Treasury Bills, Notes, and Bonds Discussion

[lawman]

Agencies are slightly less safe and are not free of state taxes.

Is that the only difference?

 

[disneysteve]

Isn't the tax status you reference, only true for some Treasury Agencies?

I'm not 100% sure. I am positive that Treasury bills are state-tax free. Agency bonds do include several different issuers that may have different tax treatments. Maybe someone else knows.

 

[disneysteve]

Is that the only difference?

As far as I know, but I am no expert.


I will say that my mom has had a large portfolio of agency bonds for the past 3 decades and has always done very well with them. To my knowledge, she has never had any sort of default or failure of any of them. But she also has had a low enough income most of that time where the tax issue didn't matter to her.

 

[Spock]

I'm not 100% sure. I am positive that Treasury bills are state-tax free. Agency bonds do include several different issuers that may have different tax treatments. Maybe someone else knows.

Some GSEs are tax exempt, but I can't find an IRS/Treasury source:
https://www.raymondjames.com/wealth...vernment-sponsored-enterprise-debt-securities
https://www.rbcwm-usa.com/resources/file-687493.pdf

 

[RE2Boys]

Some GSEs are tax exempt, but I can't find an IRS/Treasury source:
https://www.raymondjames.com/wealth...vernment-sponsored-enterprise-debt-securities
https://www.rbcwm-usa.com/resources/file-687493.pdf

The taxation of GSEs may vary depending on state law, so I would not expect the IRS to provide guidance.

Example: for NY :www.tax.ny.gov/pdf/memos/income/m95_4i.pdf

for PA: https://www.revenue.pa.gov/FormsandPublications/FormsforIndividuals/PIT/Documents/rev-1643.pdf

 

[MBSC]

Is that the only difference?

Some GSEs are callable but that will be shown on the brokerage bond listing page. I'm keeping my ladder short. The 6 month GSEs have a lower yield and higher minimum than UST.

The taxation of GSEs may vary depending on state law, so I would not expect the IRS to provide guidance.

Example: for NY :www.tax.ny.gov/pdf/memos/income/m95_4i.pdf

for PA: https://www.revenue.pa.gov/FormsandPublications/FormsforIndividuals/PIT/Documents/rev-1643.pdf

The U.S. Code providing state-tax exemption in all states for certain GSEs is in the PA link. For example:

12 U.S.C. §1433. Federal Home Loan Banks

12 U.S.C. §2023. Federal Farm Credit Banks

 

[copyright1997reloaded]

10-year is going bonkers this morning. Yields up (price down).http://tos.mx/9bMsI54

ETA: Yes, a .1% move is "bonkers"

 

[ShokWaveRider]

10-year is going bonkers this morning. Yields up (price down).http://tos.mx/9bMsI54

ETA: Yes, a .1% move is "bonkers"

FOMC Meetings today and Tomorrow.

 

[jldavid47]

Same. My weighted duration on my non-I-Bond treasuries as of this mornings purchase is 140 days (weighted YTM is 3.26% annualized).

You made me look.

In our taxable account our weighted duration is 164 days and weighted APY is 2.46%. In my IRA my weighted duration is 227 days and weighted APY is 2.39%. As I have many lower-yielding treasuries maturing over the next couple of months the weighted APYs will be increasing substantially. The weighted duration will probably stay the same of move higher a bit.

 

[jazz4cash]

10-year is going bonkers this morning. Yields up (price down).http://tos.mx/9bMsI54

ETA: Yes, a .1% move is "bonkers"

Yes! This thread has really given me appreciation for how a “tiny” numerical change is a big deal. Trillions in trade.

 

[workmyfingerstothebone]

Checking today on Vanguard i see some Morgan Stanley CD's, 1 yr @ 4%.


However, the 1 yr Tbill is paying 4% and no local or state taxes.


My question is why would anyone pick the CD over the Tbill?


Seems like a no "brainer" to me but what do I know.

 

[disneysteve]

Checking today on Vanguard i see some Morgan Stanley CD's, 1 yr @ 4%.


However, the 1 yr Tbill is paying 4% and no local or state taxes.


My question is why would anyone pick the CD over the Tbill?


Seems like a no "brainer" to me but what do I know.

If you live in a tax-free state, that main difference goes away. Then many just don’t know about Treasuries. Honestly I didn’t until this year. I bought a couple of brokered CDs in early 2022 and likely would have done better with Ts. They mature next month and I’ll switch over.

 

[JoeWras]

I'm in a 5% tax state, and it matters. Effectively it can be about 0.3%

I think the other reason people choose CDs is the FDIC insurance. That personally doesn't factor in for me. If T-Bills are defaulted on, then I'm in the basement monitoring my bunker and emergency food supply.

 

[audreyh1]

Awareness is a big reason.

Also Treasuries don’t always yield more then CDs, they often yield slightly less. We just happen to be in a period where interest rates are rising rapidly and Treasuries are responding more quickly than CDs. That is not always the case.

 

[workmyfingerstothebone]

"That personally doesn't factor in for me. If T-Bills are defaulted on, then I'm in the basement monitoring my bunker and emergency food supply."


lol

 

[jldavid47]

I'm in a 5% tax state, and it matters. Effectively it can be about 0.3%

I think the other reason people choose CDs is the FDIC insurance. That personally doesn't factor in for me. If T-Bills are defaulted on, then I'm in the basement monitoring my bunker and emergency food supply.

If T-Bills default then there won't be enough money in the FDIC to pay the insurance. T-Bills are safer than CDs. FDIC insurance is an illusion in the event of a mass default.

 

[Midpack]

If T-Bills default then there won't be enough money in the FDIC to pay the insurance. T-Bills are safer than CDs. FDIC insurance is an illusion in the event of a mass default.

+1. I've always assumed the same...not that FDIC insurance hasn't/wouldn't be helpful in a lesser event.

 

[JoeWras]

Thanks much. That’s all very interesting. A 17 week T-bill may be a useful duration while waiting for rates to rise.

I bought one of these yesterday on Fidelity. I don't think they were available on Vanguard. The rate came in about 1/2 between a 13 wk and 26 wk.

During this test period, they are treated like CMBs, which means announced one day and closed the following day. A very short window. They are also not on the schedule of announcements. CMBs used to only be for institutions with a minimum of $1M. It was for short term, emergency cash to the government. I guess we're now in perpetual emergency need.

Anyway, it went along like any T-Bill. I decided to get this one first to just test it for fun, and second to fill a hole in my January maturity ladder.

 

[Earl E Retyre]

I was waiting for CD rates to hit 4% for a 5 year term and then I was going to start buying. I noticed today that I can buy secondary market Treasury notes through Vanguard for slightly over 4% but that the 4% CDs are callable. So, treasuries seems like a better deal. They cannot be called and they are better protected (although FDIC CDs are very safe).

I quickly perused the above threads to try and understand New vs Secondary. As I understand it, I can lock in the 4% rate today on the secondary or I can buy at auction but then take a risk that it settles more or less than the secondary rate. And I have to wait until the next auction to find out. My thought is I would rather lock in a known rate than an unknown rate. So, I am thinking of purchasing today. Any flaws in my logic?

I know many of you would suggest not locking in 5 years, since you believe interest rates will continue to rise, but, they may fall as well. So, my question is not about locking in 5 years but rather about buying Treasuries at Secondary vs Auction. I have never purchased a Treasury before and want to make sure I am not missing something.

 

[11522914]

I was waiting for CD rates to hit 4% for a 5 year term and then I was going to start buying. I noticed today that I can buy secondary market Treasury notes through Vanguard for slightly over 4% but that the 4% CDs are callable. So, treasuries seems like a better deal. They cannot be called and they are better protected (although FDIC CDs are very safe).

I quickly perused the above threads to try and understand New vs Secondary. As I understand it, I can lock in the 4% rate today on the secondary or I can buy at auction but then take a risk that it settles more or less than the secondary rate. And I have to wait until the next auction to find out. My thought is I would rather lock in a known rate than an unknown rate. So, I am thinking of purchasing today. Any flaws in my logic?

I know many of you would suggest not locking in 5 years, since you believe interest rates will continue to rise, but, they may fall as well. So, my question is not about locking in 5 years but rather about buying Treasuries at Secondary vs Auction. I have never purchased a Treasury before and want to make sure I am not missing something.

You stated "My thought is I would rather lock in a known rate than an unknown rate."

There is your answer and I agree with it myself. And I don't believe you're missing anything.

 

[Chuckanut]

Checking today on Vanguard i see some Morgan Stanley CD's, 1 yr @ 4%.


However, the 1 yr Tbill is paying 4% and no local or state taxes.


My question is why would anyone pick the CD over the Tbill?


Seems like a no "brainer" to me but what do I know.

Some of us live in states with no income tax. Since my brain is still present and working fine, I know that 4% from a Treasury bill and 4% from a CD will be treated the same way regarding state taxes.

How's that for a no "brainer"?

 

[Graybeard]

I have a mish mosh of T bills purchased over the past few months maturing in varying amounts scattered over the next 6 or 7 weeks. I want to start a ladder but just haven't gotten a feel for when to start this or how to allocate the money because I have never done this.

Today I sat down and listed all the T bills I have, when they mature and what's in my rollover IRA's Settlement Fund. I decided to let all the T bills mature and just go back into my Settlement Fund and forget about reinvesting them. I will start to buy 14 3 month T bills every other week starting now out to about 12/18 or 12/22 at which point the 1st purchase will mature. I can then use that to buy 14 more 3 month T bills 2 weeks later.

It seems pretty easy but for some reason I just could not wrap my head around how to do this due to the T bills that have not yet matured and how they figured into laddering. Plenty of folks endorse laddering and me trying to guess whether to buy at auction or in the secondary market and when to buy has kind of become a PITA. This will simplify things and take the guess work out of it and make it a mechanical action every other week.

 

[jim584672]

If T-Bills default then there won't be enough money in the FDIC to pay the insurance. T-Bills are safer than CDs. FDIC insurance is an illusion in the event of a mass default.

If things got so bad they don't honor FDIC you better have a bunker with food and ammo.

 

[HarryHawk]

If things got so bad they don't honor FDIC you better have a bunker with food and ammo.

At that point, food and ammo would be the only currency of relevance

 

[copyright1997reloaded]

At that point, food and ammo would be the only currency of relevance

Yep. Don't forget BB-gun ammo as it is relatively dirt cheap (compared to powder based ammo) and is adequate for rabbit and squirrel and cats. (My cat didn't appreciate that last part and gave me a look that says "Human, I will be nibbling on you within four hours of you not moving.") Things like deer will be quickly decimated leaving a "less desirable" food supply.