1 month T bills vs 3 month T bills

[Graybeard]

I have waited 3 weeks for the Fed meeting that took place this week thinking T bill coupons would rise considering a 75 bp rate increase was expected. I didn't want to lock in a "lower" coupon in early July for 3 months, well so much for that theory!

Looking at the 3 month auction the possible coupon is 2.367% and today the 3 month T bill's coupon is 2.41% and this maturity is open now to place an order. Tying up money for 3 months puts the maturity date past the next Fed meeting in September so I looked at the 1 month and 2 month coupons as they will open to buy on 8/2, today their coupons are 2.22% and 2.28% respectively. Tying up money for an extra 30 days for an extra 6 bp doesn't seem like it is worth it. So I'm thinking of buying the 1 month T bill which matures 8/30 and then deciding what to do then.

I have over $100k in my Rollover IRA's settlement fund which has a 7 day SEC yield of 1.60% today. I'm thinking of buying 25 to 50 1 month T bills. Is there a reason the 1 month T bill wouldn't be a good idea? Sure rates can go up or down but I'm not sure if I'm over looking something obvious as I'm still new to buying T bills.

Thank you!

 

[jazz4cash]

Unless you have millions to invest, I’d say you are overthinking this. It’s a very very short term. Better to ladder than wait. As you see, the market isn’t moving in lockstep with the Fed.

Edit: Maybe I missed the reason you are looking at such short maturities.

 

[Graybeard]

Unless you have millions to invest, I’d say you are overthinking this. It’s a very very short term. Better to ladder than wait. As you see, the market isn’t moving in lockstep with the Fed.

Edit: Maybe I missed the reason you are looking at such short maturities.

No you didn't miss anything. I thought T bill coupons would behave in a more predictable fashion - Fed raises the FOMC rate and the T bills would go up somewhat probably not 75 bp but maybe 40 or 50, instead they dropped!

Shorter term, 1 month, gives me the ability to reinvest in a shorter timeframe if rates rise... I thought we were in a rising rate environment? Apparently, they can go down cuz the latest 75 bp increase was known and the equity market liked that and went up.

 

[jazz4cash]

Laddering makes everything better, like dollar cost averaging.

 

[mrfeh]

Shorter term, 1 month, gives me the ability to reinvest in a shorter timeframe if rates rise...

And if they drop, you'll again be upset with yourself.

I suggest you stop trying to time the market.

 

[Chuckanut]

Perhaps too many people held off buying T-bills until the Fed raised rates again? Everybody jumps in the day after, demand sores, so T-bill prices goe up, and rates of return go down. Does that make sense?

 

[11522914]

No you didn't miss anything. I thought T bill coupons would behave in a more predictable fashion - Fed raises the FOMC rate and the T bills would go up somewhat probably not 75 bp but maybe 40 or 50, instead they dropped!



Shorter term, 1 month, gives me the ability to reinvest in a shorter timeframe if rates rise... I thought we were in a rising rate environment? Apparently, they can go down cuz the latest 75 bp increase was known and the equity market liked that and went up.

I've been buying 1- 2 month treasuries as the fed continues to raise interest rates.

Also I'm very slowly averaging into 5 year cds.

And occasionally picking up a 5%+ corporate bond.

Of course you could just throw it all in the Nasdaq and make your 2 month return in one day. [emoji16]

 

[OldShooter]

I think that sometimes we unintentionally deceive ourselves by looking strictly at yield numbers. After all, we don't spend yield, we spend dollars.

6bps on $50K for a year is $30. For a month, $2.50. A couple of quarts of gas, half of a cheaper coffee at Starbucks, one McDouble, ...

What you're doing, @Graybeard, is a fine hobby IMO, but I think its economic impact on you is negligible. Almost certainly you're not earning minimum wage for the time spent worrying at this microscopic level. I agree with @mrfeh and @jazz4cash.

 

[Dash man]

I just opened a CD ladder for five years averaging 3.38%. I have orders in for the three and six month treasury bill auctions tomorrow. We’ll see how it goes.

 

[Happyras]

I think that sometimes we unintentionally deceive ourselves by looking strictly at yield numbers. After all, we don't spend yield, we spend dollars.

6bps on $50K for a year is $30. For a month, $2.50. A couple of quarts of gas, half of a cheaper coffee at Starbucks, one McDouble, ...

What you're doing, @Graybeard, is a fine hobby IMO, but I think its economic impact on you is negligible. Almost certainly you're not earning minimum wage for the time spent worrying at this microscopic level. I agree with @mrfeh and @jazz4cash.

You got to appreciate such insight. We all tend to worry over things that are small, but we think we can control. I made a few sells of my 1 month t-bills on Friday, and rolled out to 3 month. I even sent another 250K over to HYSA getting 2.6%. But in the scheme of things Oldshooter is right once again, we are not paying ourselves wages to mess with this too much.

 

[aja8888]

Perhaps too many people held off buying T-bills until the Fed raised rates again? Everybody jumps in the day after, demand sores, so T-bill prices goe up, and rates of return go down. Does that make sense?

Yes, they are sold at auction so demand dictates pricing.

I have $XXX,XXX amount of treasuries set to roll over automatically and as long as the rates stay respectable (3 month rollovers), I just let it happen.

 

[Graybeard]

Thanks. Many of your replies were in the back of my mind. The problem is trying to do the best you can, a habit that is both good and bad at different times, I just try to maximize my results. Seeing how I could have gotten a better yield the 1st week in July on the 3 and 6 month T bills showed me this trying to guess where rates will be after a Fed meeting is as useless as timing the equity market. The thing is sometimes you do see a good deal, being new to buying treasuries vs bond funds I thought waiting made more sense. I really can't see yields dropping on treasuries, there is so much dysfunction in the equity and bond markets it just seems logical or reasonable that rates will increase. I really need to get my AA squared away, it is a mess for a few different reasons. Nothing I can't and haven't lived with this year but I need to stop trying to hit home runs when I won the game!

 

[audreyh1]

In my experience the bond market anticipates move just like the stock market does. If you look at the recent history of yields you will see sudden jumps. These usually correspond to the market getting a hint of what the Fed may do in a few weeks time, and often rates already move in anticipation.

In other words, the bond market tries to front run the Fed.

 

[Montecfo]

In my experience the bond market anticipates move just like the stock market does. If you look at the recent history of yields you will see sudden jumps. These usually correspond to the market getting a hint of what the Fed may do in a few weeks time, and often rates already move in anticipation.

In other words, the bond market tries to front run the Fed.

I usually agree but the bond market did not anticipate the start of the rising rate cycle very effectively, despite all the forecasting by the Fed. Things do seem to have caught up more now. Or perhaps just for now.

My sense is we will get some more aggressive hikes in 2023 if economy has not rolled over by then and inflation is not in decline. And that, effectively is what the yield curve seems to be saying.

 

[audreyh1]

No, they didn’t anticipate the start well. I meant “tries to anticipate”. I mean, anticipate does indicate guessing the future, which is what markets do, and the stock and bond markets are often wrong. Anyway, as soon as there was a hint that the Fed would be much more aggressive in June, short rates jumped and then kept moving up. You’re right that the bond market seemed to be ignoring the Fed up until then.

My point was that short rates don’t always wait until the Fed actually raises the rate to move up. So an investor expecting a jump after the Fed decision may be disappointed.

 

[Montecfo]

Yes. It has been a really mixed bag.

And to that point, who says short-term bond yields don't rise over the next 2-4 weeks?

 

[youbet]

I thought T bill coupons would behave in a more predictable fashion - Fed raises the FOMC rate and the T bills would go up somewhat probably not 75 bp but maybe 40 or 50, instead they dropped!

I suspect you need to give a little thought to the difference between "coupon" (a term you keep using) and "price."

 

[Graybeard]

I suspect you need to give a little thought to the difference between "coupon" (a term you keep using) and "price."

Would you expand upon that? Price and coupon have a relationship don't they? As the coupon rises on a bond doesn't the price go down? I am referring to buying new issues, I'm sure that is true for existing issues. That is how a bond fund behaves, seems individual bills, notes and bonds would behave in a similar fashion.

 

[COcheesehead]

Would you expand upon that? Price and coupon have a relationship don't they? As the coupon rises on a bond doesn't the price go down? I am referring to buying new issues, I'm sure that is true for existing issues. That is how a bond fund behaves, seems individual bills, notes and bonds would behave in a similar fashion.

The coupon is fixed for the life of the bond. The price people are willing to pay for the income from that coupon changes and thus you have the yield.

 

[Graybeard]

The coupon is fixed for the life of the bond. The price people are willing to pay for the income from that coupon changes and thus you have the yield.

Ah yes, I see. I typically look at the inverse relationship and decide if the coupon is high enough to make a purchase as I would not sell a T bill or note before maturity. But I do know what you mean, my Vanguard statements reflect changes in T bill prices.

 

[COcheesehead]

Ah yes, I see. I typically look at the inverse relationship and decide if the coupon is high enough to make a purchase as I would not sell a T bill or note before maturity. But I do know what you mean, my Vanguard statements reflect changes in T bill prices.

I ladder my fixed income investments - no crystal ball needed. The market will likely more accurately price a bond than a stock because everything is known at the time of purchase. So pick a quality level, duration and yield you like and buy it.