be safe, just make sure it is in your settlement fund.

There is a way to change what your settlement fund is. At Fidelity, they give you options when you sign up. For now, Vanguard's default of VMFXX is just fine.

 

[audreyh1]

Stock quotes are the result of a trade. UST rates are the Bid offers for the new 4-week on the secondary market inventory page from dealers willing to make a trade. It does not mean someone has accepted the offer and created a trade where the T-bill is issued to the new owner on the issue/settlement date. Although outdated, Fidelity secondary market shows Bid quotes in the 2.53%-2.54% range. There are also multiple Ask quotes in the 2.44% range from dealers willing to sell it to us.

Thanks much again!

 

[sengsational]

I usually use the XIRR function in Excel. I get 2.328% assuming that you bought them on the date of your post and that they mature on 10/11/22.

And the difference is $1.58. I can find that much change in my couch.

 

[copyright1997reloaded]

My thoughts exactly. Too much babysitting for a few pennies.

I think 4 weeks is too short, especially if one has an idea of how much money they might need (or is willing to sell at a discount in case of an emergency).

Prior to today's auction of 13 an 26 week T-bills, my T-Bill ladder has an overall 2.9% YTM and duration of 120 days. This yield is considerably higher than the 2.38% discussed below. (After today's auction I estimate my YTM will be about 3.07% with a average duration of 140 days.) That is, I can control where on the treasury yield curve I want to be while still leaving "enough" w/lesser maturities to handle potential short-term needs.

All without having a fund that has things like repo's, and non t-bill government obligations. (For example, VMFXX is only 12% T-bills.)

But you are right, perhaps too much babysitting. (Except I find it kind of fun.)

 

[audreyh1]

Laddering (staggering maturity dates) is a good way to get both liquidity and the higher yields of longer maturities, and if you set it up to autoroll then it takes care of itself.

Personally I always have ample in money market for liquidity needs so funds I commit to treasuries are for longer term investment.

 

[copyright1997reloaded]

Today's auction results:
13-week (matures 12/15/22, CUSIP: 912796X79) Price per $100: 99.222708 YTM: 3.142%
26-week (Matures 03/16/23, CUSIP: 912796YL7) Price per $100: 98.24825 YTM: 3.576%

I bought both, mostly the 26-week.

 

[tulak]

I bought a 26-week T-Bill at auction today at 3.576%. The 13-week sold at 3.142%.

26 weeks is as far out as I’d go at this point and is close to what the 52 week sold for last week at 3.603%.