Treasury Floating Rate Note-Has its Time Arrived?

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VinhoVerde
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Treasury Floating Rate Note-Has its Time Arrived?

Post by VinhoVerde » Thu Mar 29, 2018 8:44 am

Looking back at in Bogleheads archives I find little discussion on Treasury Floating Rate Notes. To summarize, they are 2 year notes whose rate is tied to the 13 week Treasury and adjusted every three months.
Isn't this the perfect time to buy an instrument like this? In the near term rates are expected to rise and your coupon would increase along with each rate hike, at least theoretically.
Is there some structural disadvantage FRNs present that I haven't taken into account?
VinhoVerde

Ping Pong
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Re: Treasury Foating Rate Note-Has it's Time Arrived?

Post by Ping Pong » Thu Mar 29, 2018 9:26 am

I just checked Vanguard and they show no FRN’s available on the secondary market. So it seems that with the 2 year FRN, you get a yield similar to a t-bill, but no liquidity if held at Vanguard.

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Re: Treasury Floating Rate Note-Has it's Time Arrived?

Post by aj76er » Thu Mar 29, 2018 2:58 pm

Why not just hold t-bills and set them to auto-roll?
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Re: Treasury Floating Rate Note-Has its Time Arrived?

Post by scone » Thu Mar 29, 2018 3:19 pm

There’s TFLO, but it’s not that big.
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Re: Treasury Floating Rate Note-Has it's Time Arrived?

Post by whodidntante » Thu Mar 29, 2018 8:51 pm

aj76er wrote:
Thu Mar 29, 2018 2:58 pm
Why not just hold t-bills and set them to auto-roll?
My thoughts exactly.

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Re: Treasury Floating Rate Note-Has it's Time Arrived?

Post by grok87 » Thu Mar 29, 2018 9:16 pm

whodidntante wrote:
Thu Mar 29, 2018 8:51 pm
aj76er wrote:
Thu Mar 29, 2018 2:58 pm
Why not just hold t-bills and set them to auto-roll?
My thoughts exactly.
Agree

You used to get a bit of extra yield over tbills but that has vanished
http://mam.econoday.com/byshoweventfull ... byweek.asp
Last edited by grok87 on Fri Mar 30, 2018 7:29 am, edited 1 time in total.
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VinhoVerde
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Re: Treasury Floating Rate Note-Has its Time Arrived?

Post by VinhoVerde » Fri Mar 30, 2018 12:31 am

Thought of one use for Treasury FRN's. If you believe in holding cash in your long-term portfolio, and anticipate no short term need for it, you could ladder these notes to mature every 6 months for easy access. They seem to pay more, 1.72% versus 1.49% as of today, than Vanguard Federal MM fund and have no expense fees. Since you could hold these directly in a Treasury account, FRN's would be marginally more secure as they are not exposed to repo risk. This was a problem for a brief time after the Lehman collapse in 2008 so it's a real thing, though admittedly small.
A good vehicle for a Permanent Portfolio or variation there of.
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Re: Treasury Floating Rate Note-Has its Time Arrived?

Post by AlohaJoe » Fri Mar 30, 2018 12:58 am

It looks like most recent FRN -- https://www.treasurydirect.gov/instit/a ... =9128283T5 -- has a discount rate of just 0.049% with a spread of 0%. By comparison, Vanguard's Prime Money Market has a yield of 1.67%.

What's the attraction of the FRN? I feel like I'm not understanding something.

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Re: Treasury Floating Rate Note-Has its Time Arrived?

Post by VinhoVerde » Fri Mar 30, 2018 1:06 am

Attraction is its a super secure way to own cash, in huge amounts if lucky, and receive slightly superior yield. It is my understanding that anFRN pays the 13 week Tbill coupon and is adjusted every three months. Current 13 Tbill effective yield is 1.72% according to WSJ.
VinhoVerde

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Re: Treasury Floating Rate Note-Has its Time Arrived?

Post by Northern Flicker » Fri Mar 30, 2018 1:48 am

The ishares ETF FLOT is a portfolio of US floating rate investment grade credit:

https://www.ishares.com/us/products/239 ... e-bond-etf
Index fund investor since 1987.

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Re: Treasury Floating Rate Note-Has its Time Arrived?

Post by grok87 » Fri Mar 30, 2018 7:37 am

AlohaJoe wrote:
Fri Mar 30, 2018 12:58 am
It looks like most recent FRN -- https://www.treasurydirect.gov/instit/a ... =9128283T5 -- has a discount rate of just 0.049% with a spread of 0%. By comparison, Vanguard's Prime Money Market has a yield of 1.67%.

What's the attraction of the FRN? I feel like I'm not understanding something.
so you get the 0.049% discount margin on top of the 3 month bill rate.

here is a link, if you scroll down you will see the history of the discount margins.
http://mam.econoday.com/byshoweventfull ... byweek.asp

the question is, if you are not getting a signicant margin over tbills, isn't it just better to roll tbills. Otherwise you are locking your money up a bit, subject to being able to sell on the secondary market, for little to no compensation.

cheers
grok
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Re: Treasury Floating Rate Note-Has its Time Arrived?

Post by scone » Fri Mar 30, 2018 8:20 am

I've got a fairly large sum to invest in taxable, and because my state taxes dividends and interest, I'm looking at some form of short term Treasuries. I'm comparing floating rate ETFs to something like FSBAX, which has a longer duration. I'll be living on this money for the next ten years, and I really, really hate trading, dealing with CDs, buying and selling individual bonds, or doing complicated tax returns. I'm not a hobbyist in that sense.

Also, my health is not great, and my lawyer, who has power of attorney if I am incapacitated, is not a deep guru of the markets. So if he had to take over my finances, a complicated system (from his POV) would make things more problematical. He would likely hire an "expert" portfolio manager to deal with it, and that would cost me money. (This is similar to having a spouse who doesn't want to deal with finance.)

So I can see how having some of the nearest term money in a floating rate fund like TFLO, and the rest in FSBAX, could work for me, even if it might be sub-optimal in terms of the math. I could be wrong, obvi.
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Re: Treasury Floating Rate Note-Has its Time Arrived?

Post by lahob » Fri Mar 30, 2018 9:31 am

AlohaJoe wrote:
Fri Mar 30, 2018 12:58 am
What's the attraction of the FRN? I feel like I'm not understanding something.
You get the yield of a 13 week T-bill but, since the rate is reset every week, almost no duration risk. That is, the price of the FRN is close to par all the time. And you only need to roll them over every 2 years. (Rolling over T-bills can be done automatically at Fidelity but not at Vanguard for example.)

This would be great, but there's apparently no secondary market for them. So you are stuck for 2 years in an investment that earns the 13 week rate. Yuck. However, if they were liquid they would be a great replacement for a money market fund: more yield with less risk.

Of course, you can get nearly the same effect with a 13 week T-bill ladder, but it's enough more effort and complexity than a money market fund that I'm not willing to do it.

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Re: Treasury Floating Rate Note-Has its Time Arrived?

Post by VinhoVerde » Fri Mar 30, 2018 2:40 pm

I think I read that if you have a treasury account, you can instruct them to sell your Treasury bills on the secondary market. Can anyone confirm this? If so, there's your liquidity.
VinhoVerde

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Re: Treasury Floating Rate Note-Has its Time Arrived?

Post by VinhoVerde » Fri Mar 30, 2018 2:53 pm

I can answer my own question. According to Treasury.gov:
"No. To sell marketable securities that are in your TreasuryDirect account, you must transfer the securities to a broker/dealer account. The broker/dealer can sell the securities for you."
Somewhat of a hassle, but it is possible if you have a broker who offers this service on TFRN's.
VinhoVerde

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Re: Treasury Floating Rate Note-Has its Time Arrived?

Post by lahob » Fri Mar 30, 2018 5:23 pm

VinhoVerde wrote:
Fri Mar 30, 2018 2:53 pm
"No. To sell marketable securities that are in your TreasuryDirect account, you must transfer the securities to a broker/dealer account. The broker/dealer can sell the securities for you."
Somewhat of a hassle, but it is possible if you have a broker who offers this service on TFRN's.
I checked Vanguard and Fidelity and someone else here checked Schwab, and none of them allow you to sell Treasury FRNs. So yes, in theory they are liquid but in practice they apparently aren't.

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Re: Treasury Floating Rate Note-Has its Time Arrived?

Post by grok87 » Fri Mar 30, 2018 5:52 pm

lahob wrote:
Fri Mar 30, 2018 5:23 pm
VinhoVerde wrote:
Fri Mar 30, 2018 2:53 pm
"No. To sell marketable securities that are in your TreasuryDirect account, you must transfer the securities to a broker/dealer account. The broker/dealer can sell the securities for you."
Somewhat of a hassle, but it is possible if you have a broker who offers this service on TFRN's.
I checked Vanguard and Fidelity and someone else here checked Schwab, and none of them allow you to sell Treasury FRNs. So yes, in theory they are liquid but in practice they apparently aren't.
not sure what you mean. if i own a treasury FRN in my fidelity brokerage account are you saying i can't sell it?
RIP Mr. Bogle.

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Re: Treasury Floating Rate Note-Has its Time Arrived?

Post by Northern Flicker » Fri Mar 30, 2018 6:34 pm

lahob wrote:
Fri Mar 30, 2018 9:31 am
AlohaJoe wrote:
Fri Mar 30, 2018 12:58 am
What's the attraction of the FRN? I feel like I'm not understanding something.
You get the yield of a 13 week T-bill but, since the rate is reset every week, almost no duration risk. That is, the price of the FRN is close to par all the time. And you only need to roll them over every 2 years. (Rolling over T-bills can be done automatically at Fidelity but not at Vanguard for example.)

This would be great, but there's apparently no secondary market for them. So you are stuck for 2 years in an investment that earns the 13 week rate. Yuck. However, if they were liquid they would be a great replacement for a money market fund: more yield with less risk.

Of course, you can get nearly the same effect with a 13 week T-bill ladder, but it's enough more effort and complexity than a money market fund that I'm not willing to do it.
You might consider the short-term TIPs fund VTAPX (ETF version is VTIP). You would take a little bit of interest rate risk, but not inflation risk. Distributions (interest and principal correction for inflation) are state tax free.

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Re: Treasury Floating Rate Note-Has its Time Arrived?

Post by lahob » Mon Apr 02, 2018 9:59 am

grok87 wrote:
Fri Mar 30, 2018 5:52 pm
not sure what you mean. if i own a treasury FRN in my fidelity brokerage account are you saying i can't sell it?
Yes, that's my understanding. I'd love to be proven wrong.

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Re: Treasury Floating Rate Note-Has its Time Arrived?

Post by grok87 » Mon Apr 02, 2018 11:36 am

lahob wrote:
Mon Apr 02, 2018 9:59 am
grok87 wrote:
Fri Mar 30, 2018 5:52 pm
not sure what you mean. if i own a treasury FRN in my fidelity brokerage account are you saying i can't sell it?
Yes, that's my understanding. I'd love to be proven wrong.
Hmmm..well i guess i think your understanding is half right.

When i go to sell a regular nominal treasury in my fidelity taxable account, i get a bid/ask price.
When i go to sell a tips in my fidelity taxable account, i get a bid/ask price.
but for the floater it says i need to request a bid. hmmm that kind of sucks.

i guess they are not very liquid, kind of like a muni bond...

i still think you could sell it though, it would just be a little more work...
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Re: Treasury Floating Rate Note-Has its Time Arrived?

Post by VinhoVerde » Mon Apr 02, 2018 12:02 pm

I just called the Vanguard Fixed Income Desk and asked if I could purchase Treasury FRN's at auction and sell them in the secondary market before the 2 year term is up. Their answer was yes. That clears up the liquidity issue from my standpoint.
I have 200K sitting in Vanguard Federal MM that I'll place in a TFRN auction. Since its liquid, I'd sell all or a portion if I decide to deploy it for another asset. The extra .25% over a long period of time is worth the trouble to me.
VinhoVerde

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Re: Treasury Floating Rate Note-Has its Time Arrived?

Post by lahob » Mon Apr 02, 2018 12:11 pm

Thanks to grok87 and VinhoVerde for looking into this. Sounds like you can sell them, so that's good news!

Hopefully the sell price you get isn't too bad. I may buy an FRN and try selling it to see what happens.

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Re: Treasury Floating Rate Note-Has its Time Arrived?

Post by grok87 » Mon Apr 02, 2018 12:45 pm

VinhoVerde wrote:
Mon Apr 02, 2018 12:02 pm
I just called the Vanguard Fixed Income Desk and asked if I could purchase Treasury FRN's at auction and sell them in the secondary market before the 2 year term is up. Their answer was yes. That clears up the liquidity issue from my standpoint.
I have 200K sitting in Vanguard Federal MM that I'll place in a TFRN auction. Since its liquid, I'd sell all or a portion if I decide to deploy it for another asset. The extra .25% over a long period of time is worth the trouble to me.
VinhoVerde
I doubt you will get an extra 25 bps. More like 1-10 bps.
RIP Mr. Bogle.

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Re: Treasury Floating Rate Note-Has its Time Arrived?

Post by VinhoVerde » Mon Apr 02, 2018 1:55 pm

I must be missing something. 3 month Tnote pays 1.74, the rate TFRN would pay today if a coupon payment was due. Vanguard Federal MM pays an SEC yield of 1.5%. I get .24% extra. I think. What am I missing?
Plus, I have less counterparty risk.
VinhoVerde

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Re: Treasury Floating Rate Note-Has its Time Arrived?

Post by Angst » Mon Apr 02, 2018 2:24 pm

VinhoVerde wrote:
Mon Apr 02, 2018 12:02 pm
I just called the Vanguard Fixed Income Desk and asked if I could purchase Treasury FRN's at auction and sell them in the secondary market before the 2 year term is up. Their answer was yes. That clears up the liquidity issue from my standpoint.
I have 200K sitting in Vanguard Federal MM that I'll place in a TFRN auction. Since its liquid, I'd sell all or a portion if I decide to deploy it for another asset. The extra .25% over a long period of time is worth the trouble to me.
VinhoVerde
I just went to Vanguard's website and searched for all categories of "Treasuries" at Vanguard for the secondary market. Lots of things to choose from, Bills, Notes, Bonds, STRIPS, TIPS, Floating rate notes... Then I incrementally eliminated everything but Floating rate notes from the search, and nothing came up. I wouldn't open up that Champagne quite yet. Not if you don't want to be the sole person making the market! :shock: I really don't know what's going on. It's odd that the FRN's are there on the list but nothing comes up.

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Re: Treasury Floating Rate Note-Has its Time Arrived?

Post by grok87 » Mon Apr 02, 2018 2:48 pm

VinhoVerde wrote:
Mon Apr 02, 2018 1:55 pm
I must be missing something. 3 month Tnote pays 1.74, the rate TFRN would pay today if a coupon payment was due. Vanguard Federal MM pays an SEC yield of 1.5%. I get .24% extra. I think. What am I missing?
Plus, I have less counterparty risk.
VinhoVerde
sorry i thought you were comparing to 3 month tbills. I agree the spread over the vanguard federal money market would perhaps be that large.
RIP Mr. Bogle.

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Re: Treasury Floating Rate Note-Has its Time Arrived?

Post by lahob » Mon Apr 02, 2018 3:59 pm

Angst wrote:
Mon Apr 02, 2018 2:24 pm
I just went to Vanguard's website and searched for all categories of "Treasuries" at Vanguard for the secondary market. Lots of things to choose from, Bills, Notes, Bonds, STRIPS, TIPS, Floating rate notes... Then I incrementally eliminated everything but Floating rate notes from the search, and nothing came up. I wouldn't open up that Champagne quite yet. Not if you don't want to be the sole person making the market! <E>:shock:</E> I really don't know what's going on. It's odd that the FRN's are there on the list but nothing comes up.
As far as I can tell you can't buy them at Vanguard on the secondary market. I'm hoping they'll be available at the auction later this month.

Otherwise you can buy them at TreasuryDIrect and transfer them to Vanguard, but I think you have to mail in a form to do that.

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Re: Treasury Floating Rate Note-Has its Time Arrived?

Post by Angst » Mon Apr 02, 2018 5:29 pm

lahob wrote:
Mon Apr 02, 2018 3:59 pm
As far as I can tell you can't buy them at Vanguard on the secondary market. I'm hoping they'll be available at the auction later this month.

Otherwise you can buy them at TreasuryDIrect and transfer them to Vanguard, but I think you have to mail in a form to do that.
Clearly, we need a Boglehead to step up to the plate and buy one of these darn things so they can turn around and try to re-sell it! I've seen active auction links before at Vanguard for Treasury FRN's, so I do assume they can be bought as such. After buying their FRN, our intrepid volunteer would then want to confirm that they have active Buy | Sell links next to their FRN's listing in their Current Balances page at Vanguard. Assuming that they do, they would want to click that Sell link and report back to us what happened!

We're counting on you lahob. :)

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Re: Treasury Floating Rate Note-Has its Time Arrived?

Post by grok87 » Mon Apr 02, 2018 5:40 pm

Angst wrote:
Mon Apr 02, 2018 5:29 pm
lahob wrote:
Mon Apr 02, 2018 3:59 pm
As far as I can tell you can't buy them at Vanguard on the secondary market. I'm hoping they'll be available at the auction later this month.

Otherwise you can buy them at TreasuryDIrect and transfer them to Vanguard, but I think you have to mail in a form to do that.
Clearly, we need a Boglehead to step up to the plate and buy one of these darn things so they can turn around and try to re-sell it! I've seen active auction links before at Vanguard for Treasury FRN's, so I do assume they can be bought as such. After buying their FRN, our intrepid volunteer would then want to confirm that they have active Buy | Sell links next to their FRN's listing in their Current Balances page at Vanguard. Assuming that they do, they would want to click that Sell link and report back to us what happened!

We're counting on you lahob. :)
Hi Angst,
so I've done i think 80% of what you are after but at Fidelity.
I bought one at auction like a year ago. Based on this thread, I initiated the sell process to see what would happen but did not complete it. It showed no quotes and did not show a bid/ask spread. It said i needed to request a quote which i did not do. This is similar to what happens when you try to sell a muni bond.
I'm assuming if i kept going i would be able to sell it but probably at a price i don't really like.

cheers,
grok
RIP Mr. Bogle.

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Re: Treasury Floating Rate Note-Has its Time Arrived?

Post by Angst » Mon Apr 02, 2018 6:14 pm

grok87 wrote:
Mon Apr 02, 2018 5:40 pm
Angst wrote:
Mon Apr 02, 2018 5:29 pm
Clearly, we need a Boglehead to step up to the plate and buy one of these darn things so they can turn around and try to re-sell it! I've seen active auction links before at Vanguard for Treasury FRN's, so I do assume they can be bought as such. After buying their FRN, our intrepid volunteer would then want to confirm that they have active Buy | Sell links next to their FRN's listing in their Current Balances page at Vanguard. Assuming that they do, they would want to click that Sell link and report back to us what happened!

We're counting on you lahob. :)
Hi Angst,
so I've done i think 80% of what you are after but at Fidelity.
I bought one at auction like a year ago. Based on this thread, I initiated the sell process to see what would happen but did not complete it. It showed no quotes and did not show a bid/ask spread. It said i needed to request a quote which i did not do. This is similar to what happens when you try to sell a muni bond.
I'm assuming if i kept going i would be able to sell it but probably at a price i don't really like.

cheers,
grok
I don't blame you grok, that last 20% sounds a little unnerving, but it would be interesting to know exactly what would ensue, like what kind of spread there would be. And how confident can you be in the pricing? I suppose then that's an issue with Muni's too? It's nothing I've dealt with before. Well, I still figure one could get a bit more info without having to click that final "submit" button. Maybe lahob will complete the last leg of this research, or most of it, and then report back. :wink:

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Re: Treasury Floating Rate Note-Has its Time Arrived?

Post by radiowave » Mon Apr 02, 2018 6:28 pm

VinhoVerde wrote:
Mon Apr 02, 2018 12:02 pm
I just called the Vanguard Fixed Income Desk and asked if I could purchase Treasury FRN's at auction and sell them in the secondary market before the 2 year term is up. Their answer was yes. That clears up the liquidity issue from my standpoint.
I have 200K sitting in Vanguard Federal MM that I'll place in a TFRN auction. Since its liquid, I'd sell all or a portion if I decide to deploy it for another asset. The extra .25% over a long period of time is worth the trouble to me.
VinhoVerde
So does that mean, if you bought a $200k FRN, that you can sell any portion of it or is it like a CD in that you would have to sell the entire bond?
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Re: Treasury Floating Rate Note-Has its Time Arrived?

Post by lahob » Mon Apr 02, 2018 6:44 pm

grok87 wrote:
Mon Apr 02, 2018 5:40 pm
I bought one at auction like a year ago. Based on this thread, I initiated the sell process to see what would happen but did not complete it. It showed no quotes and did not show a bid/ask spread. It said i needed to request a quote which i did not do. This is similar to what happens when you try to sell a muni bond.
Requesting a quote doesn't commit you to selling, does it? We'd appreciate the favor if you're willing to try!

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Re: Treasury Floating Rate Note-Has its Time Arrived?

Post by lahob » Mon Apr 02, 2018 6:45 pm

radiowave wrote:
Mon Apr 02, 2018 6:28 pm
So does that mean, if you bought a $200k FRN, that you can sell any portion of it or is it like a CD in that you would have to sell the entire bond?
I would assume it's like any other Treasury: you can sell in $1000 increments.

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Re: Treasury Floating Rate Note-Has its Time Arrived?

Post by lahob » Fri May 11, 2018 2:48 pm

Angst wrote:
Mon Apr 02, 2018 6:14 pm
I don't blame you grok, that last 20% sounds a little unnerving, but it would be interesting to know exactly what would ensue, like what kind of spread there would be. And how confident can you be in the pricing? I suppose then that's an issue with Muni's too? It's nothing I've dealt with before. Well, I still figure one could get a bit more info without having to click that final "submit" button. Maybe lahob will complete the last leg of this research, or most of it, and then report back. :wink:
I bought a $2000 FRN at the auction in April. I requested a bid today at Vanguard at 10:30 am Eastern for quantity 1 and 5 hours later I still don't have a bid. I am not surprised but I am disappointed. I'll try again sometime.
grok87 wrote: so I've done i think 80% of what you are after but at Fidelity.
I bought one at auction like a year ago. Based on this thread, I initiated the sell process to see what would happen but did not complete it. It showed no quotes and did not show a bid/ask spread. It said i needed to request a quote which i did not do. This is similar to what happens when you try to sell a muni bond.
I'm assuming if i kept going i would be able to sell it but probably at a price i don't really like.
Grok, would you be willing to request a quote at Fidelity? I don't think there would be any negative consequences of just making the request, and we'd really appreciate it.

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Re: Treasury Floating Rate Note-Has its Time Arrived?

Post by livesoft » Fri May 11, 2018 2:50 pm

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Re: Treasury Floating Rate Note-Has its Time Arrived?

Post by lahob » Fri May 11, 2018 3:19 pm

livesoft wrote:
Fri May 11, 2018 2:50 pm
Why not just use a floating rate note ETF?
Nothing wrong with those. Personally I was looking for a replacement for a Treasury money market fund, plus I was curious how the Treasury FRNs worked.

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Re: Treasury Floating Rate Note-Has its Time Arrived?

Post by livesoft » Fri May 11, 2018 3:24 pm

Replacements for Treasury MM funds: BIL and SHV.

I was dissatisfied with money market rates at my brokers, so opened positions in BIL and FLRN as well as a T-bill. They have worked out quite nicely for me.
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Re: Treasury Floating Rate Note-Has its Time Arrived?

Post by Longtermgrowth » Fri May 11, 2018 11:00 pm

livesoft wrote:
Fri May 11, 2018 3:24 pm
Replacements for Treasury MM funds: BIL and SHV.
With a 30 day SEC yield of 1.74%, SHV is looking better than my "high yield" savings account at 1.6%.

The NAV looks to have stayed very stable through the rate increases that have already occurred, and the fund would save me a bit on state taxes...

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Re: Treasury Floating Rate Note-Has its Time Arrived?

Post by jeffreyalan » Mon Jul 23, 2018 9:41 pm

I feel like I am the only one who purchases and appreciates FRNs. I buy them from Treasury Direct. You get the 13 week bill rate plus a small spread. The rate resets every week so In a rising rate environment you dont have to wait until a bill matures to get a new, higher rate. You get it immediately. I think these vehicles are underappreciated for people who intend to hold them to maturity.

grok87
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Re: Treasury Floating Rate Note-Has its Time Arrived?

Post by grok87 » Tue Jul 24, 2018 7:34 pm

jeffreyalan wrote:
Mon Jul 23, 2018 9:41 pm
I feel like I am the only one who purchases and appreciates FRNs. I buy them from Treasury Direct. You get the 13 week bill rate plus a small spread. The rate resets every week so In a rising rate environment you dont have to wait until a bill matures to get a new, higher rate. You get it immediately. I think these vehicles are underappreciated for people who intend to hold them to maturity.
i guess i'm not sure. i do own one.

according to ishares the 3 year return ending june 30 was 1.41% cagr. add back the 20 bp expense ratio and you get 1.61% cagr.
the question is what 3 month bill index would have returned. according to this fund's page, which uses 3 month tbill index as a benchmark, 3 month tbills returned 1.53%. so floating rate notes did a bit better, as you say a small spread. but apparently they are illiquid, can't really sell easily before maturity. so it's not clear to me the small spread is worth it...
RIP Mr. Bogle.

misterreally
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Re: Treasury Floating Rate Note-Has its Time Arrived?

Post by misterreally » Sun Jul 29, 2018 11:09 pm

jeffreyalan wrote:
Mon Jul 23, 2018 9:41 pm
I feel like I am the only one who purchases and appreciates FRNs. I buy them from Treasury Direct. You get the 13 week bill rate plus a small spread. The rate resets every week so In a rising rate environment you dont have to wait until a bill matures to get a new, higher rate. You get it immediately. I think these vehicles are underappreciated for people who intend to hold them to maturity.
I agree if interest rates suddenly rise than one seems hedged using the FRNs and then I suppose they would quickly be pretty liquid. I assume that there is no significant secondary market for them unless that happens.

lahob
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Re: Treasury Floating Rate Note-Has its Time Arrived?

Post by lahob » Tue Feb 26, 2019 4:21 pm

lahob wrote:
Fri May 11, 2018 2:48 pm
I bought a $2000 FRN at the auction in April. I requested a bid today at Vanguard at 10:30 am Eastern for quantity 1 and 5 hours later I still don't have a bid. I am not surprised but I am disappointed. I'll try again sometime.
I've tried to sell 5 times in the past few months. The first two times I didn't even get a quote. The last three times I did and submitted a sell order, but it never executed.

Anyone else manage to sell a Treasury FRN?

grok87
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Re: Treasury Floating Rate Note-Has its Time Arrived?

Post by grok87 » Wed Feb 27, 2019 7:48 pm

lahob wrote:
Tue Feb 26, 2019 4:21 pm
lahob wrote:
Fri May 11, 2018 2:48 pm
I bought a $2000 FRN at the auction in April. I requested a bid today at Vanguard at 10:30 am Eastern for quantity 1 and 5 hours later I still don't have a bid. I am not surprised but I am disappointed. I'll try again sometime.
I've tried to sell 5 times in the past few months. The first two times I didn't even get a quote. The last three times I did and submitted a sell order, but it never executed.

Anyone else manage to sell a Treasury FRN?
thanks for the update. i'm wondering if position size might be the issue. maybe one needs $10k, or $25k or some quantity like that to trade on the secondary market.
RIP Mr. Bogle.

lahob
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Re: Treasury Floating Rate Note-Has its Time Arrived?

Post by lahob » Sun Mar 03, 2019 6:36 pm

grok87 wrote:
Wed Feb 27, 2019 7:48 pm
thanks for the update. i'm wondering if position size might be the issue. maybe one needs $10k, or $25k or some quantity like that to trade on the secondary market.
That is certainly possible. Calling the Vanguard bond desk could also help.

lahob
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Re: Treasury Floating Rate Note-Has its Time Arrived?

Post by lahob » Fri Apr 12, 2019 7:44 am

I've tried to sell 5 times in the past few months. The first two times I didn't even get a quote. The last three times I did and submitted a sell order, but it never executed.
I finally manage to sell the other day on the 6th attempt. Perseverance pay off!

Because there's not really a market for these, at Vanguard you first have to request a quote. The quote I got was for $99.89, which was lower than what Vanguard said the actual value was ($99.96 I believe). I put in an order based on the quote, and a couple hours later it sold. The sell price was almost identical to the actual value (i.e. higher than the quote).

This doesn't change anything: Treasury FRNs are still illiquid for retail investors for all practical purposes. Plus the Treasury yield curve is so flat now that FRNs have become irrelevant for the time being. I just wanted to close the loop and let everyone know how things turned out.

grok87
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Re: Treasury Floating Rate Note-Has its Time Arrived?

Post by grok87 » Tue Apr 16, 2019 3:23 pm

lahob wrote:
Fri Apr 12, 2019 7:44 am
I've tried to sell 5 times in the past few months. The first two times I didn't even get a quote. The last three times I did and submitted a sell order, but it never executed.
I finally manage to sell the other day on the 6th attempt. Perseverance pay off!

Because there's not really a market for these, at Vanguard you first have to request a quote. The quote I got was for $99.89, which was lower than what Vanguard said the actual value was ($99.96 I believe). I put in an order based on the quote, and a couple hours later it sold. The sell price was almost identical to the actual value (i.e. higher than the quote).

This doesn't change anything: Treasury FRNs are still illiquid for retail investors for all practical purposes. Plus the Treasury yield curve is so flat now that FRNs have become irrelevant for the time being. I just wanted to close the loop and let everyone know how things turned out.
thanks for the update.

re "irrelevant for the time being"- can you amplify your line of thought? this page shows they last issued with 18bps of extra yield (over the 3 month tbill)
https://www.treasurydirect.gov/instit/a ... result.htm
that seems attractive and is higher than its been for a while
RIP Mr. Bogle.

lahob
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Re: Treasury Floating Rate Note-Has its Time Arrived?

Post by lahob » Tue Apr 16, 2019 4:16 pm

grok87 wrote:
Tue Apr 16, 2019 3:23 pm
thanks for the update.

re "irrelevant for the time being"- can you amplify your line of thought? this page shows they last issued with 18bps of extra yield (over the 3 month tbill)
https://www.treasurydirect.gov/instit/a ... result.htm
that seems attractive and is higher than its been for a while
I think it's actually only 11.5 bps, which seems irrelevant to me. That little extra yield might make a difference to folks with lots of cash, though, so maybe "irrelevant" was too strong. Or maybe I'm just less sensitive to small yield differences that others. :happy

Back when this thread first started the difference was over 50 bps. I'm sure we'll be back there again someday.

skepticalobserver
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Re: Treasury Floating Rate Note-Has its Time Arrived?

Post by skepticalobserver » Tue Apr 16, 2019 5:59 pm

I recenty read (I can't recall where) about difficulty selling FRN's in the seconday market; it took a day or so for an offer and the spread was wide, unlike most treasury issues that are sold online within minutes (in my experience) with very narrow spreads. The foregoing is moot If you're holding the FRN to maturity.

grok87
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Re: Treasury Floating Rate Note-Has its Time Arrived?

Post by grok87 » Wed Apr 17, 2019 6:32 am

lahob wrote:
Tue Apr 16, 2019 4:16 pm
grok87 wrote:
Tue Apr 16, 2019 3:23 pm
thanks for the update.

re "irrelevant for the time being"- can you amplify your line of thought? this page shows they last issued with 18bps of extra yield (over the 3 month tbill)
https://www.treasurydirect.gov/instit/a ... result.htm
that seems attractive and is higher than its been for a while
I think it's actually only 11.5 bps, which seems irrelevant to me. That little extra yield might make a difference to folks with lots of cash, though, so maybe "irrelevant" was too strong. Or maybe I'm just less sensitive to small yield differences that others. :happy

Back when this thread first started the difference was over 50 bps. I'm sure we'll be back there again someday.
so i've posted the data from the treasury auction link
https://www.treasurydirect.gov/instit/a ... result.htm

Code: Select all

     BillsCMBsNotesBondsTIPSFRNs 

Security Term	CUSIP	Reopening	Issue
				Date		Maturity Date	HDM	Spread
2-Year	9128285Y2	Yes	03/29/2019	01/31/2021	0.180%	0.115%
2-Year	9128285Y2	Yes	02/22/2019	01/31/2021	0.149%	0.115%
2-Year	9128285Y2	No	01/31/2019	01/31/2021	0.115%	0.115%
2-Year	9128285H9	Yes	12/28/2018	10/31/2020	0.150%	0.045%
2-Year	9128285H9	Yes	11/30/2018	10/31/2020	0.050%	0.045%
2-Year	9128285H9	No	10/31/2018	10/31/2020	0.045%	0.045%
2-Year	912828Y53	Yes	09/28/2018	07/31/2020	0.050%	0.043%
2-Year	912828Y53	Yes	08/31/2018	07/31/2020	0.047%	0.043%
2-Year	912828Y53	No	07/31/2018	07/31/2020	0.043%	0.043%
2-Year	9128284K3	Yes	06/29/2018	04/30/2020	0.042%	0.033%
2-Year	9128284K3	Yes	05/25/2018	04/30/2020	0.028%	0.033%
2-Year	9128284K3	No	04/30/2018	04/30/2020	0.033%	0.033%
2-Year	9128283T5	Yes	04/02/2018	01/31/2020	0.049%	0.000%
2-Year	9128283T5	Yes	02/23/2018	01/31/2020	0.016%	0.000%
2-Year	9128283T5	No	01/31/2018	01/31/2020	0.000%	0.000%
2-Year	9128283B4	Yes	12/29/2017	10/31/2019	0.035%	0.048%
2-Year	9128283B4	Yes	11/24/2017	10/31/2019	0.035%	0.048%
2-Year	9128283B4	No	10/31/2017	10/31/2019	0.048%	0.048%
2-Year	9128282M1	Yes	09/29/2017	07/31/2019	0.055%	0.060%
2-Year	9128282M1	Yes	08/25/2017	07/31/2019	0.060%	0.060%
not an expert on these but i think the way they work is they have a "new" auction every quarter and then the next two months auctions are re-openings of that bond.

the right two columns show the "High Discount Margin" (my abbreviation HDM) and the spread. it is the "high discount margin" that really matters. this tells you how the auction priced the bond. for new auctions the figures are the same. for reopenings the result will vary as the market prices the bond to adjust the "spread" for the bond to current market conditions.

so i think for the last auction which was a re-opening 0.18% or 18 bps is the relevant number.
RIP Mr. Bogle.

lahob
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Location: USA

Re: Treasury Floating Rate Note-Has its Time Arrived?

Post by lahob » Wed Apr 17, 2019 8:12 am

I'm not an expert either, but Vanguard lists the top FRN in your list as:
United States Treas Frn2.53977157% due 1/31/2021 Floating/Variable Coupon - Daily Reset,13WK TBILL + 11.5BP -
And the Treasury only lists the spread here, not the HDM:

https://www.treasurydirect.gov/instit/a ... lt_frn.htm

This page also confirms 11.5 bps:

https://www.treasurydirect.gov/instit/a ... =9128285Y2

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