Treasury Bills, Notes, and Bonds Discussion

[Fermion]

10 year TIPS long enough? The way I figure it, if rates continue to go up for a long enough period that 10+ year treasuries lose value (rates go up on them), then inflation must have been sticky and the TIPS will provide the highest real return.

 

[Chuckanut]

Not sure if this question belongs here. My 98 yo DM has cashed some US savings bonds that have matured. Looking for suggestions for safe and easy Vanguard ETF (like BND) or mutual fund to invest. Just want to get a better rate than local bank.
Thank you.

Assuming your DM does not need the money immediately, and given her age, she seems like a prime candidate for a CD or Treasury bond ladder doing out from 3 mo to perhaps 5 years. (Her health is the real issue here)

If you are new to buying brokered CDs or Treasuries I suggest using Fidelity or Schwab whichever has the an office nearest to you. I think newbees should have an office near them in case they need some personal help. For that reason I leave Vanguard off the list.

A Treasury bond or CD ladder should get her overall earnings into the 4% area.

All of the above is my opinion about a person whose life circumstances I know very little about. So take that into account.

 

[JoeWras]

The two year note auctioned for 4.5% today. This is 0.125% higher than last month.

Waiting on the 5 year results after lunch. It will be inverted from the 2 year. Question is how much.

 

[audreyh1]

Both 13-week and 26 week up a (very) little compared to last week.

 

[JoeWras]

Zowie, talk about inversions and reversals!

The 5 year note auction is hot off the press. Result: 3.875%

This is 0.25% less than last month's 5 yr, and is 0.625% less than today's 2 yr.

 

[audreyh1]

Wow!

 

[Graybeard]

13 week t bill auctioned today with a coupon of 4.324%. Out of curiosity I looked at the secondary market an hour ago. Vanguard had 1 13 week (maturity 2/23/23) and it was less, IIRC 4.18%. While you know the coupon if you buy on the secondary market, today was a case of getting a better yield via the auction.

 

[pb4uski]

Judging by some of the posts I'm reading, there are still plenty of folks with money in the bank at sub 1% waiting for the next Fed decision. This is after they waited for the last decision. Analysis paralysis.

Diversify your maturities!

That's crazy. My dry powder, almost 50% of my total at this point is still in a 3.7% money market while I wait for screaming deals.

 

[NomDeER]

That's crazy. My dry powder, almost 50% of my total at this point is still in a 3.7% money market while I wait for screaming deals.

Maybe the best deals have been whispering to you.

 

[JoeWras]

That's crazy. My dry powder, almost 50% of my total at this point is still in a 3.7% money market while I wait for screaming deals.

It is, but I have to give people a break. (BTW: when I say posts, I mean here and bogleheads. There are more on bogleheads.)

The reason I give people a break is for many it is a big new step. The banks have the comfort of FDIC/NCUA, etc. Some people don't want to transfer their cash to a brokerage.

For others, it is just a matter of mechanics. You see all kinds of posts here and there about mechanics of T-Bills. And many people are not aware what the settlement fund is paying right now.

Once they finally warm up to the idea, they want to go slow, hence the: "Let me wait for the next Fed meeting" theme we see a lot.

The good news is people are waking up to it.

 

[audreyh1]

Looks like the 8-week and 4-week auctions are on Wednesday this week instead of Thursday. https://www.treasurydirect.gov/auctions/upcoming/

 

[audreyh1]

This week’s T-bill auction results:

Bills	CMB	CUSIP	Issue Date	High Rate	Investment Rate	Price per $100
4-Week	No	912796ZA0	11/29/2022	3.970%	4.038%	$99.691222
8-Week	No	912796ZL6	11/29/2022	4.120%	4.204%	$99.359111
13-Week	No	912796T33	11/25/2022	4.220%	4.324%	$98.945000
17-Week	No	912796Z85	11/29/2022	4.400%	4.527%	$98.545556
26-Week	No	912796ZF9	11/25/2022	4.520%	4.689%	$97.727444

Moved up from last week across the board: https://www.early-retirement.org/fo...d-bonds-discussion-115186-45.html#post2857795

 

[wdwwildbill]

This week’s T-bill auction results:

Bills	CMB	CUSIP	Issue Date	High Rate	Investment Rate	Price per $100
4-Week	No	912796ZA0	11/29/2022	3.970%	4.038%	$99.691222
8-Week	No	912796ZL6	11/29/2022	4.120%	4.204%	$99.359111
13-Week	No	912796T33	11/25/2022	4.220%	4.324%	$98.945000
17-Week	No	912796Z85	11/29/2022	4.400%	4.527%	$98.545556
26-Week	No	912796ZF9	11/25/2022	4.520%	4.689%	$97.727444

Moved up from last week across the board: https://www.early-retirement.org/fo...d-bonds-discussion-115186-45.html#post2857795

Thanks Audrey

 

[JoeWras]

52 wks are up at brokerages.

It's going to be an interesting auction next week for the 52s. I'm guessing we'll get a droop from last month.

I'm still buying as I'm intentionally increasing my duration of Bills and Notes.

 

[copyright1997reloaded]

52 wks are up at brokerages.

It's going to be an interesting auction next week for the 52s. I'm guessing we'll get a droop from last month.

I'm still buying as I'm intentionally increasing my duration of Bills and Notes.

As of now, 1 year is still close to this rate hike peak.

I've been quiet on this thread as I haven't had any money to invest unless I sold stocks. But, I just started the transfer of my old mega-corp 401k where I have quite a bit in Stable Value which will be put into a bond ladder. Given the current rate structure, it will be mostly under 2 years in terms of duration, and I'm thinking an average duration around that 1 year peak of the curve spot.

If rates go down, oh well, I then have cash for other things.
If rates go up, my ladder will be emptying the lower rungs and I will redeploy at higher rates.

 

[eboats]

52 wks are up at brokerages.

It's going to be an interesting auction next week for the 52s. I'm guessing we'll get a droop from last month.

I'm still buying as I'm intentionally increasing my duration of Bills and Notes.

The last 52 week auction result a month ago was 4.730%. So you think the 52 week auction next week will come in under that? Looks like all the shorter term auction results over the last month have edged up each week so curious why the 52 would be different.

 

[copyright1997reloaded]

The last 52 week auction result a month ago was 4.730%. So you think the 52 week auction next week will come in under that? Looks like all the shorter term auction results over the last month have edged up each week so curious why the 52 would be different.

As of right now the yield on 1 year T-Bills is 4.751%.

 

[audreyh1]

The last 52 week auction result a month ago was 4.730%. So you think the 52 week auction next week will come in under that? Looks like all the shorter term auction results over the last month have edged up each week so curious why the 52 would be different.

Right now CNBC is quoting 4.75% so I’d be surprised if it came in under (barring any weekend market shocks of course).

In general t-bill rates at auction have been creeping up again compared to 2 weeks ago.

 

[JoeWras]

I was projecting because the 2 yr dropped 1/8% month to month and the Wednesday news was that the Fed governor minutes showed a desire to slow the hikes.

Based on that I thought it could drop a few bp. I'm more than happy to see it flat or up a few bp.

 

[audreyh1]

Well we’ll find out soon enough. Bond market was open today and that news is in.

 

[joesxm3]

I watched a video today about bonds and saw how a 10-year note will have its price rise by 9.5% or so if the interest rate drops by 1%.

What I am wondering about is the rationale for trading such a windfall price increase.

That is, if I buy a 10-year note at 4% and the Fed cuts by 1% next year, it seems I could sell the note and make a 9.5% capital gain. However, if I were to want to maintain my fixed income allocation, I would have to buy another bond and it would seem that the price of the new bond would be higher (or the rate lower) cancelling out my windfall profit. It seems this is similar to selling my house as prices rise, only to have to buy a similar house with the proceeds.

Is the idea for doing this sort of trade that the environment that would lead to the Fed cutting rates would include a severe drop in the stock market, so I would be taking the proceeds from selling the 10-year note at a capital gain and buying lower priced stocks instead of replacing the bond?

 

[Spock]

I watched a video today about bonds and saw how a 10-year note will have its price rise by 9.5% or so if the interest rate drops by 1%.

What I am wondering about is the rationale for trading such a windfall price increase.

That is, if I buy a 10-year note at 4% and the Fed cuts by 1% next year, it seems I could sell the note and make a 9.5% capital gain. However, if I were to want to maintain my fixed income allocation, I would have to buy another bond and it would seem that the price of the new bond would be higher (or the rate lower) cancelling out my windfall profit. It seems this is similar to selling my house as prices rise, only to have to buy a similar house with the proceeds.

Is the idea for doing this sort of trade that the environment that would lead to the Fed cutting rates would include a severe drop in the stock market, so I would be taking the proceeds from selling the 10-year note at a capital gain and buying lower priced stocks instead of replacing the bond?

Unlike a house you don't HAVE to replace a bond with another bond.
There are a lot of articles hitting the interwebs now about how bond traders should be going long duration soon if not now in anticipation of the Fed having to cut rates sooner than later. Buy doing so they are looking to capture the 9.5% in your example and go on to pillage the next perceived trend.

As far as your fixed income allocation, you would have to have some spreadsheeting to compute the trade off of selling for 9.5% gain vs. holding the same issue till duration at it's current rate of return to see which nets more $ in the same time frame.

 

[copyright1997reloaded]

Now that my 401(k) is moved and I have a bunch of $ (that was in stable value at 2.5x%) available, I'm buying a slug of the 1-year auction on Tuesday, along with a smaller amount of the 26-week auction Monday. Still trying to decide on the 13-week also. Seems like a decent time to hit the peak of the curve (about 1 year timeframe)?

 

[jldavid47]

I watched a video today about bonds and saw how a 10-year note will have its price rise by 9.5% or so if the interest rate drops by 1%.

What I am wondering about is the rationale for trading such a windfall price increase.

That is, if I buy a 10-year note at 4% and the Fed cuts by 1% next year, it seems I could sell the note and make a 9.5% capital gain. However, if I were to want to maintain my fixed income allocation, I would have to buy another bond and it would seem that the price of the new bond would be higher (or the rate lower) cancelling out my windfall profit. It seems this is similar to selling my house as prices rise, only to have to buy a similar house with the proceeds.

Is the idea for doing this sort of trade that the environment that would lead to the Fed cutting rates would include a severe drop in the stock market, so I would be taking the proceeds from selling the 10-year note at a capital gain and buying lower priced stocks instead of replacing the bond?

As a fixed income investor fluctuating bond prices are irrelevant if you hold to maturity. If you are trading 10 year Treasury Note futures then it’s quite relevant.

 

[audreyh1]

Now that my 401(k) is moved and I have a bunch of $ (that was in stable value at 2.5x%) available, I'm buying a slug of the 1-year auction on Tuesday, along with a smaller amount of the 26-week auction Monday. Still trying to decide on the 13-week also. Seems like a decent time to hit the peak of the curve (about 1 year timeframe)?

Maybe you guys will get 4.78%+. The 26 week is very close to that too, around 4.74%.