Bogleheads.org

student wrote: ↑Mon Mar 20, 2023 2:57 pm Thanks for the examples and Kevin for answering. Note to self: Do not sell before maturity unless it is an emergency.

My thanks too.

My answer to all this is to upload the broker's 1099's to Turbo Tax and send the IRS the return directly from TT.

i.e. FGDAI

Kevin M wrote: ↑Mon Mar 20, 2023 12:17 pm Bills are not considered market discount bonds, but are in a category of their own: short term US government obligations. The accrued acquisition discount is treated as interest, whether you buy at auction or on secondary.

I would assume that the tax treatment is the same if you sell before maturity.

The difference between purchase cost and sale cost is all interest?

I can also see the possibility of having a loss if you buy or sell on secondary market. Is this a capital loss or negative interest?

retiringwhen wrote: ↑Sat Mar 18, 2023 1:47 pm I will share my simulated auto-roll and ladders for the last year soon.

Last year?

I would also like to see the past 6 months. That's the period when the FOMC started their rapid rate increases.

The problem I see with the prior 1 year study is that the flat first half distorts the more recent data.

Electron wrote: ↑Sat Mar 18, 2023 1:05 pm I created a model in Excel that calculates the average T-Bill yield over the term of each ladder using the daily Treasury Par Yield Curve Data.

The return of a typical T-Bill ladder investing at less frequent intervals might differ from the model by a small amount.

retiringwhen wrote: ↑Sat Mar 18, 2023 1:16 pm I would be interested in your source data, but I am also confused, what is a 1 month ladder? How many tranches do you have in the ladder? 4 tranches with one every week? Similar patterns for the other ones?

I'm confused also. My T-bill ladder consists only of 26 week bills and has 10 or 12 rungs. But the rung timing was chosen based on the FOMC meeting schedule. I don't really know how to compared it to a 13 week ladder.

wbond wrote: ↑Wed Mar 15, 2023 1:04 pm Right. I get that in the current crisis mode. But longterm anyone with access to U.S. banking: is there any meaningful difference between a bank account & T bills if no de facto FDIC limits?

1) The interest on the T-bill is not subject to state income tax.

2) If you use a 52 week T-bill ladder your ladder has a higher "duration" and therefore higher return than that bank account.

3) You are not incurring the bank's cost and profit.

4) You are not subject to another "Silicon Valley".

Whether or not you consider these differences meaningful is up to you.

Kevin M wrote: ↑Tue Mar 14, 2023 1:23 pm

Doc wrote: ↑Tue Mar 14, 2023 10:28 am

Kevin M wrote: ↑Mon Mar 13, 2023 9:15 pm
(Image deleted. See prior post.)

I was buying nominal Treasuries last week at a little over 5% out to at least 6 month maturities.

Kevin

Kevin, do you have an explanation for the sever drop at 5 months?

I can tell you the characteristics of the Treasuries with the low yields. Maturity date for all is 8/15/2023.

912833LM0, stripped interest STRIPS, 4.15%
912803BC6, stripped principal STRIPS, 3.96%
912810EQ7, bond, 6.25% cpn, 3.91%

Kevin

The bond with a 6.25% coupon may be the problem. Are there adverse tax consequences for this issue that adjoining issues don't have?

Kevin M wrote: ↑Mon Mar 13, 2023 9:15 pm

I was buying nominal Treasuries last week at a little over 5% out to at least 6 month maturities.

Kevin

Kevin, do you have an explanation for the sever drop at 5 months?

Schwab has several different types of MM accounts.

Log in and go to: https://client.schwab.com/secured/cash-investments

With $200k you might just want to use T-Bills.

Angst wrote: ↑Sun Mar 12, 2023 11:43 pm I think it may be because it's of no consequence whether it's actually a new-issue "13wk bill" or a reissued "52wk bill" with 13 weeks left on it. It's still a Treasury Bill (with 13 weeks until maturity) so there's no accrued interest whatsoever.

If they were a new issue we would have two Treasury Bills with different cusips maturing on the same day.

That would be confusing. Which one do you buy? Are the bid/asks the same? ...

I'm apparently with the majority.

26 week rolling T-bill ladder.

May roll to 52 weeks later this year.

Vanguard's going to want you to have your money before placing a trade--most of the time. They don't have an auto-roll feature the way Fidelity does. You might be able to float it but I don't think it's something you should count on. Others may recount various experiences but from previous posts, you can't place an order with funds you don't have predictably. The best way to "stay invested" is to just buy a bill or note on the secondary market when the funds are available. The spread is tiny and you'll know exactly what you're getting. Sometime in the past year I had trouble placing a buy order for a new issue without sufficient cash but with another bond maturing on settlement date of the buy. Problem was solved by calling the b...

Kevin M wrote: ↑Fri Mar 03, 2023 11:51 am Schwab historically has had best pricing for min qty 1 (typically as good or better than a larger quantity) for nominals, and it seems that they are carrying on that tradition for TIPS

I have a very vague remembrance that the other sides of the bid/ask at Schwab were from Schwab itself. The idea was to give the small investors a break.

Kevin M wrote: ↑Sun Feb 19, 2023 11:20 am I'll use the quotes from yesterday to examine this.

The 9/30/23 note ask yield was 5.04% when I pulled the quotes. The closest maturity bills are a 9/7/23 at 4.82 and a 10/5/23 at 4.90%. The latter is closer to 9/30/23, so I'll compare with that. The yield diff is 14 basis points. The bid yield for the note was 5.10%, so a b/a yields spread of 6 basis points, and only half of that should be attributed to the purchase, so 3 basis points.

OK (maybe). So notes are a little more of a PITA than bills because you have to deal with the coupons and people are demanding a slightly higher yield to compensate.

I'm staying with the bills myself because at my age I already have enough pain in my ....

Today I bought 50 of 91282CDA6, which is a Treasury note that matures 9/30/23, at a yield of 5.06%. As usual, I ignored coupon and accrued interest, and bought the Treasury with the highest yield at the approximately 7-month maturity that I was going for. Earlier in the week I did several purchases of at about 6 months maturity. One lot was for a bill that matures ''' l What's your reasoning for buying any notes with maturities less than 52 weeks at all ? Why not buy T-Bills on secondary and avoid the coupon reinvestment and bookkeeping issues? I've been focusing more on maturities that are on the steep part of the yield curve, which is maturities out to about 6-month maturity. This is easier to see if we just look at bills: <Chart deleted...

Kevin M wrote: ↑Fri Feb 17, 2023 5:36 pm
Today I bought 50 of 91282CDA6, which is a Treasury note that matures 9/30/23, at a yield of 5.06%. As usual, I ignored coupon and accrued interest, and bought the Treasury with the highest yield at the approximately 7-month maturity that I was going for.

Earlier in the week I did several purchases of at about 6 months maturity. One lot was for a bill that matures '''

What's your reasoning for buying any notes with maturities less than 52 weeks at all? Why not buy T-Bills on secondary and avoid the coupon reinvestment and bookkeeping issues?

Kevin M wrote: ↑Sun Feb 12, 2023 12:28 pm People have reported that with Schwab auto roll you are out of Treasuries for a period of time between maturity and the next purchase. At Fidelity, proceeds of the maturing Treasury are used to buy the new Treasury, which I can verify from experience.

Sith.

I tested this out several weeks ago with a short T-Bill and there was a one week delay at Schwab. But today I was working on 52-wk bills. No way I'm going to be out of the market for 4 weeks.

But then my T-Bill ladder is temporary anyway until the Fed stops raising rates every ~4wks.

I did pay accrued interest on a note bought in 2022 that did not pay any interest in 2022, so I made a note to include this in 2023 tax reporting. My tax document from Vanguard says that the accrued interest payment is not information that is sent to the IRS. So Schedule B interest will be reduced by a seemingly arbitrary amount. Just curious whether the IRS ever questions this. My Quicken "group" for reporting maturing T-bills is 4 parts. eg: Bought: 999 Interest income: 1 Return of capital : 999 Removed: 999 This results in no capital gains only interest income and the potions is removed (not sold). Some broker's 1099s reflect this others do not. If you sell before maturity the ROC and removed become sold and possible cap gains...

So if I read this correctly, you pay 39 cents more per $1000 spent at Fidelity vs Schwab, translating into a yield difference of 0.044% (or 44 cents annually per thousand dollars invested) , am I correct?

I think you are comparing the price of 1 vs the price of 100 but only buying one.

OverseasBH wrote: ↑Sun Jan 22, 2023 8:34 am The trouble with international equity funds is that you may not be able to take all of the foreign tax credit due despite 100% of the foreign taxes paid being added to your US income.

Yep. In some cases you have to carry them over to future years. And that carry over period expires and the credit may disappear forever.

And you are still paying the foreign tax. It gets deducted from your dividends.

For this reason I put my foreign equity funds in tax advantaged accounts when possible.

There are a number of post about building a bond ladder. What do you do when you try to construct a bond ladder and the yield curve is inverted. Do you just buy the bond at the inverted yield because you are just trying to have a stable income and the yield on the shorter term might get lower in the future? Yes If you instead want to target higher returns then you might roll-the-yield-curve, buy a bond at/near the peak of the steepest part of the yield curve ... repeated yearly (or periodically (sell existing bond to buy the bond at/near the steepest point)), so all-else unchanged that will have both yielded relatively more, and seen its price appreciate relatively more. When the yield curve is inverted that bond will be the short term/1 y...

typical.investor wrote: ↑Sun Jan 15, 2023 11:17 pm They are still working on it I think.

1/16/23 10:01 Eastern

"More features will be added over time. Keep in mind:
Currently, you can only review performance for one account at a time; portfolio performance will be added at a later date."

Schwab website.

JayB wrote: ↑Sun Jan 08, 2023 12:06 pm If the ask on the latter is above the bid on the former, then the swap might be advantageous.

"Might" is the key word here. If rates go down in the interim then you could be better by keeping the shorter maturity.

SuperDave wrote: ↑Sun Jan 08, 2023 11:05 am Now that I am investing in T-Bills of various maturities (in a ladder), is there calculation or tool that one can use to determine if it would be better to sell a T-Bill on the secondary market and reinvest in a higher yielding Bill?

If it were "better" then all the pro's would be doing it and the "better" would go away.

If you sell a T-Bill and buy another at a higher yield you would be taking on more risk.

What is more important to you? Yield or risk?

What are the pros and cons of buying a new 24 wk bill at auction vs a "used" 52 wk bill with the same maturity on the open market.

marcopolo wrote: ↑Thu Dec 29, 2022 2:54 am We maintain a 60/40 AA target.
We are in are in retirement, so withdrawals come from whatever asset is over-represented. This nudges our AA towards target.
We actively rebalance using 5% bands.

Ditto.

Once upon a time a long, long time ago I stopped buying foreign stock ETFs/mutual funds in taxable accounts if they were US based.

This was because the foreign tax was taken out of the dividends already without the amount being addressed. I think therefore that no foreign tax on US based funds will show up on one's 1099's.

Perhaps someone with more current data can correct me if needed.

Kevin M wrote: ↑Mon Dec 19, 2022 3:25 pm I've decided that box spreads are too much work for the relatively small extra TEY, so am just rolling into Treasuries now.

I have been using a rolling T-bill "wiggly" ladder for some six months and am curious if too much work will come back to haunt us at tax time. Do the brokers report the payment as interest plus Return of Capital or do we have to break down the $100's into parts ourselves for our tax return?

Kevin M wrote: ↑Thu Dec 15, 2022 12:07 pm

Doc wrote: ↑Thu Dec 15, 2022 11:57 am

asif408 wrote: ↑Thu Dec 15, 2022 10:27 am I'll have to check the Vanguard account periodically to see if the minimum quantities change.

I just checked at Vanguard and the minimum changes with the issue. There were a few with minimum of one but not all.

Schwab shows all 12. Fidelity also I think. (Not as easy to count as Schwab.)

There are 50 TIPS outstanding, not 12.

Kevin

Duh. I was looking at T-Bills.

I don't do TIPS. (Real estate investments do good with high inflation. )

asif408 wrote: ↑Thu Dec 15, 2022 10:27 am I'll have to check the Vanguard account periodically to see if the minimum quantities change.

I just checked at Vanguard and the minimum changes with the issue. There were a few with minimum of one but not all.

Schwab shows all 12. Fidelity also I think. (Not as easy to count as Schwab.)

Elmo wrote: ↑Thu Dec 08, 2022 3:30 pm

Doc wrote: ↑Thu Dec 08, 2022 3:21 pm

MattB wrote: ↑Thu Dec 08, 2022 3:12 pm Depends where you are investing.

Or whether it is a margin account.

Even in a cash account there are work arounds. Like placing the trade the day prior to the auction by calling the trade desk after the close of the business day.

Different options are available depending on the broker. Some of these options may be "tricks".

I am at Fidelity - forgot to say that.
How would calling the trading desk help? Can you explain please?

Because the rep at a trading desk told me so. He could place the trade manually.

Not FIDO.

MattB wrote: ↑Thu Dec 08, 2022 3:12 pm Depends where you are investing.

Or whether it is a margin account.

Even in a cash account there are work arounds. Like placing the trade the day prior to the auction by calling the trade desk after the close of the business day.

Different options are available depending on the broker. Some of these options may be "tricks".

That makes no sense, since the reopenings are for the same security that was most recently issued as a 10-year:

I think they roll on the NEW issue date. Every 3 months.

Kevin M wrote: ↑Sat Dec 03, 2022 1:17 pm I see nothing horribly wrong with either of these approaches if one wants to maintain about a constant 10-year maturity for some reason, although there would be slightly less trading costs with a rolling ladder, in which proceeds from a maturing bond (no trading costs) are used to buy the long rung in the ladder at auction (no trading costs

Kevin, I'm confused.

Doesn't this approach give you an average maturity of a little less than five years?

By rolling a ten every three months the "price" of your protfolio remains fairly constant.

Ten year Treasury ETF with ONE position!!!!

"UTEN is a "single-bond ETF," a new and highly innovative product. At any given time, the ETF holds a single bond issue consisting of the current on-the-run U.S. 10-year Treasury note. When the next Treasury is issued, UTEN will automatically roll its holdings. "

https://www.trackinsight.com/en/etf-new ... ember-2022

(Link has other bond ETFs in discussion.)

See also https://www.trackinsight.com/en/fund/UTEN

Good/Bad/Indifferent/Wait and See????

Random Walker wrote: ↑Fri Nov 25, 2022 7:27 am I like international small cap value. Get factor diversification and perhaps better diversification than large since smaller companies more affected by local economies.

Dave

I also like international small cap but for another reason.

Large cap international funds are dominated by companies that deal world wide just like large US funds so you are not getting a whole lot of diversification except for the dollar/euro trade which is often "corrected" away by currency hedging (assuming you are buying funds is US markets).

Same idea as Random Walker's but on the currency side of the issue.

acegolfer wrote: ↑Wed Nov 23, 2022 8:16 am Q on auto rolling 4-wk T-bill. Is there any gap between maturity and new purchase? Or, maturity and new purchase date are the same?

No gap if you are placing the buy yourself.

If you are using an auto roll the gap could be zero, one week, or forever depending on your brokerage.

Kevin M wrote: ↑Mon Nov 21, 2022 12:57 pm Right, but someone might not be happy with the incremental yield from 6 months to one year.

Agreed. I am using 26 week for now. But certainly not 8 weeks.

AndyAndTheTuna wrote: ↑Mon Nov 21, 2022 11:43 am What is everyone's general strategy for taking advantage of the rising rate environment? I have a chunk of short term cash that I can lock up until January 2024; I'd like to capture interest to reinvest in a 529. I'm thinking of rolling 8 week treasuries to capture rising rates; it seems to be one of the steeper points on the yield curve.

Should I go longer, shorter, etc? Hard to say without a crystal ball, I know, but 8 weeks feels right.

The highest T-bill rates were 26 or 52 weeks at the latest auction(s):

https://www.treasurydirect.gov/auctions/upcoming/
See Auction results column.

Regarding 26 week T-Bills when the cash is needed in 6 to 12 months.

Better to buy a 52 week bill now for the higher yield. If you buy your house in 6 months just sell the T-Bill. You will probably get the same income as if you had bought a 26 week bill at the start.

On the other side of the coin if you buy a 26 week bill now and do not buy your house in 26 weeks what do you do? Buy another 26 week bill? Then what if DW finds the greatest house 13 weeks after that? You now have to sell the 26 week early.

Just buy the 52 week bill now and "for get about it".

MisterMister wrote: ↑Mon Nov 14, 2022 8:19 am I think this depends on whether you have a margin account. Without a margin account, the timing delay is a quirk that is handled for you automatically in the case of autoroll. But my experience is that, without a margin account, you cannot make a manual purchase without cash being available at the time of the purchase (not the time of settlement of the new purchase

It may also depend on your broker. My experience has been that if a sell trade is made prior to the buy order being placed then the buy is OK even if the sell trade settles at a later date.

KlangFool wrote: ↑Fri Nov 11, 2022 9:28 pm OP,

I keep 10% in SmallCapValue and 10% in Intermediate Term Treasury as part of my mini-Larry portfolio. It is part of the Barbell Investment Strategy. It works very well with rebalancing in a volatile market.

https://www.investopedia.com/articles/i ... rategy.asp

Don't try this unless you believe in it. And, you can rebalance and maintain the AA in a volatile market.

KlangFool

Been there, done that, still do it.

Larry's the smartest investment advisor in my neighborhood.

jebmke wrote: ↑Thu Nov 03, 2022 11:43 am Treasury market is huge and very liquid. Prices adjust quite quickly to what investors expect going forward. Unless the FED releases new information after the hike, it should be fully priced in quite quickly. Keep in mind that the FED overnight rate isn't the only thing that is considered by bond investors.

Not only do the rates adjust quite quickly but they also adjust prior to the FED release because the bond traders build their expectation into the rate. So yo don't usually see any significant jumps in rates after the FD release.

I bought the 26 week bill and only got 4.605% using Kevin's source.

Oh darn, maybe we will not have another rate increase in the 2nd half of the year.

In Quicken:

Tools:
Security List: (chose the one you want)
Edit:
Other Info:
Edit Goals: (you get an "investing Goals List" which you can add or edit)
Pick or add your "goal".

You can now use the "Goal" to create reports etc.

Just use the Group by: to create custom reports.

FWIW my Investing Goals are: Cash, Core, Credit, Domestic Equity, Foreign Equity, Nmn'l Treasury, Cash

I’m thinking of splitting it into six equal parts and investing in six 6-month T-bills maturing every month and roll it. To start, initially I will buy 1-month, 2-month, 3-month, 4-month, 5-month, and 6-month T-bills. When they mature I will reinvest each in 6-month T-bill. Does this make sense or is there a better way? Been there. Did that. Still doing it. One addional "maybe better" is to have those T-Bills mature the same week as the 52 week auction to give yourself more choices in the future as the yield curve changes. That's fine if you restrict yourself to buying at auction, but you have over 580 nominal Treasuries to choose from at any time on the secondary market, so there are always plenty of choices if you're OK with th...

user9532 wrote: ↑Mon Oct 24, 2022 9:00 pm I’m thinking of splitting it into six equal parts and investing in six 6-month T-bills maturing every month and roll it. To start, initially I will buy 1-month, 2-month, 3-month, 4-month, 5-month, and 6-month T-bills. When they mature I will reinvest each in 6-month T-bill. Does this make sense or is there a better way?

Been there. Did that. Still doing it.

One addional "maybe better" is to have those T-Bills mature the same week as the 52 week auction to give yourself more choices in the future as the yield curve changes.

vineviz wrote: ↑Sat Oct 22, 2022 10:38 am
The tax treatment of Treasury bills is not affected by how they are bought (i.e. at auction or on the secondary market) and how they are dispensed with (i.e. sold or redeemed). The difference between the purchase price and the dispensation price is treated as interest income in all cases.

Just be aware that not every security on the secondary market with a maturity date of <1 year is actually a Treasury bill. Some of them are notes or bonds that are simply nearing maturity, and their tax treatment can be different from the treatment of Treasury bills.

So if interest rates drop and you sell your T-Bill before maturity it is interest not cap gains. Hmmnn.

Q1: Tax treatment on maturing T-Bills

When you buy a T-Bill at auction you pay somewhat less than face - say $980.

When that bill matures you get $1000 and have to pay tax on the $20 of accrued interest.

Question: How is the $980 treated? Is it a return of capital or a "sale" with zero capital gains? If a return of capital what happens to the shares?

(Q2 & Q3: may concern buying or selling on secondary market at some future date, maybe.)

Kevin M wrote: ↑Mon Oct 17, 2022 4:04 pm It's not the topic of the thread, but my short answer is that I am putting new cash into short-term nominal investments in taxable and into TIPS in IRAs. My intention is to put about 50% of new cash in each, but that depends on which CDs mature when.

Other in the fact that my TIPS ladder was liquidated in the 2008 TIPS crash to rebalance into equites I have a very similar position.

I don't understand this at all. My analyses here are about which was a better way to invest while "waiting for higher real yields" in the high unexpected inflation and increasing real yield environment we've experienced, as I explained in the OP. I have simply shown that investing in a 2-year TIPS at the beginning of 2021 had a higher return than investing in 1-month (or at your request, 6-month) Treasuries. Period. I am not predicting anything. I missed the "was" and put "is" in its place. My suggestion was that a 24 to 52 week time frame might be better currently and was asking for your analysis. Putting a lot of weight into T-Bills in this environment makes sense. Using only 4 and 8 week bills seems like ov...