Treasury Bills, Notes, and Bonds Discussion

[jazz4cash]

We have derailed the sticky thread for Best CD, MM Rates & Bank Special Deals thread with discussion of the ins and outs of Treasury debt so I am starting this thread specifically dedicated to Treasuries.


I would've chosen Active Investing for this thread but decided to post here since we have the ".....Golden Period..." thread that is focused on corporate debt. There is also the Muni Bond thread in the Active Investing Forum. Moderators feel free to move if more appropriate.

 

[JoeWras]

I'll start.

My tip: use "Treasury Direct" only for iBonds. I used to be a heavy Treasury Direct user for all kinds of products. No more.

It is simply easier to deal with products at your discount broker. You can buy at auction like TD, but you can also buy on the secondary market.

Most importantly, you can sell easily. The market is very established for treasuries so it is easy to sell. Selling from TD is a nearly impossible task since you have to transfer out to a brokerage to do it.

The brokerage screens also have better information including the market value of your holding.

One downside: on Vanguard, you can't do a T-Bill reinvest. You can on Fidelity.

 

[pb4uski]

I view CDs, MMs and USTs (bills, notes and bonds) as all being functional equivalents... they are all very safe... CDs are effectively full, faith and credit if you stay under the FDIC or NCUA limits and USTs are all full, faith and credit.

They are all typically fixed term and fixed rate and you will get back your principal if held to maturity. Brokered CDs and USTs have interest rate risk whereas MMs do not and bank CDs have it in the form of early withdrawal penalties.

Anyway, all pretty similar IMO. I even tend to include Agency/GSE bonds even though I realize that in theory they have a tad more credit risk than UST.

 

[audreyh1]

Vanguard makes buying on the secondary market super easy also. You just choose the maturity you want and get a list of the available options, pick the one you want and for how much and you're done. Let me know if you have any questions about it, but it's very user-friendly and self-explanatory.

So then what is the advantage/disadvantage of buying "New Issue' vs "Secondary Market".

Mike

Personally I stick with new issue because it’s very simple and I can set up automatic rollover upon maturity with Fidelity.

 

[jazz4cash]

I view CDs, MMs and USTs (bills, notes and bonds) as all being functional equivalents... they are all very safe... CDs are effectively full, faith and credit if you stay under the FDIC or NCUA limits and USTs are all full, faith and credit.

My view is similar snd I think the sticky thread is fine for posting good deals on treasuries but we were going off into the weeds on the process of buying so this thread is more for discussion and learning. We have many newbie Treasury buyers including me.

 

[aja8888]

Automatic T Bill rollover is also easily done at Schwab.

 

[foxfirev5]

I've got to eat a little crow here. While I experienced some dissatisfaction with transitioning DM's MF accounts to the Vanguard brokerage it may be a blessing disguise. The bond trading platform is a breeze for both auction and secondary issues. DM at 92 yo is satisfied as well.

She was a registered rep for a stock broker for 50 years and gave some insight. Back in the day they had to go to the bank on auction day and physically place their bond order to cover the customers orders. Further more she is amazed that there are now no fees for the service. She also said that the interest rates are about the same as when she started in 1947.

 

[wdwwildbill]

Thanks for starting this thread.. I'm learning !!!!!

 

[jim584672]

No state taxes on Treasury interest is an added bonus.

 

[jazz4cash]

Someone asked on the sticky thread about buying at auction vs secondary market.

I’ve addressed this a few times. I don’t understand the preference some posters have expressed for buying at the auction. I like the secondary market because I have many more maturities to choose from, my funds are invested immediately, and I know exactly what the yield will be. My purchases are fairly small so even if I pay a few bps more it’s no big deal.

Ok, let’s hear some pros for buying at auction…

 

[disneysteve]

Personally I stick with new issue because it’s very simple and I can set up automatic rollover upon maturity with Fidelity.

In what way is buying new issues easier? I've only bought secondary and find the process incredibly simple at VG. It takes under 5 minutes start to finish.


Automatic rollover doesn't appeal to me. I want to make the decision of what to do with the money at maturity when the time comes. Especially because right now I'm still building a ladder so when one bill comes due, I'm probably replacing it with a new one of a different duration.

 

[Graybeard]

I am so glad you started this thread, we really were clogging up the CD, MM thread with details that did not belong there.

So I find buying at auction at Vanguard very easy, I can do it in probably less than 1 minute.

I just logged into my Vanguard account and went to look at the secondary market and frankly it makes no sense. I just tried to buy a T bill but can't. I have the money in the Settlement Fund but there is no way to buy as the buy icon is in relief and can't be clicked. Does the market have to be open to buy on the secondary market?

I'll just start with that 1 question. This is going to be hard to ask questions since I can "snip" stuff but have no way to paste it into a post.

 

[audreyh1]

In what way is buying new issues easier? I've only bought secondary and find the process incredibly simple at VG. It takes under 5 minutes start to finish.


Automatic rollover doesn't appeal to me. I want to make the decision of what to do with the money at maturity when the time comes. Especially because right now I'm still building a ladder so when one bill comes due, I'm probably replacing it with a new one of a different duration.

Different strokes for different folks I expect. I simply said it was very simple to buy at auction.

I don’t have to look at quantities that are being offered. I can buy however much I want (in $1000s) at the next auction, place the order a few days ahead if I like, and auto roll works for me until I’m ready to cancel it.

 

[disneysteve]

Does the market have to be open to buy on the secondary market?

Yes. That is one downside.

 

[JoeWras]

There may have been some posts removed about auction vs secondary. In my opinion, they both work and both are good. No controversy here. Neither is the "wrong" way to do it. My preference leans to auction right now, but I have some plans for grabbing some on the secondary.

I do a lot of my finance management off market hours, so auction works for that. The secondary market is a kind of Over-The-Counter market trade, which requires the market to be open in order to execute the trades. It's a bit more complicated and you have to pay attention to minimums, and perhaps explore the depth of book. There's just a bit more work. Auction is just automatic for any quantity. In the big picture, not a big deal, different strokes for different folks.

One other reason I like auction is in ladder building. I buy Notes once a quarter. It is easy to compare coupons through the years once the ladder is built since they all start from the same term. This is just "a thing" for me and not necessarily a way to look at it since total effective yield is the real comparison point.

Of course, if one wants to build a ladder in one shot, you go secondary and can do it on one fell swoop. Heck, I can buy a 7 year note today that matures in September, if I wanted to. It's all good.

 

[braumeister]

There may have been some posts removed about auction vs secondary.

Nothing was removed. There are a couple of similar threads going.

 

[wrigley]

There may have been some posts removed about auction vs secondary. In my opinion, they both work and both are good. No controversy here. Neither is the "wrong" way to do it. My preference leans to auction right now, but I have some plans for grabbing some on the secondary.

I do a lot of my finance management off market hours, so auction works for that. The secondary market is a kind of Over-The-Counter market trade, which requires the market to be open in order to execute the trades. It's a bit more complicated and you have to pay attention to minimums, and perhaps explore the depth of book. There's just a bit more work. Auction is just automatic for any quantity. In the big picture, not a big deal, different strokes for different folks.

One other reason I like auction is in ladder building. I buy Notes once a quarter. It is easy to compare coupons through the years once the ladder is built since they all start from the same term. This is just "a thing" for me and not necessarily a way to look at it since total effective yield is the real comparison point.

Of course, if one wants to build a ladder in one shot, you go secondary and can do it on one fell swoop. Heck, I can buy a 7 year note today that matures in September, if I wanted to. It's all good.

"Heck, I can buy a 7 year note today that matures in September, if I wanted to. It's all good."

This is still something I don't quite understand.

Mike

 

[JoeWras]

Nothing was removed. There are a couple of similar threads going.

Sorry. Not directed at moderators. Used wrong words. "Some users may have deleted their own posts about secondary."

It doesn't matter. Sorry, I didn't mean to stoke anything.

 

[JoeWras]

"Heck, I can buy a 7 year note today that matures in September, if I wanted to. It's all good."

This is still something I don't quite understand.

Mike

You can sell a bond or treasury on the secondary market any time. Some people may want to sell something maturing in 4 weeks because they need to close on a home tomorrow, for example.

Some money managers have edicts from their funds to keep maturities within a short range, so they may want to buy treasuries that mature in the next 4 weeks.

It doesn't matter that it has been alive for 7 years. All that matters is what the market value is projected 4 weeks from now. The price appropriately changes to hit that market yield point. It becomes a math problem.

 

[jazz4cash]

"Heck, I can buy a 7 year note today that matures in September, if I wanted to. It's all good."

This is still something I don't quite understand.

Mike

A 7 yr note (issued in Sept 2015) is trading in the secondary market right now. It matures in Sept 2022 and it will be priced comparably to every other treasury that matures in Sept 2022 regardless of the original term.

Edit: this statement is consistent with JoeW's reply above.

 

[Dash man]

I don’t think Schwab charges a fee for buying at auction. Not sure about Fidelity. Buying on the market includes markups imbedded in the price.

 

[jazz4cash]

Some posters in the other thread gave us some handy links to Fidelity and Vanguard Fixed Income Yield Tables that do not require login.

Credit to LiveFree for this one (modified to land on the YIELDS tab)


https://fixedincome.fidelity.com/ftgw/fi/FILanding#tbcurrent-yields|highest-yield

Credit to DisneySteve for the Vanguard version...

https://personal.vanguard.com/us/FixedIncomeHome

The Fidelity link is very limited beyond the opening page but the Vanguard links in the yield table are active. Interesting

 

[JoeWras]

A 7 yr note (issued in Sept 2015) is trading in the secondary market right now. It matures in Sept 2022 and it will be priced comparably to every other treasury that matures in Sept 2022 regardless of the original term.

Edit: this statement is consistent with JoeW's reply above.

I always feel better when two posts simultaneously hit, and they are consistent.

 

[disneysteve]

It's a bit more complicated and you have to pay attention to minimums, and perhaps explore the depth of book.

Can you explain more here?

What minimums are you referring to? When I go in to buy treasuries, I see that they're sold in $1,000 increments and I just select the number I want. Are there situations where you can't buy less than a certain number? I haven't encountered that.

And what is depth of book? I think it has something to do with how actively traded something is but I'm honestly not sure or how it applies here.

 

[pb4uski]

Sometimes the minimum purchase quantity is more than one $1,000 bond... sometimes 25 $1,000 bonds and sometimes more.