Treasury Bills, Notes, and Bonds Discussion 2024+

[jldavid47]

To expound on audreyh1's excellent response, every financial instrument purchased through your broker (including brokered CDs) float in value from day to day depending on how interest rates are behaving. T-Bills are exceptionally liquid and can be sold in the secondary market at any time. The current value you see on Fidelity is approximately what you could receive if you decided to sell the T-bill at that time. If you plan to hold to maturity, the day-to-day fluctuation in the market price of the T-Bill is unimportant. You will simply get the face (par) value at maturity.

 

[audreyh1]

This week’s T-bill auction results:

Bills CMB CUSIP Issue Date High Rate Investment Rate Price per $100 4-Week No 912797KG1 05/28/2024 5.270% 5.365% $99.590111 8-Week No 912797KQ9 05/28/2024 5.275% 5.393% $99.179444 13-Week No 912797KC0 05/23/2024 5.245% 5.389% $98.674181 17-Week No 912797LJ4 05/28/2024 5.235% 5.401% $98.269542 26-Week No 912797LE5 05/23/2024 5.160% 5.372% $97.391333

 

[Graybeard]

@audreyh1 can you explain something that has me baffled?

I have been buying T bills at Vanguard for 2 years. Each time I use this calculator US T-Bill Calculator | Good Calculators to see the APR for my amusement and it is always very close to the rate from Today's Auction Results — TreasuryDirect. I think you posted the calculator link and that is where I got it.

So today I bought a T bill but the calculator is crazy way off on the APR. The price paid was $139,326.88 here is a snip of the calculator's result:

How in the world can the APR be 6.3%! It seems it would be around 5.34% as there is a slight difference in the actual interest rate and what it is when buying through Vanguard.

Thanks.

 

[audreyh1]

Do you usually use other value? I haven’t used this in so long I forget exactly how all the inputs work. I agree the APR is way too high.

 

[Gumby]

Do you usually use other value? I haven’t used this in so long I forget exactly how all the inputs work. I agree the APR is way too high.

Just as an experiment, I put a face value of $1000 and, dividing Graybeard's total purchase price by 140, a purchase price of $995.192, with a maturity of 4 weeks. It also kicked out an APR of 6.29%, which seems abnormally high, although the math works out to be that.

Are we sure the purchase price is correct? Or the time to maturity?

 

[audreyh1]

For 4 weeks today’s auction I’m seeing a purchase price of $99.590111 per $100 face value, not $99.502

I did Gumby’s $1000 calc with today’s auction value, and it gives 5.345% not 6%+

 

[jldavid47]

So today I bought a T bill but the calculator is crazy way off on the APR. The price paid was $139,326.88 here is a snip of the calculator's result:

Are you sure you paid $139,326.88? If I multiply $140,000 by the price (0.99590111) I get a cost of $139,426.16. The calculator is correct. Something else is off.

 

[Graybeard]

Many of your replies hit the target! Here is what happened.

Last night I looked at my account at Vanguard. It showed the T bill (there were no T bills in that account prior to buying the one I just bought) for $140,000 and the "current balance" was $139,346.62. I checked the CUSIP and it was for KG1 (last 3 characters of the CUSIP) so I thought that was what I paid BUT... I now think that was the price of that T bill in the market whose price was changing since the auction.

Today I log into Vanguard and looked at "Transaction History" and the purchase of KG1 was there and it was not there last night. It showed my "Paid" price was $139,426.16 and when I used that in the calculator, the APR is 5.37% which makes sense.

Typically I don't have issues with Vanguard. The website is a bit clunky for some things but I am not wheeling and dealing so looking at my monthly statement or transferring money to Vanguard or to my bank or taking an RMD is all I do. The process to follow a T bill purchase is spread out over days and I have to hunt for things from menu to menu. In my IRA, they tell me when a T bill matures but in my trust account (taxable account) they don't tell me. That's the kind of odd stuff they do.

Had I waited a few days for the settlement I probably wouldn't have been confused. I suspect Fidelity makes this process straight forwards but for the most part Vanguard suits my needs and I don't want to move 3 accounts to Fidelity as I'm not familiar with their ETF/mutual funds or how they restrict things re those.

Thanks for the replies.

 

[Chuckanut]

The recently re-opened 10 year TIPS did very well. Almost 2.2% above the inflation rate for the next 9 years and 8 months.

From TIPS Watch.....

Today’s 10-year reopening of CUSIP 91282CJY8 — a 9-year, 8-month Treasury Inflation-Protected Security — generated a surprisingly high real yield to maturity of 2.184%, the highest for this term at auction since January 2009.

With a 10-year nominal Treasury note yielding 4.41% on Friday afternoon, this TIPS currently has an inflation breakeven rate of 2.32%, which is high by historical standards but seems about right in today’s elevated inflationary environment. A breakeven rate of 2.32% means that this TIPS would outperform the nominal Treasury if inflation averages more that 2.32% over 9 years, 8 months.

In summary, an investor purchasing $10,000 par at this auction paid $9,777.60 for $10,158.60 of principal and will receive accruals matching inflation for the next 9 years, 8 months, plus an annual coupon rate of 1.75% on accrued principal.

 

[aja8888]

Those of you that buy treasury bills on Schwab:

I buy less than one year maturity and Schwab sends me a notice in the US mail about 10 days before the maturity date of the bill to let me know it is about to mature. That's nice, but yesterday my mail was delivered to someone else (don't know who) and I really don't care for someone getting my financial stuff even though on that notice there isn't anything to allow than to hack into my account.

My Schwab account has (supposedly) everything sent via email as I opted out for USPS mailings. I looked all over the Schwab site to see where an option is to turn off mailing me those notices, but can't find it. I don't want to try to call Schwab over the holiday weekend to see what's going on.

Anyone deal with this before and do you know where the option is to turn off these mailings?

 

[audreyh1]

Those of you that buy treasury bills on Schwab:

I buy less than one year maturity and Schwab sends me a notice in the US mail about 10 days before the maturity date of the bill to let me know it is about to mature. That's nice, but yesterday my mail was delivered to someone else (don't know who) and I really don't care for someone getting my financial stuff even though on that notice there isn't anything to allow than to hack into my account.

My Schwab account has (supposedly) everything sent via email as I opted out for USPS mailings. I looked all over the Schwab site to see where an option is to turn off mailing me those notices, but can't find it. I don't want to try to call Schwab over the holiday weekend to see what's going on.

Anyone deal with this before and do you know where the option is to turn off these mailings?

Different broker (Fidelity) but I was initially getting letters when a t-bill rolled over automatically. But they stopped shortly thereafter. Haven’t gotten such in a long while. I also don’t like getting financial account info in the mail.

 

[jldavid47]

Those of you that buy treasury bills on Schwab:

I buy less than one year maturity and Schwab sends me a notice in the US mail about 10 days before the maturity date of the bill to let me know it is about to mature. That's nice, but yesterday my mail was delivered to someone else (don't know who) and I really don't care for someone getting my financial stuff even though on that notice there isn't anything to allow than to hack into my account.

My Schwab account has (supposedly) everything sent via email as I opted out for USPS mailings. I looked all over the Schwab site to see where an option is to turn off mailing me those notices, but can't find it. I don't want to try to call Schwab over the holiday weekend to see what's going on.

Anyone deal with this before and do you know where the option is to turn off these mailings?

First, how did you find out it was delivered to someone else? Second, Schwab has customer support available 24/7/365 so you should not be concerned about calling over a holiday weekend.

You can't turn off the alerts but you can enter a "Vacation Hold" for your account(s). On the website, click on "Profile" then the "Delivery Options" tab. Your email address should be there. Check to make sure it is correct. The third choice on the page is "Vacation Hold" where you can specify a time frame to stop alert delivery. This doesn't stop things like eConfirms or other items that they are required to deliver by law.

 

[MarieIG]

If mail is misdelivered to my house (and the correct address is nearby) I put a sticky on it indicating that it was misdelivered and drop it off at the correct house. Otherwise, I write misdelivered on the envelope and put it back in my mailbox for the postal worker to pick up when they make their next delivery.

 

[aja8888]

First, how did you find out it was delivered to someone else? Second, Schwab has customer support available 24/7/365 so you should not be concerned about calling over a holiday weekend.

You can't turn off the alerts but you can enter a "Vacation Hold" for your account(s). On the website, click on "Profile" then the "Delivery Options" tab. Your email address should be there. Check to make sure it is correct. The third choice on the page is "Vacation Hold" where you can specify a time frame to stop alert delivery. This doesn't stop things like eConfirms or other items that they are required to deliver by law.

My neighbor delivered it to me.

I'm not calling them on a holiday weekend. I do not care to use "vacation hold" unless I am on vacation.

 

[Marc]

I think the five year and the seven year auctions this week are the canaries in the coal mine. Folks (those that hold most of this debt) realize they need to be rewarded more regardless of what the Fed says short term rates should be. I really see long end going above 5% and staying there for a long time; until something is done about government debt.

Just my two cents.

Marc

 

[audreyh1]

This week’s T-bill auction results:

Bills CMB CUSIP Issue Date High Rate Investment Rate Price per $100 4-Week No 912797KH9 06/04/2024 5.270% 5.365% $99.590111 8-Week No 912797KR7 06/04/2024 5.275% 5.393% $99.179444 13-Week No 912797KD8 05/30/2024 5.255% 5.400% $98.671653 17-Week No 912797LK1 06/04/2024 5.240% 5.406% $98.267889 26-Week No 912797HP5 05/30/2024 5.170% 5.383% $97.371917

Also Treasury Notes for the month of May:

Notes Reopening CUSIP Issue Date High Yield Interest Rate Price per $100 2-Year No 91282CKS9 05/31/2024 4.917% 4.875% $99.920920 3-Year No 91282CKR1 05/15/2024 4.605% 4.500% $99.708904 5-Year No 91282CKT7 05/31/2024 4.553% 4.500% $99.765369 7-Year No 91282CKU4 05/31/2024 4.650% 4.625% $99.852076 10-Year No 91282CKQ3 05/15/2024 4.483% 4.375% $99.137260

 

[pb4uski]

For 4 weeks today’s auction I’m seeing a purchase price of $99.590111 per $100 face value, not $99.502

I did Gumby’s $1000 calc with today’s auction value, and it gives 5.345% not 6%+View attachment 51150

And while I understand the TD Investment Rate calculation, =((100-99.590111)/99.590111)*(365/28) = 5.365%, I don't agree with it or use it.

I use the RATE calculation using the days beween the purchase date and maturity date, so in this case =RATE(28/365,0,-99.590111,100) = 5.500%. The result is the same as the XIRR using the purchase date and the maturity date.

Proof is =99.590111*(1+5.5%)^(28/365) = 100.000

 

[audreyh1]

This week’s T-bill auction results:

Bills CMB CUSIP Issue Date High Rate Investment Rate Price per $100 4-Week No 912797KN6 06/11/2024 5.270% 5.365% $99.590111 8-Week No 912797KW6 06/11/2024 5.265% 5.382% $99.181000 13-Week No 912797GL5 06/06/2024 5.250% 5.395% $98.672917 17-Week No 912797LS4 06/11/2024 5.225% 5.391% $98.272847 26-Week No 912797LF2 06/06/2024 5.155% 5.366% $97.393861

T-bill rates seem very stable these days and quite flat.

 

[Lsbcal]

Am I right about the motivation to purchase Tbills rather then go with a federal money market fund is the slightly better rate one gets for locking up the money over a short period of time? I think both are free of state tax.

I see the current Tbill quote on the secondary market for Oct 1 maturity is 5.384% and VMFXX has a SEC yield of 5.28% (ER=0.11%). So the ER is the rate difference.

 

[CRLLS]

To my understanding, a T-bill is free from state tax, as a MMF is not. My state tax is 5% making the 5.28% MMF effectively a 5.015% return to compare to. It makes a difference. If I am wrong, someone certainly will correct me.

 

[Lsbcal]

To my understanding, a T-bill is free from state tax, as a MMF is not. My state tax is 5% making the 5.28% MMF effectively a 5.015% return to compare to. It makes a difference. If I am wrong, someone certainly will correct me.

My mistake. It looks like VMFXX (Vanguard Fed Money Market fund) pays out as dividends and distributions. So it is state taxable as you stated, thanks.

 

[jim584672]

In NY the mutual fund must be at least 50% Treasury for you to list down the actual percentage derived from US obligations which are exempt, it must also be a regulated investment company.

 

[Gumby]

In NY the mutual fund must be at least 50% Treasury for you to list down the actual percentage derived from US obligations which are exempt, it must also be a regulated investment company.

Same here in Connecticut and in California. I just use VUSXX as a substitute for VMFXX, which doesn't meet the 50% test. In 2023, 80.06% of the ordinary dividends paid out by VUSXX were from US Government obligations and, hence, exempt from state income tax in all states. It does not matter that they call them "dividends." See https://investor.vanguard.com/content/dam/retail/publicsite/en/documents/taxes/usgoin-2024.pdf

 

[Lsbcal]

Good point Gumby

 

[Healthy Lifestyle]

Same here in Connecticut and in California. I just use VUSXX as a substitute for VMFXX, which doesn't meet the 50% test. In 2023, 80.06% of the ordinary dividends paid out by VUSXX were from US Government obligations and, hence, exempt from state income tax in all states. It does not matter that they call them "dividends." See https://investor.vanguard.com/content/dam/retail/publicsite/en/documents/taxes/usgoin-2024.pdf

Thank you for informing me that VUSXX is/will be state tax free since I live in the state of NJ. Presently I am in VMFXX which does not meet the 50% test.
Can I just sell VMFXX and purchase VUSXX with no problems in my Vanguard brokerage account??