Treasury Bills, Notes, and Bonds Discussion

[CRLLS]

I registered at Treasury Direct today and purchased my 1st I-bond today. I still have yet to figure out Fidelity's website on purchasing "new" T-Bills.

Now I have to get DW on board.

Thanks to all for this thread.

 

[copyright1997reloaded]

I registered at Treasury Direct today and purchased my 1st I-bond today. I still have yet to figure out Fidelity's website on purchasing "new" T-Bills.

Now I have to get DW on board.

Thanks to all for this thread.

See images for flow (screen 1, new issues, treasuries)

 

[ShokWaveRider]

When Buying USTs, as I understand it there is no concern about $250k limits, as they are backed by the FF of the US Government which is better than FDIC.

Is that correct, or am I mistaken? I have never purchased a UST directly.

Thanks

 

[jim584672]

When Buying USTs, as I understand it there is no concern about $250k limits, as they are backed by the FF of the US Government which is better than FDIC.

Is that correct, or am I mistaken? I have never purchased a UST directly.

Thanks

That's correct.

 

[ShokWaveRider]

That's correct.

Thanks

 

[aja8888]

When Buying USTs, as I understand it there is no concern about $250k limits, as they are backed by the FF of the US Government which is better than FDIC.

Is that correct, or am I mistaken? I have never purchased a UST directly.

Thanks

Throw an order in for a coupe of Billion $$$$ and you will be OK.

 

[copyright1997reloaded]

Throw an order in for a coupe of Billion $$$$ and you will be OK.

Although ShokWaveRider may be shocked (pun intended) to learn that they are limited to $10 million on a non-competitive bid.

 

[aja8888]

Although ShokWaveRider may be shocked (pun intended) to learn that they are limited to $10 million on a non-competitive bid.

He can buy in chunks..

 

[copyright1997reloaded]

He can buy in chunks..

What a problem to have.
"I had to dollar cost average in on various T-Bill auctions due to the limit."

 

[jldavid47]

The 2 year note auction came in today at a 4.25% coupon and a price of 99.924113 giving a Yield to Maturity of about 4.29%. I added them to my ladder but I'm not going out any further yet.

 

[Born2Fish]

It was 3.981% at auction on the Treasury Direct Auction Results page. Investment rate which is the best APR comparison.

Thanks!

I'm Luvin' it...

 

[Maximus]

It was 3.981% at auction on the Treasury Direct Auction Results page. Investment rate which is the best APR comparison.

Who or what determined this 3.981 rate? Is it dependent on a robust or weak demand? Is there a select group of employees at the Treasury department who decide? We all put our orders in not knowing exactly what return we will receive. Someone or something is assigning this rate to this and all other auctions. Would love to know how this works.

 

[JoeWras]

Who or what determined this 3.981 rate? Is it dependent on a robust or weak demand? Is there a select group of employees at the Treasury department who decide? We all put our orders in not knowing exactly what return we will receive. Someone or something is assigning this rate to this and all other auctions. Would love to know how this works.

I believe I had pointers earlier in this thread.

To summarize:

- The auction gets bids from competitive bidders.
- We mere peons who have $10M or less get on the coattails of the bidders, and get the best bid they come up with.
- Competitive bidders are typically institutions, buying millions.
- Bids are generated by algorithm or human based on the dynamic market.
- Supply and demand are part of it, but the result is also a product of the greater money and bond market.
- Real people's bonus or salary are determined by the success of the bids submitted by the institutions.
- Too low, and the boss sees your spread is too large from auction price. That's a ding on your skills.
- Too high, and you FAIL to buy any product (not good for your institution). You'll really get dinged.
- The high accepted bid is based on the amount of product to be sold. Treasury stacks up the bids and sells the offering. The bid on top wins.
- In the end, we all get the same winning bid, even the low bidders... but again, remember, someone out there is graded on their bidding prowess, or their algorithmic computer skills

From the Treasury directly. How treasury bids work: https://www.treasurydirect.gov/instit/auctfund/work/work.htm

There are no nerds in the Treasury Department having a meeting. This is a real market with real money trying to get the best rate from the government based on how much they can squeeze it. The bids use much data as input, including the secondary market and other money markets. When the auction finalizes, the Treasury gives us information: high winning bid, low bid, and how much of the high bid was accepted. Everything below the high winning bid also wins at the same rate. Once the auction settles, it in turn has ripples into the secondary market. They work with each other.

You may ask: why not just buy secondary, even institutions? Well, this is DIRECT, no middle man, no market maker. It is the best deal for the big boys. We get to jump on their coattails. Many of these institutions are market makers and then resell immediately on the market and make that spread.

 

[jldavid47]

You may ask: why not just buy secondary, even institutions? Well, this is DIRECT, no middle man, no market maker. It is the best deal for the big boys. We get to jump on their coattails. Many of these institutions are market makers and then resell immediately on the market and make that spread.

Great summary. Another reason to buy at auction is that you don't lose the bid-ask spread. When buying on the secondary market you are buying at the ask which is not to your advantage. In a rising interest rate environment it doesn't matter much as many times you can wait a week (or less) and get a better price. When that environment changes you are (slightly) better off buying at auction.

 

[CRLLS]

See images for flow (screen 1, new issues, treasuries)

Thanks. I had gotten that far. After some issue with Fido holding 1/2 of my $ transfer from my bank last week, I got to look this morning. Evidently, I missed the window on purchasing new 26-week T-bills. I'll have to wait. Unfortunately, I am traveling this week and won't be back until next Monday. I'll have to carry my computer and make time for this next Friday before I go on a 9 hr drive.

Do you know if I can make a purchase at Fido over the weekend, before Monday? That would make it a lot less of a hassle.

 

[copyright1997reloaded]

Thanks. I had gotten that far. After some issue with Fido holding 1/2 of my $ transfer from my bank last week, I got to look this morning. Evidently, I missed the window on purchasing new 26-week T-bills. I'll have to wait. Unfortunately, I am traveling this week and won't be back until next Monday. I'll have to carry my computer and make time for this next Friday before I go on a 9 hr drive.

Do you know if I can make a purchase at Fido over the weekend, before Monday? That would make it a lot less of a hassle.

While I have an account there, I haven't used Fido for my purchase. But both Ameritrade and Schwab will show the CUSIP once announced by the Treasury and allow the order to be placed on the weekend. So I would guess that Fido also allows the same.

Yes, I have too many accounts.

 

[JoeWras]

Fido and Vanguard both allow Treasury purchases of auction products when the market is closed, including weekends.

 

[CRLLS]

Cool, thanks.

 

[audreyh1]

Do you know if I can make a purchase at Fido over the weekend, before Monday? That would make it a lot less of a hassle.

Fido will let you place the order as soon as the Thursday before the Monday auction, shortly after the Treasury announcement. Through the weekend, no prob.

 

[jldavid47]

https://home.treasury.gov/resource-...reasury_yield_curve&field_tdr_date_value=2022


The peak on the yield curve has moved out from 1 year just a week ago to 3 years at the moment. The question is whether that's enough to lengthen ladders yet.

 

[calmloki]

So lets say I buy $10,000 worth of 2 year T-bills in one lot at auction through Vanguard that pay an effective 4.25% interest rate.

Q1: Six months after purchase i need $4000. Can I sell $4000 worth of those T-bills through Vanguard or can I only sell the full $10,000 lot?

Q2: Six months after my initial purchase new T-bills are selling at auction with an effective 5.25% rate. Obviously, my 4.25% rate T-bills will only sell at a discount, but what is that discount likely to be? Buyer is buying an effective 18 month bill for a 1% lesser rate than they could pay for a new T-bill at auction. My $4000 T-bill would pay $60 less interest over the 18 months, right? But what kind of inducement on top of the $60 is the buyer likely to want? Is buying a shorter term T-bill (mine) at a higher rate than the normal 1 year T-bill is paying inducement enough? How does one figure this?

 

[jldavid47]

So lets say I buy $10,000 worth of 2 year T-bills in one lot at auction through Vanguard that pay an effective 4.25% interest rate.

Just a terminology thing. Federal Treasury securities with a maturity between 2 and 10 years are called T-Notes. T-Bills have a maturity of 52 weeks or less.

Q1: Six months after purchase i need $4000. Can I sell $4000 worth of those T-bills through Vanguard or can I only sell the full $10,000 lot?

Since T-Notes are sold in $100 increments you technically own 100 $100 T-Notes ($10,000 total). You should be able to sell and increment that divides by 100. I know I could do that at Schwab (in increments of $1,000 only however) and I cannot imagine that Vanguard would be any different.

Q2: Six months after my initial purchase new T-bills are selling at auction with an effective 5.25% rate. Obviously, my 4.25% rate T-bills will only sell at a discount, but what is that discount likely to be? Buyer is buying an effective 18 month bill for a 1% lesser rate than they could pay for a new T-bill at auction. My $4000 T-bill would pay $60 less interest over the 18 months, right? But what kind of inducement on top of the $60 is the buyer likely to want? Is buying a shorter term T-bill (mine) at a higher rate than the normal 1 year T-bill is paying inducement enough? How does one figure this?

The discount would be about $60 as well. In other words you'd get about $3940 (+ or -) if you sold the note at that point. (My rough calculation resulted in $3943 but that might not be correct). There is no advantage to doing that unless (1) you want to buy an even longer dated note that is paying more than 5.25% or (2) you think a series of shorter term notes will pay more (on average) than 5.25% over the next 18 months. Now you're getting into the business of predicting what the yield curve will look like over the next 18 months. Even professional forecasters don't get that one right.

Unless you need the money (or think another asset class will greatly outperform your note) it's usually better to sit tight until maturity IMO.

 

[calmloki]

Just a terminology thing. Federal Treasury securities with a maturity between 2 and 10 years are called T-Notes. T-Bills have a maturity of 52 weeks or less.

Since T-Notes are sold in $100 increments you technically own 100 $100 T-Notes ($10,000 total). You should be able to sell and increment that divides by 100. I know I could do that at Schwab (in increments of $1,000 only however) and I cannot imagine that Vanguard would be any different.

The discount would be about $60 as well. In other words you'd get about $3940 (+ or -) if you sold the note at that point. (My rough calculation resulted in $3943 but that might not be correct). There is no advantage to doing that unless (1) you want to buy an even longer dated note that is paying more than 5.25% or (2) you think a series of shorter term notes will pay more (on average) than 5.25% over the next 18 months. Now you're getting into the business of predicting what the yield curve will look like over the next 18 months. Even professional forecasters don't get that one right.

Unless you need the money (or think another asset class will greatly outperform your note) it's usually better to sit tight until maturity IMO.

Thanks for weighing in on this. I absolutely agree that it's better to hold to maturity - but right now I'm paying GTE 6 months of earned interest as a CD break penalty because I think it is worthwhile to buy Treasuries. (23 month term remaining, 3% vs. anticipated 4.2?%)

If I'm holding Treasuries and want to sell them before maturity and Treasuries at the time I want to sell are making more money than mine why would a buyer want to buy mine, after figuring out the discount I'd need to mark down to make my Treasuries pay out the same amount as new auction Treasuries.

What's the vig, the points, the gravy that gets the buyer to buy my dirty old used Treasuries instead of new ones?? Has anyone sold and what kind of discount did you run into?

 

[JoeWras]

What's the vig, the points, the gravy that gets the buyer to buy my dirty old used Treasuries instead of new ones??

The maturity date fits some profile they are looking for, whether it be a rung on a ladder, or perhaps someone has cash to put to work for a while and your maturity date fits their need.

And, they get the deal of the century getting that huge discount on your 52 wk bill that was bought with an investment rate of 0.25%

 

[npage]

Dumb question, How do you deal with deploying the full amount you want invested. Let's say you want to invest $10,000 but at current rates you only spend $9,700 to buy that face value. Where do you put the other $300?

Buy smaller increment of treasury, somewhere else, or do you view that as having invested $10,000.