Treasury Bills, Notes, and Bonds Discussion

[aja8888]

I suppose it does not matter as long as the return on what one pays is at the current rate. If so, does this mean the current owners are losing money out of the sale?

The buying/selling price adjustments (sales in aftermarket) are based on the current interest rate fluctuation, like any bond product.

Hold the treasury to maturity and you get the face value and any coupon payments along the way. The stated yield when you bought it will be accurate.

 

[audreyh1]

As interest rates rise, prices of already issued treasuries drop. This is countered by the fact that time to maturity shortens as you hold it. For example a 6 month t-bill would be compared to a 3 month t-bill after 3 months of ownership.

 

[calmloki]

Last night I was pumping up treasury bills to a friend - tried to do a walk-through and show him on Vanguard, where we've bought bonds. Only had my phone and the App didn't allow it - only the purchase of ETF's, stocks, or mutual funds. That's OK, just an unexpected wrinkle. He has Fidelity, but only through his work 401k, so wasn't familiar or able to get into his Fidelity account. Stymied.

Came home and the gal pointed out that we have a Fidelity account - D'oh! - via our long-time favorite Fidelity 2% credit cards. Went in to accounts and sure, there are T-bills, just waiting to be bought. And with a roll-over option! May have to look into the relative strengths and weaknesses between Vanguard and the unfamiliar Fidelity. Physical offices might be another Fidelity advantage - any other strong benefits/weaknesses? My comparative familiarity with Vanguard is a strong advantage.

 

[calmloki]

As interest rates rise, prices of already issued treasuries drop. This is countered by the fact that time to maturity shortens as you hold it. For example a 6 month t-bill would be compared to a 3 month t-bill after 3 months of ownership.

Your counter is something that eases my mind - I'd resigned myself to holding 6-month bills to maturity, figuring that since interest is only realized at the end of 6 months I'd be losing at a shorter period sale in the current rising rate market.

 

[JoeWras]

May have to look into the relative strengths and weaknesses between Vanguard and the unfamiliar Fidelity. Physical offices might be another Fidelity advantage - any other strong benefits/weaknesses? My comparative familiarity with Vanguard is a strong advantage.

That's kind of a context switch in subject matter that has been discussed in other threads.

With regard to T-bills, I do like the Vanguard "Bond and CD cash flow" tool. This shows a table of payments and maturities that helps me visualize my ladder. I haven't found an equivalent (yet) on Fidelity.

In Fidelity's favor, you have the "Auto-Roll" option that VG does not have. I also find Fidelity's web site to be more usable and more reliable with less glitches and down time.

So, I'm slowly moving my T-Bill purchases to Fido as my ladder rungs fall off on VG. I could transfer but I don't find that necessary yet. Next year I'll consider transferring my VG ETFs to Fidelity, just keeping my old mutuals on VG, where it is easy to donate them to my Vanguard Charitable DAF. If I do that, I'll have funds about 50/50 between the two firms. Probably a good practice anyway to avoid all eggs in one basket.

 

[COcheesehead]

That's kind of a context switch in subject matter that has been discussed in other threads.

With regard to T-bills, I do like the Vanguard "Bond and CD cash flow" tool. This shows a table of payments and maturities that helps me visualize my ladder. I haven't found an equivalent (yet) on Fidelity.

In Fidelity's favor, you have the "Auto-Roll" option that VG does not have. I also find Fidelity's web site to be more usable and more reliable with less glitches and down time.

So, I'm slowly moving my T-Bill purchases to Fido as my ladder rungs fall off on VG. I could transfer but I don't find that necessary yet. Next year I'll consider transferring my VG ETFs to Fidelity, just keeping my old mutuals on VG, where it is easy to donate them to my Vanguard Charitable DAF. If I do that, I'll have funds about 50/50 between the two firms. Probably a good practice anyway to avoid all eggs in one basket.

There is a great cashflow and maturity tool at Fidelity. It’s called fixed income analysis. Multiple ways to access it.

 

[jazz4cash]

Your counter is something that eases my mind - I'd resigned myself to holding 6-month bills to maturity, figuring that since interest is only realized at the end of 6 months I'd be losing at a shorter period sale in the current rising rate market.

Just for clarification, as with any bond interest accrues as you are holding the bond. A buyer will pay the seller for the accrued but unpaid interest at the time of sale. The buyer will be reimbursed for interest paid to the seller by receiving an interest payment for the full period upon maturity/next coupon date. Anyone disagree?

 

[JoeWras]

There is a great cashflow and maturity tool at Fidelity. It’s called fixed income analysis. Multiple ways to access it.

Ah, tried that and didn't find the magic sauce. At your urging, I pushed through and found more stuff to analyze and the ability to change between yearly and monthly. Nice! Better than VG's.

So back to someone's question: is VG or Fido better to buy T-Bills? I'm falling squarely into the Fido camp.

 

[COcheesehead]

Just for clarification, as with any bond interest accrues as you are holding the bond. A buyer will pay the seller for the accrued but unpaid interest at the time of sale. The buyer will be reimbursed for interest paid to the seller by receiving an interest payment for the full period upon maturity/next coupon date. Anyone disagree?

Agree. You can sell a bond at any point and realize interest accrued to that date. You do not have to wait for maturity or the next coupon date.

 

[bobandsherry]

Just for clarification, as with any bond interest accrues as you are holding the bond. A buyer will pay the seller for the accrued but unpaid interest at the time of sale. The buyer will be reimbursed for interest paid to the seller by receiving an interest payment for the full period upon maturity/next coupon date. Anyone disagree?

Yep, when you buy on the secondary market you pay the "price" and also the accrued interest.

 

[jldavid47]

16 rungs on my ladder and growing. I may also have a problem.

Only 16? Slacker. At the end of this week I'll have 31 rungs on my IRA ladder and 35 on the taxable account ladder.

 

[jldavid47]

Just for clarification, as with any bond interest accrues as you are holding the bond. A buyer will pay the seller for the accrued but unpaid interest at the time of sale. The buyer will be reimbursed for interest paid to the seller by receiving an interest payment for the full period upon maturity/next coupon date. Anyone disagree?

For bonds and notes I agree. For bills, there is no "accrued interest" per se. The price of the bill simply fluctuates to reflect current interest rates for the time remaining. Only treasury securities with coupon payments (i.e. notes and bonds) have accrued interest payments by the buyer.

 

[NW-Bound]

I still find it kinda funny that a forum with general overtones of not timing the equity markets are all about timing the fixed income markets.

Heck, I time everything. Don't people time their airfare purchase, or even their TurboTax or HR or Quicken software renew?

My wife times her grocery shopping too. She usually waits for Wednesday sales flyers from the local stores to decide what to buy.

 

[BeanCounter62]

TreasuryDirect down?

I've been trying to create a TreasuryDirect account for the past few days.

I enter my info and then it errors out saying there is a system problem and try again later. I've done this several time / several days - always the same.

Anyone else having better luck with a new account?
Hoping to get an iBond before the end of the month.

 

[COcheesehead]

For bonds and notes I agree. For bills, there is no "accrued interest" per se. The price of the bill simply fluctuates to reflect current interest rates for the time remaining. Only treasury securities with coupon payments (i.e. notes and bonds) have accrued interest payments by the buyer.

What do you mean by bills? Zeros?
I can also assure you there are bonds beyond treasuries that accrue interest daily.

 

[MarieIG]

16 rungs on my ladder and growing. I may also have a problem.

The word "ladder" connotes organization in your acquisitions. At this point I'm dealing with a Bond Melee.

 

[MarieIG]

I've been trying to create a TreasuryDirect account for the past few days.

I enter my info and then it errors out saying there is a system problem and try again later. I've done this several time / several days - always the same.

Anyone else having better luck with a new account?
Hoping to get an iBond before the end of the month.

I opened an account Friday; and DS #3 opened one Saturday. Whether or not they will be successfully funded I won't know until tomorrow. DS#5 was locked out of his account and attempted five times (unsuccessfully) to get through to TD. Says he doesn't know that it is worth it. So, results are pending. . .

 

[Chuckanut]

I still find it kinda funny that a forum with general overtones of not timing the equity markets are all about timing the fixed income markets.

I guess it's how you define 'timing'. In my case I have always considered timing the market to be thinking that one can pick the high and low point very closely. Thus, one can sell at or near the high point and buy at or near the low point.

The bond ladder is a result of NOT being able to time the market. While I have my suspicions, I have no way of knowing if the 5 year CD or bonds will top out at 6%, 8% or 14%. So, the ladder is actually a way of dealing with the reality that I know I can't accurately time the market. I'll let the chest thumping experts time the market all they want.

IOW, I don't see a CD ladder as being all that different from dollar cost averaging into a stock index fund.

 

[NW-Bound]

The word "ladder" connotes organization in your acquisitions. At this point I'm dealing with a Bond Melee.

Well, you can sit down to sort out your bonds according to their maturity. Voilà, some organization. Then, see what rungs you need to fill in to complete your ladder.

The real question is how long a ladder does one want. Just a step ladder, or an extension 24-footer.

 

[copyright1997reloaded]

It is amazing how low my "cash not committed" (to T-Bills, Ally $500 offer, etc.) are getting.

It really is just a function of the run up in rates. When CD's were yielding next to nothing, I started to get sloppy. After all, getting .7% and tying it up multiple years in a CD really wasn't worth it, so better to just keep a lot higher cash on hand number.

Now things have changed, and even though we are losing out in real return due to inflation, it has become much more important to chase returns.

Now, to find some more cash in the sofa cushions...

 

[jldavid47]

What do you mean by bills? Zeros?
I can also assure you there are bonds beyond treasuries that accrue interest daily.

Treasury Bills are treasury securities with maturities of 52 weeks or less at issuance, are issued at a discount to par and have no coupon. Treasury Notes have maturities of 2-10 years, Bonds > 10 years, and are issued (usually) at or close to par and pay interest (a coupon) every 6 months).

 

[COcheesehead]

Treasury Bills are treasury securities with maturities of 52 weeks or less at issuance, are issued at a discount to par and have no coupon. Treasury Notes have maturities of 2-10 years, Bonds > 10 years, and are issued (usually) at or close to par and pay interest (a coupon) every 6 months).

So a bill is a zero.

 

[audreyh1]

So a bill is a zero.

Yes, T-bills are always zero coupon.

Also, FWIW this thread is only about Treasuries.

 

[audreyh1]

Today’s auction: seems very likely that the 13-week new issue will exceed 4%, and the 26-week might even cross 4.5%. Just guessing.

 

[COcheesehead]

Yes, T-bills are always zero coupon.

Also, FWIW this thread is only about Treasuries.

Sorry the word Bond in the title threw me off.