Treasury Bills, Notes, and Bonds Discussion

[RetireAge50]

ok thanks. Good to know but why pick the lowest YTW? I imagine the difference is tiny anyway.

Oops. Meant the highest. Lol. I edited it now. Thanks.

 

[Spock]

Crazy how myopic people can be (including myself, of course, in various ways). My own parents were like this, always purchasing only CDs from the local bank instead of venturing out to other extremely low/no-risk investments like treasuries. I suppose this is why people still pay the cable TV companies well over $100/month without bothering to check out lower priced alternatives. Inertia and apathy can be powerful things.

From a different perspective:
For my spouse (who has a bachelors degree), Facebook is the internet from her phone. She can not operate a mouse or copy/paste on a computer. She does not understand an IRA or a CD.
She does understand a checking account at a brick and mortar bank where she can go in and speak with a teller, so long as she doesn't have to use the pneumatic tube in the drive thru. She can work the ATM if the screens haven't changed.
So that is where we keep an account.
I keep an updated list in her Bible of userid/pwds of the other accounts and people she can reach out to if I get hit by truck. But there will always be and account with a year of living expenses at a brick and mortar bank (paying 0.01% interest).

 

[Graybeard]

Someone please correct me if I'm wrong, but on Treasuries YTW and YTM should always be the same since Treasuries aren't callable.


I think the screen is just set up that way so that it's consistent with other types of bonds where those two numbers may be different.

That is my understanding also.

Thanks.

 

[Graybeard]

So here is a question based upon what I saw at Vanguard a few minutes ago, this is in the secondary market.

I looked for a T bill that will mature in 30 days, I see CUSIP 912796YC7, the maturity date is 10/4.

Question 1: Can I buy only 25? It isn't clear if there is a minimum to purchase but maybe that is because the market is closed?

Question 2: If I buy that those, is my yield going to be 2.471 or 2.410?

Question 3: When they mature how many days does it take for the money to be in my Settlement Fund?

 

[disneysteve]

Question 3: When they mature how many days does it take for the money to be in my Settlement Fund?

My very limited experience has been that it's in there the next day.

 

[disneysteve]

Question 2: If I buy that those, is my yield going to be 2.471 or 2.410?

The rate would be 2.410% as of right now, though may differ once you actually buy it on Tuesday.

 

[Graybeard]

My very limited experience has been that it's in there the next day.

The rate would be 2.410% as of right now, though may differ once you actually buy it on Tuesday.

Thank you. So a maturing T bill bought on the secondary market has the proceeds deposited into the Settlement Fund faster than T bills bought at auction as those take a couple of days.

 

[disneysteve]

Thank you. So a maturing T bill bought on the secondary market has the proceeds deposited into the Settlement Fund faster than T bills bought at auction as those take a couple of days.

I've never bought at auction but I'm not sure why there would be a difference.



Can anyone else with Vanguard comment here? I've only had 2 T bills mature so far but I'm almost positive the money was in our account the next day both times.

 

[Graybeard]

IIRC it took at least 2 or 3 days when I bought at auction but I think I had just 1 mature so far. I agree, I don't see why the proceeds wouldn't be paid in the same number of days.

 

[disneysteve]

IIRC it took at least 2 or 3 days when I bought at auction but I think I had just 1 mature so far. I agree, I don't see why the proceeds wouldn't be paid in the same number of days.

My next one matures on Tuesday. I'll be sure to pay attention to when it hits the settlement fund and report back.

 

[audreyh1]

I recently had one treasury block mature at Fidelity. It showed up as processing first thing this past Thursday morning which was the maturity date, and the value was credited to my account that day.

In the meantime I had also purchased at the Monday auction for the same quantity of treasuries. These settled on the same Thursday (three days after auction). Fidelity handled it as a negative balance against my core account until that Thursday when I went positive again due to the other maturing treasury. I had funds to cover the purchase in an additional money market fund, but these were never used.

IMO - you get your funds on the maturity date, although you may not be able to transfer them out until the next day, but you can likely use the proceeds for other trades that same day.

For auction purchases that generally settle three days later: they earmarked the funds which in my case showed as a negative core balance until the settlement date when it was covered by the maturing treasury. So they didn’t actually remove the funds from my account until the settlement date, I just didn’t have access to them.

If I hadn’t had a same day maturing treasury they would have pulled the funds from my non-core money market fund on Thursday to settle the auction purchase.

I basically rolled from a 13-week to 26-week treasury, and the funds transfer timing was perfectly synchronized.

 

[audreyh1]

IIRC it took at least 2 or 3 days when I bought at auction but I think I had just 1 mature so far. I agree, I don't see why the proceeds wouldn't be paid in the same number of days.

Because they are two different processes, the timing is not the same.

 

[MBSC]

IIRC it took at least 2 or 3 days when I bought at auction...

Correct. The auction schedule includes the settlement date, the date the funds are removed from the account. For example, assuming no holidays 4-week bills are auctioned on Thursdays and settle the following Tuesday. Secondary purchases settle the next business day.

Auction Schedule: https://home.treasury.gov/system/files/221/Tentative-Auction-Schedule.pdf

Can anyone else with Vanguard comment here? I've only had 2 T bills mature so far but I'm almost positive the money was in our account the next day both times.

BH is a larger forum so they already have an answer. Auction and secondary share the same maturity process since the Treasury Dept is unaware. They just know they need to pay out a matured T-bill.

Tue Aug 23, 2022 2:16 pm
I have 8/23/22 Treasury bills, CUSIP 912796XN4, maturing today in various accounts at Fidelity and Vanguard.

At Fidelity, transaction history shows the redemption, and the redemption amount is included in the balances as cash available to trade or withdraw. I've already entered an order to buy FZDXX (premium MM) with the proceeds.

At Vanguard, this issue still is shown in holdings, nothing in transaction history, and not included in amount available to trade or withdraw.

Wed Aug 24, 2022 12:59 pm
As expected, the proceeds from the matured bills at Vanguard now are available (day after maturity). As Electron states in a post above, the transaction history shows yesterday (8/23) as both the transaction and settlement date. The interest is shown as a separate transaction.

Source: https://www.bogleheads.org/forum/viewtopic.php?p=6839427&hilit=vanguard#p6839427

 

[audreyh1]

That’s interesting that the interest shows up as a separate transaction in the transaction history at Vanguard. I have to compute this myself for Fidelity to enter it in Quicken as interest income. I’m sure the Fidelity tax info and ultimately their 1099 identifies it correctly as interest income but their transaction history simply shows the full face amount being returned to the account.

 

[disneysteve]

That’s interesting that the interest shows up as a separate transaction in the transaction history at Vanguard.

I can definitely confirm that. The first time it happened I was concerned because I saw that the bill matured for the same amount I had paid and I thought the whole point was that it would mature for face value. It took me a minute to realize the interest was paid separately.

 

[audreyh1]

I can definitely confirm that. The first time it happened I was concerned because I saw that the bill matured for the same amount I had paid and I thought the whole point was that it would mature for face value. It took me a minute to realize the interest was paid separately.

The interest is not actually paid separately which is how zero coupon bonds work. You simply get the full face value back of something you originally bought at a discount, and the difference is the interest income. Vanguard chooses to report this separately to you which makes tracking taxable income easier. Fidelity shows the bill maturing at the full face value which is what actually happens, but then I have to calculate which of that amount was interest income.

 

[disneysteve]

The interest is not actually paid separately which is how zero coupon bonds work. You simply get the full face value back of something you originally bought at a discount, and the difference is the interest income. Vanguard chooses to report this separately to you which makes tracking taxable income easier. Fidelity shows the bill maturing at the full face value which is what actually happens, but then I have to calculate which of that amount was interest income.

Yes, I worded that poorly. I realize the interest isn't actually separate. I just meant that it gets reported separately.


What I do is keep an old-school paper ledger where I record the date of purchase, interest rate, maturity date, and purchase price, so I already know exactly how much the interest will be, but it is nice that Vanguard reports it also.


I'm kind of surprised that Fidelity doesn't list the income on your transaction history.

 

[audreyh1]

I’m sure it’s included in the Fidelity tax info to date as me having received some interest income. But otherwise no, what they show in history is one transaction for the matured treasury returning the full face value to my account.

When I sell a mutual fund they don’t list the realized gain/loss on my transaction history either, just the sale proceeds. I have to go to closed positions to get the capital gain/loss info.

 

[John Galt III]

Poked around a bit on the Vanguard website and saw some corporate bonds at 5.x % (I think) for 5 year term. Lots of unwanted details and lingo to learn about, though. Would prefer just clicking on something like "5 year bond 5%" but no, not that easy, lol. And a question : would the interest just be treated the same as interest on a CD, as in just getting a 1099-int from Vanguard? And the interest from the settlement fund also just a 1099-int? Thanks.

 

[wallygator69]

If you don’t need the cash and just want to do the conversion, you can just transfer $30k of the T bills in kind.

NICE! Didn't think of that..Awesome!


Wally

 

[audreyh1]

Just check that your broker will do it.

 

[Golden sunsets]

Question for the group. I apologize if this question has already been asked.

DH and I decided today to take a chunk of money that had been in HYS at the most recent rate of 2.3%, and invest in a Treasury ladder. Using the ladder tool on Fido we identified a 10 rung ladder, of buying notes due in consecutive months starting 12/1/22. It seems clear that the lower the coupon, the higher (fractionally) the YTM for the same maturity. And zeros continue that differential further.

My assumption is that many folks want income along with the laddered maturity, and the market recognizes this in the form of the slightly higher yield for those who don't collect much income until maturity.

If we don't care about income, is there any reason not to buy zeros or minimal coupon notes in order to maximize yield?

One other question. If I buy a zero coupon bond or minimal coupon bond, thus collecting all or most of the interest at maturity, does the broker still report this income monthly or periodically accruing for tax purposes? I can't imagine that I would get to defer income until maturity.

Thanks in advance for your input.

 

[Born2Fish]

How do you buy treasury bills at auction (Fidelity)?

I have been buying treasuries on the secondary market but have never placed orders on the auction.

I went to "Treasury Offering New Issue Offerings"

Do I just select a maturity date, enter the quantity and then pay at whatever yield amount that eventually comes out?

Can I enter orders tomorrow or does it close before market open?

 

[MBSC]

How do you buy treasury bills at auction (Fidelity)?

I have been buying treasuries on the secondary market but have never placed orders on the auction.

I went to "Treasury Offering New Issue Offerings"

Do I just select a maturity date, enter the quantity and then pay at whatever yield amount that eventually comes out?

It is as you describe. The article below has screen shots of buying treasuries at auction through Fidelity, Schwab and Vanguard.

https://thefinancebuff.com/treasury-bills-cd-money-market.html

Can I enter orders tomorrow or does it close before market open?

I have heard of orders being accepted as late as 9AM ET on the auction date when placed through a brokerage. I have never waited until the auction date. I just submitted my order.

 

[MBSC]

One other question. If I buy a zero coupon bond or minimal coupon bond, thus collecting all or most of the interest at maturity, does the broker still report this income monthly or periodically accruing for tax purposes? I can't imagine that I would get to defer income until maturity.

Plain English version:

However, the Tax Code permits the taxpayer to elect not to recognize the market discount interest income currently but rather at the time of sale or redemption.
[Details omitted for brevity] ...The Cost Basis regulations require that we default your choice to market discount deferral status as this is most advantageous for taxpayers.

...Thus far we have explored the unique quality of a market discount bond that enables a taxpayer to postpone the recognition of current interest income until such time as the security is sold or otherwise disposed of. [More details]

...In summary, you have the ability to delay paying taxes on market discount interest income by using the [brokerage] default which recognizes income at time of sale.

Source: https://www.hilltopsecurities.com/w...-application-of-the-market-discount-rules.pdf

The actual language is in IRS Publication 550 in the sections 'Market Discount Bonds' and 'Discount on Short-Term Obligations' within the "if you do not accrue" statements.

https://www.irs.gov/publications/p550#en_US_2021_publink100010016

If we don't care about income, is there any reason not to buy zeros or minimal coupon notes in order to maximize yield?

If you manage MAGI for ACA subsidies (or at the top of a Medicare IRMAA tier), the timing of a lump sum interest payment may be a factor.