Taking the plunge, buying T bills, some questions

[Graybeard]

Either in my taxable or rollover IRA or both accounts I am going to buy some 3 month and 6 month T bills, I need to stop the nav bleeding in bond funds. I went to Vanguard's site and looked at what was available. The cutoff date is 5/2 for both bills and I only have money in my taxable account's settlement fund.

My 1st question is does the money for the purchase have to be in the settlement fund or can I sell shares from a mutual fund to make the purchase? Maybe I can buy them in the rollover IRA from a mutual fund like when exchanging from fund A to fund B? I suspect the money needs to be in the settlement fund but not 100% sure.

My next question is the next auction for 3 and 6 month bills will be announced 5/5 and auctioned 5/9. Is there a website that has an estimate of what the coupon might be or do I have to wait for it to show up in the Vanguard purchase screen when it becomes available?

Thanks.

 

[FIREd_2015]

...does the money for the purchase have to be in the settlement fund...

...Is there a website that has an estimate of what the coupon might be...

I have a Fidelity account and it has to be from the sweep/settlement account. I would assume it's the same with Vanguard.

Fidelity provides estimated yields when purchasing but the number they provide is conservative. I've bought some 6 months recently and the actual yield is pretty close to what is posted on the treasury.gov site so you can use the data from a couple of days before the auction as a good approximation.

https://home.treasury.gov/resource-...yield_curve&field_tdr_date_value_month=202204

 

[big-papa]

Started buying T-Bills but not because of what my bond funds are doing. Bond funds doing exactly what they're supposed to do when rates rise and is something I've always been prepared for - otherwise I would have built my own bond ladder and maintained it while ignoring what the market value of the bond ladder is at any given time.

No, I'm buying T-Bills because I have a lot of cash on hand from a fortunate bonus earlier this year and some RSU's that vested. This money is already earmarked for some home improvements later this year, so I needed a place I could easily park the money for a few months till then. Anyway, since I already had an account at TreasuryDirect for my I-bonds, and since I have no intention of selling T-bills before they mature or buying them on the secondary market, I just use TreasuryDirect for my purchases.

YMMV
Cheers,
Big-Papa

 

[njhowie]

My 1st question is does the money for the purchase have to be in the settlement fund or can I sell shares from a mutual fund to make the purchase? Maybe I can buy them in the rollover IRA from a mutual fund like when exchanging from fund A to fund B? I suspect the money needs to be in the settlement fund but not 100% sure.

I do this all the time. I might not have enough cash in the account to buy something, I'll sell something to get just enough freed up to purchase what I want - treasury, muni, other stock. The limitation is that whatever you buy, you cannot sell before the purchase settles.

If you do sell before the purchase settles, it will constitute a Good Faith Violation. Rack up 3 of these in a 12 month period, and you will be restricted from purchasing with unsettled funds for a period of 90 days.

https://www.fidelity.com/learning-center/trading-investing/trading/avoiding-cash-trading-violations

 

[Graybeard]

Thanks. Will be moving some money from Ally to taxable account and exchanging some shares in my IRA into the settlement fund to make some purchases. Since the 3 and 6 month bills are auctioned weekly I'll just start with small purchases.

 

[njhowie]

Thanks. Will be moving some money from Ally to taxable account and exchanging some shares in my IRA into the settlement fund to make some purchases. Since the 3 and 6 month bills are auctioned weekly I'll just start with small purchases.

There is no necessity to buy at auction. You can buy any day of the week in the secondary market and have access to most every outstanding treasury issue. You can pick your maturity. Because of the excellent liquidity, spreads are minuscule, you'll get the prevailing yield for the maturity, and with Fidelity it is commission free.

Go here to see:
https://tinyurl.com/yhud2kk8

 

[Bergamo]

There is no necessity to buy at auction. You can buy any day of the week in the secondary market and have access to most every outstanding treasury issue. You can pick your maturity. Because of the excellent liquidity, spreads are minuscule, you'll get the prevailing yield for the maturity, and with Fidelity it is commission free.

Go here to see:
https://tinyurl.com/yhud2kk8

Your URL is a log in.

How small are the spreads in the secondary market for Treasuries? Where can one see the spreads?

 

[Rianne]

My 1st question is does the money for the purchase have to be in the settlement fund or can I sell shares from a mutual fund to make the purchase? Maybe I can buy them in the rollover IRA from a mutual fund like when exchanging from fund A to fund B? I suspect the money needs to be in the settlement fund but not 100% sure.
Thanks.

We sold most of our bond funds in the tIRA a couple of weeks ago. The mid-six figures went into a tIRA settlement account. From that account, we laddered Treasury bills/notes for 1/4 of the settlement account. We're waiting for the next rate hike and will evaluate. Our plan is to ladder the rest out 2-3 years and see where things are.

We've been passive for 30 years, 60/40 stock fund/bond fund and now I'm not sure that was the best strategy but hindsight is 20/20. There was no hedge. We followed the Bogle strategy. Not complaining! All is good. We're just taking a more active part for the rest of our retirement.

We're leaving the stock funds alone in the after tax accounts. No selling there.

 

[daylatedollarshort]

We've been passive for 30 years, 60/40 stock fund/bond fund and now I'm not sure that was the best strategy but hindsight is 20/20. There was no hedge. We followed the Bogle strategy. Not complaining! All is good. We're just taking a more active part for the rest of our retirement.

The Boglehead strategy works great until it doesn't. It is like the cheese in the who moved my cheese book.

 

[Rianne]

The Boglehead strategy works great until it doesn't. It is like the cheese in the who moved my cheese book.

It's easy to move things around in the tIRA. No worries about taxes and confusion. We might buy more stock funds if it goes low enough (what is low enough, right?) Over a 10-year period, the bond funds have done ok. This year made us take notice and change the plan.

 

[jazz4cash]

Deleted OT reply

 

[jazz4cash]

Your URL is a log in.



How small are the spreads in the secondary market for Treasuries? Where can one see the spreads?

The URL link includes an option for guest access to Fido. Here is a snapshot of the 6 mo spreads.

 

[Bergamo]

The URL link includes an option for guest access to Fido. Here is a snapshot of the 6 mo spreads.

View attachment 42326

Thank you. I'm sorry I did not see the option for guest access.

 

[Graybeard]

There is no necessity to buy at auction. You can buy any day of the week in the secondary market and have access to most every outstanding treasury issue. You can pick your maturity. Because of the excellent liquidity, spreads are minuscule, you'll get the prevailing yield for the maturity, and with Fidelity it is commission free.

Go here to see:
https://tinyurl.com/yhud2kk8

Thanks, I am aware that the secondary market also is a way to buy. Vanguard charges a fee for that but if you buy at auction there is no fee. Honestly, I never looked at the secondary list so maybe I'll do that just to see what is offered. I'm not in a big rush and being able to buy the 3 and 6 month bills every week means I can watch rates and pick when to buy but I need to not jump in head first and buy half of what I want the 1st time.

 

[disneysteve]

Thanks, I am aware that the secondary market also is a way to buy. Vanguard charges a fee for that

This is incorrect. Vanguard charges no fee or commission on Treasuries.

https://personal.vanguard.com/us/content/Funds/FixIncTreasuriesContent.jsp

 

[Graybeard]

This is incorrect. Vanguard charges no fee or commission on Treasuries.

https://personal.vanguard.com/us/content/Funds/FixIncTreasuriesContent.jsp

Interesting. I read this

Click on the Treasuries tab and then the Auction radio button. Be sure to select “Auction.” You pay no extra fee only when you buy a new issue.

here https://thefinancebuff.com/treasury-bills-cd-money-market.html so that is misleading.

 

[disneysteve]

Interesting. I read this here https://thefinancebuff.com/treasury-bills-cd-money-market.html so that is misleading.

That is misleading. It's true that you pay no fee for auction, but they fail to also say that you pay no fee for secondary.

 

[Chuckanut]

I am used to t-bills from the treasury being sold at discount, maybe $9,950 for bill that pays $10,000 at maturity.

I see Schwab has some t-bills for sale. The yield to maturity on the 90 day bills is supposed to be about 0.98%. Yet for a $10,000 bill, they are asking about $10,040 to buy it.

How can I make 0.98% if I am paying more than I will get back when the t-bill matures? What am I missing on the secondary market that isn't the same as when I buy the bills using Treasury Direct?

 

[jim584672]

I am used to t-bills from the treasury being sold at discount, maybe $9,950 for bill that pays $10,000 at maturity.

I see Schwab has some t-bills for sale. The yield to maturity on the 90 day bills is supposed to be about 0.98%. Yet for a $10,000 bill, they are asking about $10,040 to buy it.

How can I make 0.98% if I am paying more than I will get back when the t-bill matures? What am I missing on the secondary market that isn't the same as when I buy the bills using Treasury Direct?

Looking at it. Looks like a Treasury Note with a 1.5% coupon and some accrued interest. Bills are always at a discount, unless the rates are negative.

 

[jazz4cash]

I am used to t-bills from the treasury being sold at discount, maybe $9,950 for bill that pays $10,000 at maturity.

I see Schwab has some t-bills for sale. The yield to maturity on the 90 day bills is supposed to be about 0.98%. Yet for a $10,000 bill, they are asking about $10,040 to buy it.

How can I make 0.98% if I am paying more than I will get back when the t-bill matures? What am I missing on the secondary market that isn't the same as when I buy the bills using Treasury Direct?

Looking at it. Looks like a Treasury Note with a 1.5% coupon and some accrued interest. Bills are always at a discount, unless the rates are negative.

I just purchased 4K in Treasuries. The asking price was 1004.25 (x4)and I paid $4.84 (x4) to the seller for interest accrued since the last coupon date. Otherwise, the interest payment would need to be pro-rated somehow. The yield calculation includes all the coupon payments to be received including a final payment at maturity. I guess there is just the payment at maturity for a 90 day t-bill, but I think there will still be pro-rated interest back to the issue date.

 

[thefinancebuff]

Interesting. I read this here https://thefinancebuff.com/treasury-bills-cd-money-market.html so that is misleading.

You pay a spread that's included/hidden in the price when you buy on the secondary market. Whether it's a spread or a fee, it's still money out of your pocket. You avoid it when you buy at the next auction, which comes up in only a few days.

 

[Graybeard]

You pay a spread that's included/hidden in the price when you buy on the secondary market. Whether it's a spread or a fee, it's still money out of your pocket. You avoid it when you buy at the next auction, which comes up in only a few days.

I've already put money into the settlement fund at Vanguard in my taxable and rollover IRA. Tomorrow the 3 and 6 month T bills should be available to buy on Monday. Of course this means now interest rates on bond funds will decrease and the navs will appreciate!

 

[Chuckanut]

I just purchased 4K in Treasuries. The asking price was 1004.25 (x4)and I paid $4.84 (x4) to the seller for interest accrued since the last coupon date. Otherwise, the interest payment would need to be pro-rated somehow. The yield calculation includes all the coupon payments to be received including a final payment at maturity. I guess there is just the payment at maturity for a 90 day t-bill, but I think there will still be pro-rated interest back to the issue date.

OK. I got it. Somehow the 1.5% rate on a shorter term bill escaped my attention. Foolish me. Live and learn.

 

[Sunset]

I've already put money into the settlement fund at Vanguard in my taxable and rollover IRA. Tomorrow the 3 and 6 month T bills should be available to buy on Monday. Of course this means now interest rates on bond funds will decrease and the navs will appreciate!

Is there a minimum amount that a person must buy ?

 

[Graybeard]

Is there a minimum amount that a person must buy ?

I'm buying bills so I have not looked at notes (1 year+) but I believe you buy them (notes) in $1000 increments, $1k is 1 bond. For T bills they are sold at discount so you pay a little less than $1000 per bill and get the interest at maturity.

Here's a bizarre twist at Vanguard! Beware if you buy treasuries in your IRA! You need the money to purchase the treasuries in your "settlement fund" which is the Vanguard Federal Money Market settlement fund. BUT there is also a Vanguard Federal Money Market FUND that is a mutual fund!

To get the funds from say a mutual fund in your IRA into the settlement fund, you have to SELL not EXCHANGE!!! I did an exchange, sell sounds like a taxable event even though you are moving within the IRA so my money went to the FUND not the settlement fund. I had no money in the settlement fund this afternoon and called to ask why since the transaction on Wednesday was complete. So the money in the Vanguard Federal Money Market Fund (mutual fund) had to be sold today and put into the Vanguard Federal Money Market settlement fund.

Why in the world is this so convoluted? Luckily I have time to do the purchase of Treasury bills on Friday but this was quite a surprise and if time was a factor I may have missed the auction.