Search found 15580 matches

by Kevin M
Wed Feb 21, 2024 1:41 pm
Forum: Investing - Theory, News & General
Topic: April and July 2024 TIPS
Replies: 40
Views: 5691

Re: April 2024 TIPS

Today the ask yield for the Apr 2024 TIPS is negative. At Schwab, you must call if you want to buy a TIPS with a negative yield:

Image

So instead of a buy link, there is a phone symbol where the Buy link normally would be. (Note also that there is no 7/15/2024 TIPS trading at Schwab)

At Fidelity the Apr 2024 is trading normally:

Image

And the Jul 2024 is trading as well.
by Kevin M
Wed Feb 21, 2024 1:28 pm
Forum: Investing - Theory, News & General
Topic: Can you do better than BND?
Replies: 278
Views: 35081

Re: Can you do better than BND?

There are multiple benefits you are missing: - portfolio efficiency w/ better asset correlation than long bonds (of any kind) - ability to reallocate or drawdown without worrying about extreme volatility Both of these are offset by purchase limitations so the key is to start early and max it every year. I mix Ibonds and the shorter duration vanguard TIPs fund. I didn't say there weren't any benefits to I bonds. I said that they are not appropriate to use as the riskless asset in portfolio construction for a long holding period. Remember, I am addressing the theoretical aspects of portfolio construction as it applies to a long holding period, like 30 years. Let me address your comments in this context. Portfolio efficiency applies to the mi...
by Kevin M
Wed Feb 21, 2024 10:45 am
Forum: Investing - Theory, News & General
Topic: Can you do better than BND?
Replies: 278
Views: 35081

Re: Can you do better than BND?

I am curious to how you would replicate a bond ladder with a bunch of funds. You can't get the lowest rung without loss, what are the mechanics of doing that? I think pursuing this in detail would take us too far astray from the topic of the thread, but basically I agree with you, which is why I prefer an actual ladder. VTIP holds some of the Apr 2024--as of Jan 31 it was about 3% of the holdings, but you can't sell just that--you must sell some of all the TIPS, with maturities out to 1/15/2029. The advocates of using TIPS funds believe that over time the variations from this "defect" average out, and that you end up with about the same end result as with a ladder. Finally, one issue with a ladder is that one might not have facto...
by Kevin M
Wed Feb 21, 2024 10:30 am
Forum: Investing - Theory, News & General
Topic: Can you do better than BND?
Replies: 278
Views: 35081

Re: Can you do better than BND?

There is no investment that is guaranteed to keep up with inflation for 30 years that also has no short-term volatility. Historically Tbills have done an OK job of that when the Fed wasn't suppressing short-term rates, but there have been long periods where the Fed did indeed suppress short-term rates such that they didn't keep up with inflation. We have lived through multi-year periods like that in the not too distant past. Ibonds? Good point. A few thoughts. The biggest problem with I bonds is the annual purchase limit. This excludes them from serving as the riskless asset for general portfolio construction. If I have $1M in cash (or in some other portfolio that I'm willing to liquidate) that I want to invest for 30 years in a CAPM-based...
by Kevin M
Tue Feb 20, 2024 6:28 pm
Forum: Investing - Theory, News & General
Topic: Can you do better than BND?
Replies: 278
Views: 35081

Re: Can you do better than BND?

My portfolio is 50/50 stock index funds/short-term bond fund. With not more than about 20 years left, my plan is to live off the fixed income plus Social Security, and leave the stocks to survivors. I also have a tiny state pension that comes with gold-plated health insurance. All I want from the fixed income allocation is to keep up with inflation, with little or no volatility. I don't care if it never makes a dime beyond that. So my question is, why should I hold any bonds at all, versus putting the whole fixed-income allocation into a money-market fund and/or an online savings account? If this is your goal, a TIPs ladder will certainly give you this with reasonable certainty. ETA: The plan is to take distributions every six months from ...
by Kevin M
Tue Feb 20, 2024 6:13 pm
Forum: Investing - Theory, News & General
Topic: Now that long TIPS yields are 60 bp off their highs I will…
Replies: 2937
Views: 611854

Re: Now that long TIPS yields are 60 bp off their highs I will…

Kevin, I have a dozen questions, but I will just go with two: 1. Ultimately will you have a single TIPS ladder to 2047 or 2048? Will your ladder have some TIPS in your IRA and the rest in taxable? Will you have more than one TIPS ladder (if that makes any sense)? 2. Why will your RMDs increase in the out years (little more detail please)? Hi Prudence, feel free to ask as many questions as you like, as long as we don't derail the thread too much. If it does, we can find another thread in which to discuss it, or start a new thread, like "Designing a TIPS ladder to fund RMDs." 1. All my TIPS are in my IRA. I have way more in TIPS than I need to cover my residual living expenses--probably twice as much. Once I'm done with the first p...
by Kevin M
Tue Feb 20, 2024 5:31 pm
Forum: Personal Finance (Not Investing)
Topic: What inflation rate are you using?
Replies: 56
Views: 4760

Re: What inflation rate are you using?

Hi Kevin, TIPS are based on what the federal government calculates what inflation is. How do they know what our personal inflation is? Do TIPS actually match your personal inflation? Or, is your spending limited to what the TIPS are returning? This has been discussed many times in many threads. Obviously there is no CPI tied to anyone's personal inflation rate. TIPS, with the inflation adjustments tied to the CPIAUCNS, is the best we can do to provide us with some inflation protection. Would you rather have something that increases in value with the general level of inflation, or no inflation-indexed securities at all? The choice for me is obvious. Hello Kevin, It is the "problem solved" part that I disagree with. I was respondin...
by Kevin M
Tue Feb 20, 2024 5:10 pm
Forum: Investing - Theory, News & General
Topic: Trading Treasuries (nominal and TIPS)
Replies: 4107
Views: 455678

Re: Trading Treasuries (nominal and TIPS)

My IRA is still with Vanguard and I use it to hold TIPS. Any idea why Vanguard never show any 1 unit quotes for 02/2049 TIPs? Any reason not to transfer my TIPS/treasury IRA to Schwab? Did you click the Show more link toward the left of the row for the 2049 in the bond search results, under the CUSIP? Right now I see min qty 5 for the 2049 and other TIPS that I spot checked, but it's no good to check unless the market is open. Usually they've had quotes for min qty 1 if I click Show more for anything I was interested in, but now and then they may not. Not only is there no good reason not to transfer to Schwab, but Schwab almost always, if not always, has better prices for small quantities of Treasuries, including TIPS. Often the best price...
by Kevin M
Tue Feb 20, 2024 12:55 pm
Forum: Investing - Theory, News & General
Topic: Now that long TIPS yields are 60 bp off their highs I will…
Replies: 2937
Views: 611854

Re: Now that long TIPS yields are 60 bp off their highs I will…

You were asking someone else, but I've been selling TIPS almost daily, lately my Apr 2024s, to buy longer maturity TIPS for my ladder. I recall that your ladder was initially almost all relatively short term (0-5 year maturities). Is your ultimate goal to maintain a balanced ladder, evenly covering liabilities from 2024-2033 as well, and overweighting 2034 and 2040 to fill out the missing years? Also, why are you selling daily, rather than all at once? You could completely build your new ladder in one day and be done with it. Is it because you are hoping that yields will continue to rise? Yes, after putting all of my IRA money into TIPS with maturities of five years or less, I decided to build a "real" TIPS ladder covering my exp...
by Kevin M
Tue Feb 20, 2024 12:17 pm
Forum: Investing - Theory, News & General
Topic: Taxation of Treasury bills, notes and bonds
Replies: 1028
Views: 149534

Re: Taxation of Treasury bills, notes and bonds

Just doing my taxes with HR Block software. I entered $158 "Bond Premium on Treasury Obligations", as reported in box 12 of my 1099-INT from Fidelity. That took me to a page in the HR Block software to report my "amortizable bond premium adjustment" from box 12 of my 1099-INT. There was no clear explanation as to what that included, and no explanatory note in my 2023 Fidelity tax summary. I entered the full amount of $158. Is that correct? Thanks. Yes. One caution though. If you paid accrued interest on the purchase, you also need to make an adjustment for that. Since you can only make one adjustment per 1099-INT, you need to use two 1099-INTs; do the ABP adjustment on one, and the accrued interest adjustment on the oth...
by Kevin M
Tue Feb 20, 2024 12:13 pm
Forum: Investing - Theory, News & General
Topic: April and July 2024 TIPS
Replies: 40
Views: 5691

Re: April 2024 TIPS

A little off-topic, but will the 2034-39 TIPS gap be filled in? Will the govt be issuing TIPS for this gap? First, there already is a Jan 2034 TIPS, so no gap there anymore. It was auctioned on Jan 18 this year. We can't say for sure, but they have been auctioning 10y TIPS each Jan and Jul since 2004. The have auctioned at least one 10y TIPS each year since 1997. So I think most of us assume that will continue, and we can fill one more gap each year through 2029. If for some reason they didn't issue a TIPS for a gap year, we would just sell some of our 2034s and 2040s, or whatever we have extra of in our ladder, to cover the gap year's expenses. The average duration of the 2034s and 2040s, if held roughly in equal proportions, is about the...
by Kevin M
Tue Feb 20, 2024 10:38 am
Forum: Investing - Theory, News & General
Topic: Trading Treasuries (nominal and TIPS)
Replies: 4107
Views: 455678

Re: Trading Treasuries (nominal and TIPS)

gavinsiu wrote: Tue Feb 20, 2024 10:18 am
Kevin M wrote: Tue Feb 20, 2024 9:28 am What do you see in your order status screen?
Nothing, and that is the problem. I thought there were additional orders.
You said "one came through", so there must be something in the order status screen.

Be sure you're looking at the right account if you have more than one, or look at order status for all accounts.

If you don't see the order in the order status screen, then it didn't go through; at least if it was a secondary market order. If it was an auction order, then it may not appear in the Activity & Orders screen right away--at least that's what I vaguely recall.
by Kevin M
Tue Feb 20, 2024 10:30 am
Forum: Investing - Theory, News & General
Topic: Taxation of Treasury bills, notes and bonds
Replies: 1028
Views: 149534

Re: Taxation of Treasury bills, notes and bonds

The prior discussion on accrued market discount has been quite helpful (thank you!). <snip> I thought I might advance what I have tried using H&R Block tax software. Insofar as I can tell, a number of respondents correctly indicated tax software (H&R and TurboTax) might not "automatically" populate the necessary forms based solely on the 1099-B transaction, even when the data are imported directly from the broker (Schwab and Vanguard for me). So H&R Block software does treasuries incorrectly? I just imported Vanguard's tax document and ran it through H&R Block software. I almost filed it right away, but decided to wait a month. Should I wait for another update? Or should I dig into Doppler44's contribution above w...
by Kevin M
Tue Feb 20, 2024 10:11 am
Forum: Investing - Theory, News & General
Topic: Taxation of Treasury bills, notes and bonds
Replies: 1028
Views: 149534

Re: Taxation of Treasury bills, notes and bonds

(C)De minimis rule If the market discount is less than ¼ of 1 percent of the stated redemption price of the bond at maturity multiplied by the number of complete years to maturity (after the taxpayer acquired the bond), then the market discount shall be considered to be zero. [. . .] I probably won't remember this, and so probably would never apply it, and would always make the adjustment. Apparently if I used TT instead of HRB it would be done correctly. [. . .] As far as why the de minimis rule is relevant to the overall purpose of this thread... My guess is that the context of *market* discount probably isn't the most likely reason that posts will pop up on bogleheads with questions to which the answer is "It's because of the de mi...
by Kevin M
Tue Feb 20, 2024 10:05 am
Forum: Investing - Theory, News & General
Topic: Can you do better than BND?
Replies: 278
Views: 35081

Re: Can you do better than BND?

I want to first acknowledge Kevin M’s many valuable contributions to the forum on the topics of Treasuries, TIPS, and fixed income generally. I have occasion to read his posts almost every day. He’s an exemplary member of the community, contributing value over and over. Thanks. :sharebeer Next, let me state for the record that this thread does not consider “The Ladder Alternative,” TIPS or otherwise. It presumes you are confined to purchasing mutual funds and/or Treasury bills. My main points have nothing to do with a ladder; did I mention a ladder? Why in the world would you confine yourself to purchasing only one type of Treasury? It's just as easy to buy a note or bond, including the TIPS variety, as it is to buy a bill. Again, the main...
by Kevin M
Tue Feb 20, 2024 9:33 am
Forum: Personal Finance (Not Investing)
Topic: What inflation rate are you using?
Replies: 56
Views: 4760

Re: What inflation rate are you using?

rossington wrote: Tue Feb 20, 2024 5:24 am Hi Kevin,
TIPS are based on what the federal government calculates what inflation is.
How do they know what our personal inflation is?
Do TIPS actually match your personal inflation?
Or, is your spending limited to what the TIPS are returning?
This has been discussed many times in many threads.

Obviously there is no CPI tied to anyone's personal inflation rate. TIPS, with the inflation adjustments tied to the CPIAUCNS, is the best we can do to provide us with some inflation protection.

Would you rather have something that increases in value with the general level of inflation, or no inflation-indexed securities at all? The choice for me is obvious.
by Kevin M
Tue Feb 20, 2024 9:28 am
Forum: Investing - Theory, News & General
Topic: Trading Treasuries (nominal and TIPS)
Replies: 4107
Views: 455678

Re: Trading Treasuries (nominal and TIPS)

gavinsiu wrote: Mon Feb 19, 2024 9:10 pm Anyone run into issue buying tbill on fidelity. Some of the transaction I made seem to disappear. I purchased 2 sets of tbill but only one came through.
What do you see in your order status screen?
by Kevin M
Mon Feb 19, 2024 7:48 pm
Forum: Investing - Theory, News & General
Topic: Taxation of Treasury bills, notes and bonds
Replies: 1028
Views: 149534

Re: Taxation of Treasury bills, notes and bonds

^If I'm reading everything you stated correctly, then you did it exactly the way I've done it on 2023 and previous year tax returns.
by Kevin M
Mon Feb 19, 2024 7:43 pm
Forum: Investing - Theory, News & General
Topic: April and July 2024 TIPS
Replies: 40
Views: 5691

Re: April 2024 TIPS

If I can get a higher unadjusted price than at maturity (> 100), why should I not sell them all now, knowing I'll get the same adjustments in the TIPS I buy with the proceeds, other than betting on higher yields on the longer TIPS between now and Apr 15? Maybe you should. I'm just not sure that there's anything special about the unadjusted price being >100. It's possible you could be better off or worse off by trading now vs. trading later vs. holding to maturity and then buying the new TIPS, whether the price is 99.9 or 100.1, right? Only because of the uncertainty of longer-term TIPS yields between now and Apr 15. If I'm agnostic about that, then I can't do better by holding to maturity, for the reasons I've explained. The thing that's s...
by Kevin M
Mon Feb 19, 2024 7:26 pm
Forum: Investing - Theory, News & General
Topic: Can you do better than BND?
Replies: 278
Views: 35081

Re: Can you do better than BND?

Nor should you expect any investment whatsoever to have a lower standard deviation than T-bills. Wrong! You are using standard deviation of annual returns to evaluate risk for holding periods of much longer than one year--more than 30 years. This is not the risk measure that Markowitz proposed. From one of my investment textbooks: The Markowitz model is based on several assumptions regarding investor behavior: 1. Investors consider each investment alternative as being represented by a probability distribution of expected returns over some holding period . ... 3. Investors estimate the risk of the portfolio on the basis of the variability of expected returns. ... (underline mine) So for a 30-year holding period, the appropriate risk metric ...
by Kevin M
Mon Feb 19, 2024 4:20 pm
Forum: Investing - Theory, News & General
Topic: April and July 2024 TIPS
Replies: 40
Views: 5691

Re: April 2024 TIPS

Presumably, traders are pricing that TIPS such that the expected return is about the same as that for a nominal treasury that matures on April 15, based on expectations for the next CPI release. Correct, which I explained in the OP. So, it seems like it would be trading as a way to "bet" on that next CPI figure. In general, yes, but in my case, I don't think so. As you know, the price will be 100 at maturity, but that's unadjusted. The inflation adjusted price is not yet known for certain. But the current price would indicate what the expectation is for that final inflation adjusted price. Right, but whatever the as-yet-unknown inflation adjustment is for April 1 - April 15, I'd get exactly the same inflation adjustment for the T...
by Kevin M
Mon Feb 19, 2024 4:13 pm
Forum: Personal Investments
Topic: What is the final payout amount for this TIPS?
Replies: 6
Views: 842

Re: What is the final payout amount for this TIPS?

Thank you for the replies. I thought using the Future Value formula with the yield to maturity (AKA real yield) as the rate and par value as the amount was the correct calculation. 35,000 * (1 + (1.967% * 18 years) = $47,392. Do I need to take into account that some of the real yield will be "paid out" in terms of coupons for the duration of the bond? Yes, and more than that, but this is over complicating it. The real principal is simply the face value times the index ratio (aka inflation factor) on the date of interest. So you're buying a known amount of real principal, evaluated on the date for which we use the index ratio. You can actually get something close using the FV formula, but you need to use the correct formula and co...
by Kevin M
Mon Feb 19, 2024 3:46 pm
Forum: Investing - Theory, News & General
Topic: Taxation of Treasury bills, notes and bonds
Replies: 1028
Views: 149534

Re: Taxation of Treasury bills, notes and bonds

Although the term "de minimis" is not used, a Market Discount section contains the condition when de minimis applies. Market discount is the amount of the stated redemption price of a bond at maturity that is more than your basis in the bond immediately after you acquire it. You treat market discount as zero if it is less than one-fourth of 1% (0.0025) of the stated redemption price of the bond multiplied by the number of full years to maturity (after you acquire the bond). Most directly... 26 U.S. Code Subpart B - Market Discount on Bonds -> 26 U.S. Code § 1278 - Definitions and special rules -> (a)(2)(C) De minimis Rule (C)De minimis rule If the market discount is less than ¼ of 1 percent of the stated redemption price of the b...
by Kevin M
Mon Feb 19, 2024 3:36 pm
Forum: Investing - Theory, News & General
Topic: Taxation of Treasury bills, notes and bonds
Replies: 1028
Views: 149534

Re: Taxation of Treasury bills, notes and bonds

kevinm wrote: There has been lots of discussion in this thread about the state taxation of accrued market discount for Treasuries. Search the thread for "accrued market discount" and maybe include "state" to see many posts about it. Here's one that seems quite authoritative. https://www.bogleheads.org/forum/viewtopic.php?p=7342726#p7342726 Thanks for the link, but the post referenced states: Section 17024. California Revenue and Taxation Code, Section 17024. But Section 17024 does not say anything about cap gains or market discount. as can be seen here: https://leginfo.legislature.ca.gov/faces/codes_displaySection.xhtml?lawCode=RTC&sectionNum=17024. It states: 17024. The term “Personal Income Tax Law of 1954,” means...
by Kevin M
Mon Feb 19, 2024 2:12 pm
Forum: Personal Investments
Topic: What is the final payout amount for this TIPS?
Replies: 6
Views: 842

Re: What is the final payout amount for this TIPS?

qatman wrote: Mon Feb 19, 2024 1:15 pm I believe it should just be $35,000 * 1.18145 = $41,350.75. That would be the value at maturity in today's dollars. Then there is also a final interest payment of 0.125% * 0.5 * $41,350.75 = $25.84, also in today's dollars.
Correct, except those would be real amounts in 1/5/2024 dollars, since that was the settlement date for the 1/4/2024 trade date.

The index ratio for a trade on Friday, settlement Tuesday Feb 20, is 1.17860 (there has been deflation in Jan and Feb ref CPI).

See this web page for a list of index ratios for the 2051 TIPS for 2024.
by Kevin M
Mon Feb 19, 2024 1:53 pm
Forum: Investing - Theory, News & General
Topic: Taxation of Treasury bills, notes and bonds
Replies: 1028
Views: 149534

Re: Taxation of Treasury bills, notes and bonds

OK, just confirming, bought 2 treasury notes on the secondary market that matured this year, Schwab auto import to TT, somehow I think it was done right. Treasury Note A: $800 accrued market discount gain adj and transferred to Schedule B (de minimis does not apply, $800 was more than .25% face value of note purchase) Treasury Note B: $200 accrued market discount left as long term gain (de minimis applied, $200 was less than .25% face value of note purchase) Both of these amounts are taxable for state, correct? Or which states that charge income tax would they not be taxed? In perusing IRS Pub 550, the de minimis exception is only mentioned with respect to OID, not to market discount. Can you share anything from an IRS pub or the actual re...
by Kevin M
Mon Feb 19, 2024 1:33 pm
Forum: Investing - Theory, News & General
Topic: Taxation of Treasury bills, notes and bonds
Replies: 1028
Views: 149534

Re: Taxation of Treasury bills, notes and bonds

sherwood88 wrote: Hi - How do you trick TurboTax to tell that accrued market discount is from a US Govt. I have everything working except want to make sure I get state exemption from this income. If there is check mark, please provide instruction or pic where to input. thank you! My understanding is that the ``accrued market discount'' is treated as a capital gain, and hence is taxable at the state level. Nope, accrued market discount is not treated as capital gain. See the OP. An adjustment is entered to deduct accrued market discount from cap gain, and the same amount is entered on Schedule B as interest. So the only question is, "what type of interest?" With HRB, you must use a dummy 1099-INT to get the interest onto Schedule ...
by Kevin M
Mon Feb 19, 2024 1:28 pm
Forum: Investing - Theory, News & General
Topic: April and July 2024 TIPS
Replies: 40
Views: 5691

Re: April 2024 TIPS

On Friday I sold more of my 2024 TIPS, this time for a price of 100.0039. That's right--I sold for a price that's higher than the price will be at maturity: 100. I used the proceeds to buy some 2044 TIPS at 2.20%, completing that rung of my ladder, with a bit left over to buy one Jan 2028 TIPS at 2.00%, completing my target for that maturity (I still need to buy a few more Jul 2028s to complete the 2028 rung). So I'm wondering if I should just sell all the rest of my 2024 TIPS to buy longer maturity TIPS if I can get a price of more than 100. What would I be giving up in doing so? The 0.54% inflation adjustments for March? I'd be getting the same inflation adjustments for the longer-maturity TIPS I'd be buying with the proceeds. The 0.500% ...
by Kevin M
Mon Feb 19, 2024 12:40 pm
Forum: Investing - Theory, News & General
Topic: Trading Treasuries (nominal and TIPS)
Replies: 4107
Views: 455678

Re: Help me understand TIPS operationally...

Is this just a theoretical question or is there something you are looking to accomplish because that might bring iShares iBonds (TIPS version) into the discussion. I have bought a bunch of I-Bonds and TIPS, and I am trying to project what their value will be at their years of maturity. Well that's quite easy for TIPS. You mentioned that one of the TIPS ladder tools had helped you with this, and that is exactly the answer to this particular question. Example: Using #Cruncher's TIPS ladder spreadsheet, it's indicated that I need to buy 39 TIPS maturing in 2047 to receive about $50K in real income. The principal value at maturity in real dollars based on prices and index ratios from Friday (2/16/2024) is $49,576, in addition to which the coup...
by Kevin M
Mon Feb 19, 2024 11:40 am
Forum: Investing - Theory, News & General
Topic: Can you do better than BND?
Replies: 278
Views: 35081

Re: Can you do better than BND?

... This thread uses SD of annual returns as the risk measure. That only makes sense for long-term analyses to the extent that 1y return volatility translates to 10y, 20y, or 30y return volatility. The analyses I've seen indicate that there is a relationship between short-term and long-term volatility for risky assets , but it's far from perfect. Of course the long-term real volatility of a TIPS held to maturity is as close to 0 as we can get; i.e., we know the long-term real return with high certainty. I could care less about the monthly or annual volatility of my 2047 TIPS. I bought them to deliver a known amount of real income in 2047 (and to a lesser extent to contribute to real income in earlier years from the coupons). This is my ris...
by Kevin M
Sun Feb 18, 2024 6:58 pm
Forum: Personal Finance (Not Investing)
Topic: What inflation rate are you using?
Replies: 56
Views: 4760

Re: What inflation rate are you using?

When running retirement calculations, what rate of inflation are you currently using? Are you using the default 3% or are you using a higher rate, based upon what we've seen over the last few years? You are talking about probability-based retirement calculations. It's important to understand that we don't have enough market history to enable us to come up with accurate expected returns or return distributions for risky assets, either in real or nominal terms. With TIPS you don't need to rely on probabilistic models, nor worry about the inflation rate. The ask yield on the Feb 2053 TIPS, closest you currently can get to 30 years, was 2.17% on Friday at Schwab. All TIPS have yields of about 2% or more when adjusted for seasonality. https://i...
by Kevin M
Sun Feb 18, 2024 6:00 pm
Forum: Investing - Theory, News & General
Topic: Taxation of Treasury bills, notes and bonds
Replies: 1028
Views: 149534

Re: Taxation of Treasury bills, notes and bonds

I don't believe accrued interest you paid the buyer is reported in 1099-INT; I know it's not for accrued interest you receive from the seller. You must enter an adjustment for accrued interest. I think whatever interest is on box 3 of 1099-INT is from other Treasuries, unless you actually did receive a coupon payment for this Treasury in 2023. For the 1099-INT, I can only speak about HRB, because that's what I use. You can only enter one adjustment per 1099-INT. For the accrued interest adjustment, you check the "bought or sold between interest payments". Since you both bought and sold the bond between interest payments, you'll need to use two 1099-INTs to enter the adjustments, one for the accrued interest paid to the seller, an...
by Kevin M
Sun Feb 18, 2024 2:00 pm
Forum: Investing - Theory, News & General
Topic: Taxation of Treasury bills, notes and bonds
Replies: 1028
Views: 149534

Re: Taxation of Treasury bills, notes and bonds

DetroitRick wrote: Sun Feb 18, 2024 1:34 pm I see only 1 alternative (for me, using TurboTax and in a state that doesn't tax Accrued Market Discount): manually override the subtraction field on my state return. Which (I've heard, and am currently trying to confirm) might mean I have to do a paper state filing.
So there are no other lines in the TT state income tax worksheets where you can enter additional subtractions? Some else mentioned that this was the case for their state.
by Kevin M
Sat Feb 17, 2024 4:42 pm
Forum: Investing - Theory, News & General
Topic: Can you do better than BND?
Replies: 278
Views: 35081

Re: Can you do better than BND?

Taking risk on the equity side certainly does NOT mean long Treasuries—unless you want to pull a Harry Markowitz and evaluate risk at the portfolio level rather than the individual security. I’ll come back to that. In light of the above, I'll next examine a stock – Tbill portfolio as the candidate answer to, “Can you do better than BND?” Put another way, what if you were completely rigorous about taking ALL your risk on the equity side? If you're reducing price risk with shorter duration, then you're probably increasing reinvestment risk . An individual investor needs to consider his investment horizon and use multiple funds, if necessary, to adjust the overall bonds duration to match that horizon. Using Bills is going to maximize reinvest...
by Kevin M
Sat Feb 17, 2024 3:25 pm
Forum: Personal Finance (Not Investing)
Topic: Doing multi-state tax return. Which state do I fill out first?
Replies: 2
Views: 304

Re: Doing multi-state tax return. Which state do I fill out first?

It depends on the states.

My residence is CA and we have a rental in OR. In doing the CA return using HR Block tax software, there's a section for credit for taxes paid to another state. For all states except three, you do the other state return first, then claim a credit on the CA return for taxes paid to the other state. The exceptions are:
  • Arizona
  • Oregon
  • Virgnia
For these three you claim a credit for the CA tax on the non-resident state return, so that's what I do.

If you're using tax software, the instructions for the state return should tell you what to do.
by Kevin M
Sat Feb 17, 2024 2:00 pm
Forum: Investing - Theory, News & General
Topic: Trading Treasuries (nominal and TIPS)
Replies: 4107
Views: 455678

Re: Trading Treasuries (nominal and TIPS)

The first step probably is to sell the excess 2033s (amount more than your DARA) and buy 2034s with the proceeds. What is "DARA"? (*naive but learning*) I defined it when I first used the abbreviation, per standard convention: I would just sell enough of the shorter and longer term maturity TIPS, roughly in the proportions we calculated, to buy enough of the now-available gap year TIPS to get me my desired annual real amount (DARA) for the new rung. (underline added) This is the term #Cruncher uses in his TIPS ladder spreadsheet. The tipsladder.com tool uses "Desired annual real income", so it would be DARI. I use #Cruncher's spreadsheet because it is more flexible, and allows more fine tuning. For example, rather than ...
by Kevin M
Sat Feb 17, 2024 1:29 pm
Forum: Investing - Theory, News & General
Topic: Trading Treasuries (nominal and TIPS)
Replies: 4107
Views: 455678

Re: Trading Treasuries (nominal and TIPS)

As it stands, it feels like I "lost" $1,509.60 in this process. Even if I could buy a qty of (22.484) CJY8s, it is still over $1000 less principal returned at maturity. Can you help me find the error in my data/calculations? I'm thinking that selling 20 of the 2033s is too few. Selling 21 would be closer to what you want and selling 22 would be a bit more than what you want. It's not possible to hit the number exactly, but it seems like those choices would bracket your target. I'm not sure how the mental accounting works when there has been a large shift in the current value of the principal of the 2033s due to inflation and changes in interest rates. Maybe thinking about the original principal return goal isn't helping. I would ...
by Kevin M
Sat Feb 17, 2024 11:29 am
Forum: Investing - Theory, News & General
Topic: Managing TIPS Phantom Income
Replies: 77
Views: 5639

Re: Managing TIPS Phantom Income

However, there's still a reason to prefer lower coupon TIPS if you are not spending the coupons: coupon reinvestment risk. Your total realized return depends on the coupon reinvestment rates. A zero coupon bond as no reinvestment risk; the realized return will be the same as the original yield (roughly; IRR and YTM aren't exactly the same, but close enough). Even in building my ladder, which in theory I will spend the coupons from, my mindset still is such that I want more certainty in my real return relative to my initial yield. This is why I choose the lower coupon Jan issues when there are two of them; I would buy all zero-coupon TIPS if they were available. Since all of my TIPS are in my IRA, I'm not concerned with OID uncertainty, but...
by Kevin M
Fri Feb 16, 2024 3:30 pm
Forum: Investing - Theory, News & General
Topic: Managing TIPS Phantom Income
Replies: 77
Views: 5639

Re: Managing TIPS Phantom Income

Since #Cruncher showed that the return is the same regardless of discount or coupon, I'm not sure the term "tax drag" is applicable in distinguishing between different TIPS. In terms of after-tax return, they all have the same tax drag over the long term, assuming #Cruncher's analysis is correct. No? It seems that what's different is the tax you'll pay in a particular year. But that's what tax drag is. Paying taxes now, instead of later, reduces your net returns . But #Cruncher showed us that this is not the case for TIPS with different prices and coupons... But the post says: Except for small differences due to tax payment timing And the after tax returns do differ, at least that's what I believe is shown on line 20 with 4.058%,...
by Kevin M
Fri Feb 16, 2024 3:19 pm
Forum: Investing - Theory, News & General
Topic: Taxation of Treasury bills, notes and bonds
Replies: 1028
Views: 149534

Re: Taxation of Treasury bills, notes and bonds

I had the unusual situation of buying and selling a bond in secondary market the SAME year (2023). I paid accrued interest at the time of purchase. And received accrued interest at the time of sale. However, the actual coupon payment is not until 2024 to the new buyer of the bond I sold. Now, since I disposed of the bond in 2023 and received accrued interest during the sale, it is correctly included in box 3 of 1099-INT I received from my brokerage. The supplement information of 1099-INT that was not reported to IRS also includes the accrued interest I paid at the time of purchase. I am reporting Box 3 interest in Form 1099-B. Additionally, since I already received the interest at the time of sale, depite coupon payment not happening until...
by Kevin M
Fri Feb 16, 2024 2:42 pm
Forum: Investing - Theory, News & General
Topic: Managing TIPS Phantom Income
Replies: 77
Views: 5639

Re: Managing TIPS Phantom Income

Since #Cruncher showed that the return is the same regardless of discount or coupon, I'm not sure the term "tax drag" is applicable in distinguishing between different TIPS. In terms of after-tax return, they all have the same tax drag over the long term, assuming #Cruncher's analysis is correct. No? It seems that what's different is the tax you'll pay in a particular year. I'm glad you posted this Kevin, because I wanted to ask your opinion on it. Logically, I agree. But if I am interpreting #cruncher's analysis correctly, he is saying that after factoring in the inflation factor, there is no difference in tax drag between a high coupon TIPS and a discounted low coupon TIPS. I find that to be an extraordinary conclusion, which c...
by Kevin M
Fri Feb 16, 2024 2:29 pm
Forum: Investing - Theory, News & General
Topic: Managing TIPS Phantom Income
Replies: 77
Views: 5639

Re: Managing TIPS Phantom Income

Help me out. The taxes should be equivalent whether it’s highly discounted or has a high coupon unless your bracket changes. However, what you’re after with a ladder is that when it matures, the amount you receive has kept up with inflation. Is this true in both cases? Or do you have less than needed when the higher coupon TIPS mature because you have been receiving a good percentage of the inflation adjustment in coupon over its life? A 20 year TIPS held to maturity with both scenarios should answer this question. What you're after with a ladder is to generate a know amount of desired annual real income (DARA) each year. The DARA consists of proceeds from TIPS that mature in that year plus the coupons paid by all TIPS that year; you can't...
by Kevin M
Fri Feb 16, 2024 2:17 pm
Forum: Investing - Theory, News & General
Topic: Managing TIPS Phantom Income
Replies: 77
Views: 5639

Re: Managing TIPS Phantom Income

Since #Cruncher showed that the return is the same regardless of discount or coupon, I'm not sure the term "tax drag" is applicable in distinguishing between different TIPS. In terms of after-tax return, they all have the same tax drag over the long term, assuming #Cruncher's analysis is correct. No? It seems that what's different is the tax you'll pay in a particular year. But that's what tax drag is. Paying taxes now, instead of later, reduces your net returns . But #Cruncher showed us that this is not the case for TIPS with different prices and coupons in this post (he also showed it in an earlier post, but the more recent one used equal invested amounts, which is what Jaylat seems to want to evaluate. I hadn't examined #Crunc...
by Kevin M
Fri Feb 16, 2024 9:31 am
Forum: Investing - Theory, News & General
Topic: Trading Treasuries (nominal and TIPS)
Replies: 4107
Views: 455678

Re: Trading Treasuries (nominal and TIPS)

I already own all the 2033s and 2040s that I will need to fund the gap years. When I bought them, the price I paid resulted in a yield of 2.20% for the 2033s, and 2.27% for the 2040s. So in my mind I'm thinking, "I love owning bonds that yield over 2% real! Jackpot! But hmmm...If I sell these 2.2+% yield bonds, and use the proceeds to buy the 2034 that only yields 1.9%, aren't I giving away yield?" It feels intuitively like I should wait until the 2034s are also offering a 2.2% yield before doing this swap. But from reading the forum, it sounds like this is some sort of error in my thinking, but I'm unsure how? The yields of the 2033s and 2040s have now fallen to around 1.92% and 2.08%, respectively. With these yield decreases, t...
by Kevin M
Fri Feb 16, 2024 9:27 am
Forum: Investing - Theory, News & General
Topic: Managing TIPS Phantom Income
Replies: 77
Views: 5639

Re: Managing TIPS Phantom Income

Since #Cruncher showed that the return is the same regardless of discount or coupon, I'm not sure the term "tax drag" is applicable in distinguishing between different TIPS. In terms of after-tax return, they all have the same tax drag over the long term, assuming #Cruncher's analysis is correct. No?

It seems that what's different is the tax you'll pay in a particular year.
by Kevin M
Fri Feb 16, 2024 9:23 am
Forum: Investing - Theory, News & General
Topic: Taxation of Treasury bills, notes and bonds
Replies: 1028
Views: 149534

Re: 1099-INT, Fidelity, Treasury accrued interest, HRBlock

Although the HRBlock instructions will undoubtedly be helpful to many, the bigger message might be that if someone as savvy as you can forget about unused accrued interest from one year to the next, it can happen to anyone. I would have caught it at some point. That's why I document it in my tax spreadsheet. I'm going to run across it at some point when entering updates into the tax spreadsheet. But yeah, I highlighted it to emphasize not to forget about it. Another issue I'm starting to see trickle into other threads is the desire to take that accrued interest from a treasury note which can't be used for treasury interest in the year of purchase, and use it for other interest-bearing investments (like CDs). I would not have thought this c...
by Kevin M
Fri Feb 16, 2024 9:16 am
Forum: Investing - Theory, News & General
Topic: Taxation of Treasury bills, notes and bonds
Replies: 1028
Views: 149534

Re: Taxation of Treasury bills, notes and bonds

phoroner wrote: Thu Feb 15, 2024 10:52 pm Just got my 1099 from Vanguard today for a taxable brokerage account

For treasury note bought at a discount and held to maturity, the cost basis was appropriately adjusted. But there is no reporting of the market discount on the 1099-INT form. This seems like an error; has anyone else had this happen?

Thanks
Read about Accrued market discount in the OP.
by Kevin M
Fri Feb 16, 2024 9:14 am
Forum: Investing - Theory, News & General
Topic: Taxation of Treasury bills, notes and bonds
Replies: 1028
Views: 149534

Re: Taxation of Treasury bills, notes and bonds

IDpilot wrote: Fri Feb 16, 2024 9:05 am
Richard1580 wrote: Thu Feb 15, 2024 6:25 pm Reading through this thread I am amused that no one has asked the fundamental question - why is our tax code this convoluted (i.e. f'ed up.)?

I think we all know the reasons. I just find it amusing that no one addresses the gorilla in the room, but just takes its presence as an inconvenient given. Weird.
That's because LadyGeek will pounce on you like an enraged Griffon!
Exactly. We're not supposed to discuss stuff like that. Also this thread is action oriented--i.e., it's intended to help folks with tax reporting for Treasuries, and discussing topics like "why tax code is convoluted" doesn't help with that.
by Kevin M
Thu Feb 15, 2024 2:59 pm
Forum: Investing - Theory, News & General
Topic: Now that long TIPS yields are 60 bp off their highs I will…
Replies: 2937
Views: 611854

Re: Now that long TIPS yields are 60 bp off their highs I will…

So when you are selling TIPS (or any bond really) to rebalance into stocks, are you influenced by the gain/loss you are realizing on the bond? If all you have are bonds with only very low annualized gain, or even slight loss, should you postpone rebalancing until that changes? This might be veering too much off topic, but what people hope for is that bond prices go up when stock prices go down. This has been the case in deflationary bear markets, but was not the case in the most recent inflationary stock downturn. I don't think most people are going to pay much attention to a relatively small percentage gain or loss on bonds when rebalancing into stocks during big stock declines. It was more difficult when there were large declines in both...
by Kevin M
Thu Feb 15, 2024 2:53 pm
Forum: Investing - Theory, News & General
Topic: Trading Treasuries (nominal and TIPS)
Replies: 4107
Views: 455678

Re: Trading Treasuries (nominal and TIPS)

Would your table only be applicable if one were to leave the 2033 position entirely now that 2034s are available, repeating with every new 10yr issuance? Yes, the most recent table assumes you always sell 2033s and 2040s. The table before assumed you always sell 2034s and 2040s. You can write the formula to get X so that you only have to change the reference to duration of the shorter maturity TIPS you're using in the calculation. The other two references are to the durations of the 2040 and the TIPS to buy, and those don't change. Another thing I don't understand-- the yields on my 2033s and 2040s are in the 2.2% range, and the yield on the 2034 is only 1.9%... why doesn't that matter? I assume that this duration-matching process is what ...