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.
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.
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.
True, going beyond 3 months you will get higher rates but you are buying a new rung on the ladder every 3 months. By buying a 3 month T bill every other week you can capture changing rates sooner. Now they could change to the downside but over the next 3-6 months it seems unlikely that the Fed will be pivoting and if they keep raising the over night rate that can raise T bills. I'm always looking at how to do something better so I'm not sure if your way is better or different and we'd only know in hindsight.3 month t-bills won't give you the higher rates we are now seeing.
I use an 18 month ladder with six steps (thanks to PB4 for enlightening me). Last week I built a ladder of 3, 6, 9, 12, 15 and 18 month CDs and Treasuries. Now every three months one comes due. At that point each new renewal will be 18 months. That keeps the 3 month separation between maturities going. If I think rates are going to flatten or go down I might extend the renewals out to 2 years or more.
I don't get the highest rates all the time, but I don't get locked into long term low rate CDs/Treas if inflation surges to double digits. And unless the yield curve gets very funny, I will earn more than simply turning over 3 mo treasuries.
Right now, a 3-month is paying about 3.3%. An 18-month is paying 4.2%. Also, as you wait to buy, you are leaving your cash sitting in the settlement fund paying 2.1%. That means you are sacrificing sure gains while betting that rates will increase fast enough and high enough to offset that.I am asking, is purchasing a 3 month T bill every other week not as good as just creating an 18 month ladder today?
True, going beyond 3 months you will get higher rates but you are buying a new rung on the ladder every 3 months. By buying a 3 month T bill every other week you can capture changing rates sooner. Now they could change to the downside but over the next 3-6 months it seems unlikely that the Fed will be pivoting and if they keep raising the over night rate that can raise T bills. I'm always looking at how to do something better so I'm not sure if your way is better or different and we'd only know in hindsight.
I am asking, is purchasing a 3 month T bill every other week not as good as just creating an 18 month ladder today?
Sure, but there may be tax consequences in non-sheltered accounts.Can I convert all monetary assets? To T Notes, including IRA^s?
No worries. The government will just create whatever amount of money is needed. Defaults only happen to people who don't have the power to create the money that they owe.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.
Right now, a 3-month is paying about 3.3%. An 18-month is paying 4.2%. Also, as you wait to buy, you are leaving your cash sitting in the settlement fund paying 2.1%. That means you are sacrificing sure gains while betting that rates will increase fast enough and high enough to offset that.
Personally, I'd go with making the ladder now and rolling over a rung every 3 months. You could also put more rungs on the ladder and roll over a chunk every month if you'd like. But I wouldn't just sit on the cash and wait to buy later.
My Vanguard settlement fund is at 2.49%. I don't know what the odds are of it going up fast enough to average 3.3% over the next three months, but I do think that the settlement fund is fairly likely to be above 3.3% in three months. I'm inclined to put half of my settlement account money into a relatively short term ladder (no more than 24 months with more going into a three month) right now and keep half of it in the settlement fund to invest in treasuries/CDs over the next few months.
This obviously is market timing, but it doesn't seem to be comparable to market timing for stocks because the Fed has pretty clearly indicated that it is going to be increasing interest rates during the rest of the year.
I admit, though, that I know very little about bonds, so this approach could be pretty dumb. So, people should feel free to tell me how and why it is not a wise approach.
Whatever you do, it's a lot smarter than keeping your money in some of the big mega banks, or even some of the online banks. I just got a notice from one Big Name internet bank that I can now get a 3% one year CD. WOW? Nope. I just built a ladder that had a one year CD kissing close to 4%.
That is true up to a point. If the FDIC runs out of money (like the FSLIC did in the late 1980s) the government can step in and make depositors whole. In the FSLIC instance it took a long time for that to happen. In the meantime your money is earning nothing and is completely illiquid.No worries. The government will just create whatever amount of money is needed. Defaults only happen to people who don't have the power to create the money that they owe.
6 month yields were approaching 3.9% on Friday and are higher this morning. The 2 year yields are up to 4.3% this morning. There is also a 2-year note auction later today. It will be interesting to see if that yield comes in in that area. We'll see.So what rate are we guessing for the auction tomorrow for the six month bond? I'm planning to wait for the October 3 auction to buy again. The 6 month T-bill was something like 3.8% annualized for the September 19th auction - reckon it will hit 4.1% tomorrow?
3.9+%?So what rate are we guessing for the auction tomorrow for the six month bond? I'm planning to wait for the October 3 auction to buy again. The 6 month T-bill was something like 3.8% annualized for the September 19th auction - reckon it will hit 4.1% tomorrow?
There is ZERO doubt that Treasury bills are safer than CDs. Anyone who claims they are equally safe just doesn't understand the underlying characteristics of the products.
Well, I guess I just don't understand then. In terms of getting one's money back IMO they are the same. Admittedly possible bureaucratic delay favors the govvies but I don't think that jeopardizes "safe."... There is ZERO doubt that Treasury bills are safer than CDs. Anyone who claims they are equally safe just doesn't understand the underlying characteristics of the products.
I read 3.913% for t-bills 6 month. (1140AM CNBC).
TD Ameritrade yield is 3.7 for the T-bills Secondary Market 6 month.
FIDO yield is 3.79 for T-bills sec mkt.
Well, I guess I just don't understand then. In terms of getting one's money back IMO they are the same. Admittedly possible bureaucratic delay favors the govvies but I don't think that jeopardizes "safe."
Well, I guess I just don't understand then. In terms of getting one's money back IMO they are the same. Admittedly possible bureaucratic delay favors the govvies but I don't think that jeopardizes "safe."
(a) BORROWING FROM TREASURY.--
(1) IN GENERAL.--The Corporation is authorized to borrow from the Treasury, and the Secretary of the Treasury is authorized and directed to loan to the Corporation on such terms as may be fixed by the Corporation and the Secretary, such funds as in the judgment of the Board of Directors of the Corporation are from time to time required for insurance purposes, not exceeding in the aggregate $100,000,000,000 outstanding at any one time, subject to the approval of the Secretary of the Treasury:
All that is very nice, but irrelevant. The politicians are not going to let FDIC stiff people. Period. Rules and procedures will be rewritten on the fly as necessary. That is the way the government backing will work.... I am posting this not to scare anyone from FDIC-insured deposits, only for education (to anyone who cares) about how the FDIC government backing works. ...
All that is very nice, but irrelevant. The politicians are not going to let FDIC stiff people. Period. Rules and procedures will be rewritten on the fly as necessary. That is the way the government backing will work.