Treasury Bills, Notes, and Bonds Discussion

[Vincenzo Corleone]

ALERT! T-Bills up on Vanguard and Fidelity!

Maybe the delay is more about activity than holiday. I don't know. Starting to doubt myself. Doesn't matter, let the buying begin.

Thanks for the heads-up. Just placed my order.

 

[aja8888]

ALERT! T-Bills up on Vanguard and Fidelity!

Maybe the delay is more about activity than holiday. I don't know. Starting to doubt myself. Doesn't matter, let the buying begin.

The six month is where it has been for a week now (3.32%). What are you referring to?

 

[audreyh1]

The six month yield has been increasing all week thus far. It’s up to 3.373% now.

 

[aja8888]

The six month yield has been increasing all week thus far. It’s up to 3.373% now.

Maybe the yield curve has not been updated then? 6 moth shows 3.32%.

https://www.ustreasuryyieldcurve.com/

 

[audreyh1]

I watch the treasuries trading via the CNBC app.

 

[aja8888]

I watch the treasuries via the CNBC app.

 

[MBSC]

ALERT! T-Bills up on Vanguard and Fidelity!

The six month is where it has been for a week now (3.32%). What are you referring to?

I think he means the 13/26/52 week T-bill auctions announced today (9/1) have "appeared" on the brokerage trading platforms. I do not believe "up" is referring to the direction of yields.

 

[audreyh1]

That’s right, JoeWras meant that the T-bills for next week’s auction were now available for placing orders.

 

[Graybeard]

Maybe I am making this harder than it is but I am confused. If I wanted to buy a T bill via my Vanguard brokerage in the secondary market, there are so many T bills so what criteria do you use to decide which one to buy?

Are all T bills and notes that will mature on the same date going to have the same yield whether they were originally a 4 week, a 13 week, a 1 year or a 2year treasury? Do you have to analyze the bills/notes to see which have the higher yield or lower price? I do understand that we buy T bills at a discount whereas notes pay interest every 6 months.

For example, if I wanted something that matures in 30 days is there some analysis to determine which bill or note is the better buy? Better might be a lower cost or have a higher yield or both?

I like the idea of being able to go in and just buy something vs the waiting for days when buying via auction so the secondary market sounds like it is convenient, quicker result. However, it is unclear how this is done correctly on the secondary market.

 

[Dash man]

Maybe I am making this harder than it is but I am confused. If I wanted to buy a T bill via my Vanguard brokerage in the secondary market, there are so many T bills so what criteria do you use to decide which one to buy?

Are all T bills and notes that will mature on the same date going to have the same yield whether they were originally a 4 week, a 13 week, a 1 year or a 2year treasury? Do you have to analyze the bills/notes to see which have the higher yield or lower price? I do understand that we buy T bills at a discount whereas notes pay interest every 6 months.

For example, if I wanted something that matures in 30 days is there some analysis to determine which bill or note is the better buy? Better might be a lower cost or have a higher yield or both?

I like the idea of being able to go in and just buy something vs the waiting for days when buying via auction so the secondary market sounds like it is convenient, quicker result. However, it is unclear how this is done correctly on the secondary market.

There are differences in price that different people ask for. The better prices often require purchasing larger amounts. I was looking to fill a one year gap in my ladder and most required $250k or more minimums for the best deals. I decided to put it for the auction.

 

[audreyh1]

Market arbitrage should make it such that treasuries that mature in 30 days should yield about the same at any given moment in time, but you want to make sure, and as Dash_man points out size of the purchase can make a difference. And you have to dig into the details to make sure you are getting what you want.

 

[gcgang]

Anyone ever “ride the yield curve”?

In a “normal”, positively sloped yield curve, where, for example, 3mo=2.5%, 6 mo 3.0%, you buy the 6 month, hold it for 3 months, sell at a slight gain and roll back out to the 6 month. I don’t have my HP12C handy to calculate the yield pickup, but it probably isn’t more than another half percent. When the curve flattens, you just hold to maturity.

Spreads and trading costs need to be low enough to make the few clicks every three months worthwhile, however. Nowadays they usually are.

 

[MBSC]

If I wanted to buy a T bill via my Vanguard brokerage in the secondary market, there are so many T bills so what criteria do you use to decide which one to buy?

For example, if I wanted something that matures in 30 days is there some analysis to determine which bill or note is the better buy? Better might be a lower cost or have a higher yield or both?

I don't know about Vanguard, but this Bogleheads post has Fidelity screen shots of the process I follow. For a given maturity range, I pick the highest 'ask YTM' from the dealer whose minimum quantity fits my purchase amount.

https://www.bogleheads.org/forum/viewtopic.php?p=6703999#p6703999

If you live off the interest or manage MAGI for ACA subsidies, then you want to start paying attention to the coupon rate on longer maturities. A low coupon means most of the interest will be received as a lump sum at maturity.

 

[JoeWras]

If you live off the interest or manage MAGI for ACA subsidies, then you want to start paying attention to the coupon rate on longer maturities. A low coupon means most of the interest will be received as a lump sum at maturity.

Ah, this is a good point. Which begs a question, and I'll keep it simple.

Given this:
- Owner 1 buys a 6 month $10k T-Bill (zero coupon) for $9900
- Owner 1 sells it to owner 2 for $9950
- Owner 2 keeps it to maturity

So for tax purposes, is the $50 gain owner 1 realizes a capital gain or interest?

And what is reported for owner 2? Just $50 interest? Or is there an interest/loss combination?

 

[MBSC]

Ah, this is a good point. Which begs a question, and I'll keep it simple.

Given this:
- Owner 1 buys a 6 month $10k T-Bill (zero coupon) for $9900
- Owner 1 sells it to owner 2 for $9950
- Owner 2 keeps it to maturity

So for tax purposes, is the $50 gain owner 1 realizes a capital gain or interest?

All interest for 6 month T-Bill. There is a 0.25%/yr cutoff called the De Minimis Rule. If each owner held 1 year, then $50/$10,000 = 0.005 or 0.5%. Over 0.25%, so all is treated as interest. Insignificant amounts under 0.25% and all is treated as capital gains.

I am not a tax expert and may not have the calculation exactly right. This link mostly focuses on muni bonds but there is a section on OID treasuries.

https://www.fidelity.com/bin-public...s/fixed-income/deminimis-dilemma-Fidelity.pdf

And what is reported for owner 2? Just $50 interest? Or is there an interest/loss combination?

Net $50 interest. I believe it is reported as $100 interest received less $50 accrued interest paid to owner 1.

 

[jazz4cash]

I don't know about Vanguard, but this Bogleheads post has Fidelity screen shots of the process I follow. For a given maturity range, I pick the highest 'ask YTM' from the dealer whose minimum quantity fits my purchase amount.

https://www.bogleheads.org/forum/viewtopic.php?p=6703999#p6703999

I use a similar process. At Fido it seems there is always an option to buy a single bond ($1000). As noted in the boglehead link you are only paying a tiny bit more to buy a single bond vs. a huge quantity.

 

[disneysteve]

Just did a little investing for my mom. She had 2 CDs mature at Ally that were paying 0.65%. I moved them to her Vanguard account and bought 4 rungs of Treasuries for 3, 6, 9, and 12 months. Now she's earning between 2.901 and 3.423%. That's a huge jump. As they mature, I'll "pay her" the interest and roll them over into new 12-month issues. That way she'll get an interest payment every 3 months from now on.

 

[pb4uski]

I've done something similar for my mom. Out of bond funds and a CD/UST ladder. Most of the money is 3, 6, 9, 12, 15, 18 months but I picked up some 2 year 4% agency bonds. As interest rates plateau I'll stretch the ladder out longer.

 

[disneysteve]

I've done something similar for my mom. Out of bond funds and a CD/UST ladder. Most of the money is 3, 6, 9, 12, 15, 18 months but I picked up some 2 year 4% agency bonds. As interest rates plateau I'll stretch the ladder out longer.

I thought about some agency bonds for the higher rate but she still has a bunch of those in her Ameriprise account and I only had 27K to spread around. I figure this move already gets her 4 to 5 times more interest than the CDs were paying. That's good for now.

 

[Sojourner]

The six month yield has been increasing all week thus far. It’s up to 3.373% now.

Ally sent me an email this morning about their "competitive" new rate on a "high yield" 12-month CD... 2.70%

Wondering why Ally wouldn't be offering something more compelling when treasury notes are paying over 3% now. IOW, why would anyone lock up their money for one year in a CD paying notably less than a 6-month treasury?

Also, is it generally (or usually) true that 6-month treasuries have higher yields than most 6-month bank CDs?

 

[disneysteve]

why would anyone lock up their money for one year in a CD paying notably less than a 6-month treasury?

Why do people keep cash in a regular bank account paying 0.01% when they could put it in Ally or similar for 2.0%? Why would anyone buy a 3-month Ally CD for 0.75% when their own money market is paying 2.0%?


I have no idea why some of these products exist but they do and their must be customers using them or they wouldn't exist.

 

[JoeWras]

Also, is it generally (or usually) true that 6-month treasuries have higher yields than most 6-month bank CDs?

In normal times, generally yes. We are currently in an extraordinary interest rate environment.

 

[Sojourner]

Why do people keep cash in a regular bank account paying 0.01% when they could put it in Ally or similar for 2.0%? Why would anyone buy a 3-month Ally CD for 0.75% when their own money market is paying 2.0%?

Crazy how myopic people can be (including myself, of course, in various ways). My own parents were like this, always purchasing only CDs from the local bank instead of venturing out to other extremely low/no-risk investments like treasuries. I suppose this is why people still pay the cable TV companies well over $100/month without bothering to check out lower priced alternatives. Inertia and apathy can be powerful things.

 

[11522914]

Maybe I am making this harder than it is but I am confused. If I wanted to buy a T bill via my Vanguard brokerage in the secondary market, there are so many T bills so what criteria do you use to decide which one to buy?

Are all T bills and notes that will mature on the same date going to have the same yield whether they were originally a 4 week, a 13 week, a 1 year or a 2year treasury? Do you have to analyze the bills/notes to see which have the higher yield or lower price? I do understand that we buy T bills at a discount whereas notes pay interest every 6 months.

For example, if I wanted something that matures in 30 days is there some analysis to determine which bill or note is the better buy? Better might be a lower cost or have a higher yield or both?

I like the idea of being able to go in and just buy something vs the waiting for days when buying via auction so the secondary market sounds like it is convenient, quicker result. However, it is unclear how this is done correctly on the secondary market.

I've been buying lots of short term Treasury bills for 1-2 months.

What I have found is prices can vary by as much as 25-40 basis points depending on how many weeks are left.

Plus the same expiration and minimum purchase amount constantly changes throughout the day. At least on Schwab it does. It might require 250 minimum, then I refresh the screen, and it is now minimum of 1. Happens many times.

 

[audreyh1]

Ally sent me an email this morning about their "competitive" new rate on a "high yield" 12-month CD... 2.70%

Wondering why Ally wouldn't be offering something more compelling when treasury notes are paying over 3% now. IOW, why would anyone lock up their money for one year in a CD paying notably less than a 6-month treasury?

Also, is it generally (or usually) true that 6-month treasuries have higher yields than most 6-month bank CDs?

It takes a while for banks to catch up. Once rates stabilize banks often offer higher CD rates than treasuries. Treasuries just happen to move up more quickly during the period where the Fed is raising the Fed Funds Rate. I expect banks are not willing to commit to higher rates during the uncertainty. It doesn’t help that the yield curve is inverted right now.