Treasury Bills, Notes, and Bonds Discussion

[Golden sunsets]

Plain English version:
The actual language is in IRS Publication 550 in the sections 'Market Discount Bonds' and 'Discount on Short-Term Obligations' within the "if you do not accrue" statements.

https://www.irs.gov/publications/p550#en_US_2021_publink100010016

If you manage MAGI for ACA subsidies (or at the top of a Medicare IRMAA tier), the timing of a lump sum interest payment may be a factor.

Thanks MBSC.

Sent from my SM-T510 using Early Retirement Forum mobile app

 

[Born2Fish]

It is as you describe. The article below has screen shots of buying treasuries at auction through Fidelity, Schwab and Vanguard.

https://thefinancebuff.com/treasury-bills-cd-money-market.html

I have heard of orders being accepted as late as 9AM ET on the auction date when placed through a brokerage. I have never waited until the auction date. I just submitted my order.

The article is very informative - thanks!!

 

[jldavid47]

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.

+1


No automatic rollover for me either. Early on I was trying to keep my maturities short - 3-6 months usually. As rates have risen I've started buying 52 week bills, usually at auction. I don't have to buy them at auction, but I like setting up the trade a day or two in advance so I don't miss getting the full 52 weeks of yield.

Managing my T-bill ladder maybe takes me 30 minutes a week. I use a spreadsheet to track maturities and yields to make sure I have maturities spread out the way I like.

I also have been occasionally taking a bite in the 2-year+ range, occasionally callable. We'll see how that works out.

 

[jldavid47]

It is as you describe. The article below has screen shots of buying treasuries at auction through Fidelity, Schwab and Vanguard.

https://thefinancebuff.com/treasury-bills-cd-money-market.html

I have heard of orders being accepted as late as 9AM ET on the auction date when placed through a brokerage. I have never waited until the auction date. I just submitted my order.

Great article but there is one small inaccuracy in it. The 52 week T-Bill auctions happen every 4 weeks, not monthly. That means that once in a while there are two 52 week auctions in a calendar month. This November is one of those months.

I don't know about other brokerages but Schwab allows you to put in an auction order until 9:30AM on the auction date.

 

[jazz4cash]

Question for the group. I apologize if this question has already been asked.

DH and I decided today to take a chunk of money that had been in HYS at the most recent rate of 2.3%, and invest in a Treasury ladder. Using the ladder tool on Fido we identified a 10 rung ladder, of buying notes due in consecutive months starting 12/1/22. It seems clear that the lower the coupon, the higher (fractionally) the YTM for the same maturity. And zeros continue that differential further.

My assumption is that many folks want income along with the laddered maturity, and the market recognizes this in the form of the slightly higher yield for those who don't collect much income until maturity.

If we don't care about income, is there any reason not to buy zeros or minimal coupon notes in order to maximize yield?

One other question. If I buy a zero coupon bond or minimal coupon bond, thus collecting all or most of the interest at maturity, does the broker still report this income monthly or periodically accruing for tax purposes? I can't imagine that I would get to defer income until maturity.

Thanks in advance for your input.

That makes sense to me. In addition to zero coupon bonds a 10 month ladder is very likely to contain some Tbills which don’t pay periodic interest. They are sold at a discount instead.

 

[Dash man]

26 week T-Bill auction results:

Investment Rate*: 3.424%
Price: $98.321556


13 week results:

Investment Rate*: 3.029%
Price: $99.250514

 

[Dash man]

Term: 52-Week

Investment Rate*: 3.603%
Price: $96.501556

 

[copyright1997reloaded]

I use the CNBC app sometimes. I also use the US Treasury website for historical data but I really don't know what those prices are and I can't actually buy or sell anything at those sources. The yields I quoted are from the Fidelity yield table and represent the highest yield available to purchase when the market closed.

For those using TD Ameritrade's ThinkOrSwim, it provides real-time charting. For example, 13-week t-bill:
https://tos.mx/l4DvVec

 

[jldavid47]

Term: 52-Week

Investment Rate*: 3.603%
Price: $96.501556

The current quote on Schwab (just hours after the auction price was set) to make an open market purchase is

Bid - 96.493
Ask - 96.512, YTM 3.592%
Mid - 96.5025

Since you buy at the ask you'd be giving up a bit more than a dime per hundred. This is why I like to buy these things at auction. You get whatever the average competitive bid was and are not nickeled and dimed to death by the spread. It may not seem like much but over many auctions it can add up.

 

[foxfirev5]

DM is ecstatic over the 3.6 she got on the 52 today. BTW back in the day when she participated in the auctions her customers would have paid much more than a dime a hundred for the transaction.

There's a positive for modern tech. And it doesn't need to touch tik tok, likes, followers or whatever.

 

[Graybeard]

I was going to buy 1 T bill on the secondary market today just to see the process. I want to ask a question before I do as to whether the auction is offering a lower yield for the same timeframe and it makes more sense to buy the secondary T bill. I know these numbers can change but at 3:40 pm ET I made some notes so I want to just compare the secondary T bill to the auction.

Here's what I see at Vanguard:
Auction
1 month
indicative yield 2.341%

Secondary for CUSIP 912796YD5
matures 10/11/22 so the timeframe is probably the same or a day or 2 different than the 1 month at auction but basically they are the same calendar days.
There are only 2 bills in that CUSIP that I see where I can buy just 1 T bill. The YTW for one is 2.357% and the other is 2.355%

So if I understand this, the secondary has 2 bills I can buy for a tiny bit more yield than what the auction thinks the yield will be. That can change and before the auction but it is during the auction is where it is actually determined. Assuming the auction T bill stays at 2.341% then either of the secondary T bills are the better buy as their yield is a bit higher.

Am I right? It seems logical but I never bought on the secondary and only a few times at auction so I am still learning.

Thanks you.

 

[jazz4cash]

The current quote on Schwab (just hours after the auction price was set) to make an open market purchase is

Bid - 96.493
Ask - 96.512, YTM 3.592%
Mid - 96.5025

Since you buy at the ask you'd be giving up a bit more than a dime per hundred. This is why I like to buy these things at auction. You get whatever the average competitive bid was and are not nickeled and dimed to death by the spread. It may not seem like much but over many auctions it can add up.

Isn’t that a dime per thousand?

 

[PointBreeze]

This has been the most helpful thread I have read on The Early Retirement Forum in years.

Thank you all so much for your generosity in sharing your knowledge!

 

[disneysteve]

Question 3: When they mature how many days does it take for the money to be in my Settlement Fund?

I thought I'd post an update to this.


We had a T bill mature today, 9/6. As of right now, 7:45 pm, when I look at our account it still shows the T bill as if it is an active holding in our portfolio, not yet redeemed. The money has not gone to our settlement fund yet.



I'll check again tomorrow and report back.

 

[Dash man]

I thought I'd post an update to this.


We had a T bill mature today, 9/6. As of right now, 7:45 pm, when I look at our account it still shows the T bill as if it is an active holding in our portfolio, not yet redeemed. The money has not gone to our settlement fund yet.



I'll check again tomorrow and report back.

That’s unusual. I had a T-bill mature today too, and the cash was there before noon. I use Schwab.

 

[disneysteve]

That’s unusual. I had a T-bill mature today too, and the cash was there before noon. I use Schwab.

Hmm. I was thinking maybe "maturity" occurs at market close for the day but your experience would suggest otherwise.

 

[audreyh1]

Hmm. I was thinking maybe "maturity" occurs at market close for the day but your experience would suggest otherwise.

Maturity for me last Thursday (9/1) was there at market open - first thing anyway. Fidelity.

 

[MBSC]

That’s unusual. I had a T-bill mature today too, and the cash was there before noon. I use Schwab.

Disneysteve has Vanguard. They use an overnight process as explained in post #113.

 

[Graybeard]

I was going to buy 1 T bill on the secondary market today just to see the process. I want to ask a question before I do as to whether the auction is offering a lower yield for the same timeframe and it makes more sense to buy the secondary T bill. I know these numbers can change but at 3:40 pm ET I made some notes so I want to just compare the secondary T bill to the auction.

Here's what I see at Vanguard:
Auction
1 month
indicative yield 2.341%

Secondary for CUSIP 912796YD5
matures 10/11/22 so the timeframe is probably the same or a day or 2 different than the 1 month at auction but basically they are the same calendar days.
There are only 2 bills in that CUSIP that I see where I can buy just 1 T bill. The YTW for one is 2.357% and the other is 2.355%

So if I understand this, the secondary has 2 bills I can buy for a tiny bit more yield than what the auction thinks the yield will be. That can change and before the auction but it is during the auction is where it is actually determined. Assuming the auction T bill stays at 2.341% then either of the secondary T bills are the better buy as their yield is a bit higher.

Am I right? It seems logical but I never bought on the secondary and only a few times at auction so I am still learning.

Thanks you.

No comments?

 

[Dash man]

No comments?

Not much to say. Either method is a valid was to purchase treasuries. Personally, I like the auctions because of the simplicity of just placing the order ahead of time. I’ve also bought on the open market to fill gaps in my ladders. There’s no right or wrong.

 

[thefinancebuff]

I was going to buy 1 T bill on the secondary market today just to see the process. I want to ask a question before I do as to whether the auction is offering a lower yield for the same timeframe and it makes more sense to buy the secondary T bill. I know these numbers can change but at 3:40 pm ET I made some notes so I want to just compare the secondary T bill to the auction.

Here's what I see at Vanguard:
Auction
1 month
indicative yield 2.341%

Secondary for CUSIP 912796YD5
matures 10/11/22 so the timeframe is probably the same or a day or 2 different than the 1 month at auction but basically they are the same calendar days.
There are only 2 bills in that CUSIP that I see where I can buy just 1 T bill. The YTW for one is 2.357% and the other is 2.355%

So if I understand this, the secondary has 2 bills I can buy for a tiny bit more yield than what the auction thinks the yield will be. That can change and before the auction but it is during the auction is where it is actually determined. Assuming the auction T bill stays at 2.341% then either of the secondary T bills are the better buy as their yield is a bit higher.

Am I right? It seems logical but I never bought on the secondary and only a few times at auction so I am still learning.

Thanks you.

The Indicative Yield from Vanguard isn't that reliable. You can't take it to the 0.01% level. The actual yield from the auction can easily be 0.2% lower or 0.2% higher. Unless you really don't want to wait, just stick with the auction. Save this post and observe after the auction how far off Vanguard's Indicative Yield is.

 

[audreyh1]

Fidelity’s expected yields for auction are sometimes way off. So I look at the prior auction and the recent secondary market rates to get a feel for where the auction might come in.

I elaborated about this recently in another thread https://www.early-retirement.org/fo...-post-updates-here-112376-72.html#post2821859

 

[disneysteve]

Disneysteve has Vanguard. They use an overnight process as explained in post #113.

Yep. I just checked at 6:55 am on 9/7 and the money is posted to the settlement fund as of 9/6.

 

[MBSC]

Personally, I like the auctions because of the simplicity of just placing the order ahead of time. I’ve also bought on the open market to fill gaps in my ladders.

+1

I use the secondary market when I want a maturity that can't found at auction, such as 9 months from now. I purchase at auction if I want a 26-week T-bill.

Regarding my T-Bill auction purchase yesterday (9/6), the Fidelity account is now showing 'pending activity' on the Positions page (holdings) and a purchase on the History page. The issue/settlement date is 9/8. If I attempt to make a trade, the cash available is reduced by the pending activity amount because it is a cash account (not margin). I also have messages reminding me of upcoming maturity redemptions.

 

[Graybeard]

Thanks. I just looked and the auction dropped to 2.326% and the 2 secondary bills increased to 2.362% and 2.360% respectively. It's small differences when talking about 1 or 10 T bills, it might be more important if you're buying hundreds of T bills. My desire to maximize this for the "best/perfect" outcome is not worth the trouble. I was more interested in whether I understood the yields of the 2 secondary bills and if not where do I look. Either purchasing option seems to work, I think I'll buy 1 on the secondary market today to see how it works like when I bought my 1st at auction.