DQOTD: How to Predict T-Bill Yields at Auction?

[Midpack]

I am putting some money in short term T-Bills until interest rates stabilize and I can put the money to work in longer term investments. If I have $200K to invest in T-Bills for 26 weeks at 3.0%, I know I can buy $203K on paper at least ($203,046 to be exact). Problem is I don't know the exact interest rate when "bidding", or if there are any fees Vanguard will charge me. How can I safely predict how much to buy without going over? Obviously I can just buy $200K, but I'd like to leave less in my settlement fund sitting there doing nothing.

 

[audreyh1]

Please go over to the Treasury Bills Notes and Bonds thread which discusses this issue in detail, particularly right now.
https://www.early-retirement.org/forums/f28/treasury-bills-notes-and-bonds-115186-new-post.html

Also look up zero coupon bonds. You buy them at auction at a discount to par value. You don’t have to worry about “going over”. No fees either.

Next auction for 26 week is next Monday. You can place an order through your broker some time after the auction is announced today, or through the weekend or maybe first thing Monday. I don’t know the Vanguard cutoff for treasury auctions.

 

[Midpack]

Thanks. I did look there first but didn’t see an answer. Evidently the answer is there’s no way to predict in advance so I’ll have to be conservative (use a lower yield) and leave a little more in my settlement fund doing nothing.

 

[JoeWras]

Thanks. I did look there first but didn’t see an answer. Evidently the answer is there’s no way to predict in advance so I’ll have to be conservative (use a lower yield) and leave a little in my settlement fund doing nothing.

Yes.

Don't forget Vanguard settlement fund is at 2.15% today. This is not nothing.

 

[audreyh1]

Thanks. I did look there first but didn’t see an answer. Evidently the answer is there’s no way to predict in advance so I’ll have to be conservative (use a lower yield) and leave a little in my settlement fund doing nothing.

There have been pretty in depth discussions of how to predict the likely auction price with links to tools, etc.

Also, I explained that you don’t have to have “extra” to cover the auction purchase. If you want $200K in T-bill, order $200K. You’ll pay less than that because they sell at a discount and there are no fees. Last week’s auction $100 26-week T-bills sold for $98.321556.

Also at Fidelity for auction we have to order t-bills in multiples of $1000. Quantity specified is multiplied by $1000 to determine your committed cash.

If you post your question there you will get more comments and it will become part of the general discussion on T-bills etc.

JoeWras makes a very good point that the yield on the Vanguard settlement fund is not “nothing’. It’s close to the 4 week t-bill yield currently, and will likely move up sharply as the Fed continues to raise interest rates. Next raise is expected on 9/21. A good question is how quickly will the Vanguard settlement fund catch up with next weeks t-bill rate?

 

[disneysteve]

You could just buy a 6-mo T bill on the secondary market and know the exact rate which is 3.42 at the moment.

 

[thefinancebuff]

Obviously I can just buy $200K, but I'd like to leave less in my settlement fund sitting there doing nothing.

You can buy $200k, see how much you have left after the auction closes, and then buy on the secondary market with the small residual amount.

 

[audreyh1]

Just some other thoughts: The Fed will likely continue to increase interest rates for a while, and the next one on 9/21 is even expected to be 0.75%. Given the outlook, are you sure you want to commit all your core cash to 6 month T-bills right away? Perhaps a laddered approach using different maturities might work out better? And keep in mind that your settlement fund will probably respond quickly to Fed rate raises.