US T bills - first time user

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duricka
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US T bills - first time user

Post by duricka » Tue May 22, 2018 2:56 pm

I would like to buy some 3 month bills, is YMT a good indicator of which one to buy or should do some math of all these columns?
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Re: US T bills - first time user

Post by Grt2bOutdoors » Tue May 22, 2018 2:58 pm

Use YTM in the Ask column. The Bid are those seeking to purchase T bills from other sellers. The Ask column are those T bills others will sell to you.
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bberris
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Re: US T bills - first time user

Post by bberris » Tue May 22, 2018 4:02 pm

Buy new issues if you can to avoid the spread. Some brokers charge some customers a fee, so check first. Or you can use treasury direct.

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Re: US T bills - first time user

Post by triceratop » Tue May 22, 2018 4:05 pm

bberris wrote:
Tue May 22, 2018 4:02 pm
Buy new issues if you can to avoid the spread. Some brokers charge some customers a fee, so check first. Or you can use treasury direct.
OP uses Schwab (I recognize the screengrab) which has no commissions and no markups on T-bills.
"To play the stock market is to play musical chairs under the chord progression of a bid-ask spread."

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Re: US T bills - first time user

Post by Blueskies123 » Tue May 22, 2018 4:07 pm

triceratop wrote:
Tue May 22, 2018 4:05 pm
bberris wrote:
Tue May 22, 2018 4:02 pm
Buy new issues if you can to avoid the spread. Some brokers charge some customers a fee, so check first. Or you can use treasury direct.
OP uses Schwab (I recognize the screengrab) which has no commissions and no markups on T-bills.
Same with Fidelity. I bought some today.

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Re: US T bills - first time user

Post by jeffyscott » Tue May 22, 2018 7:01 pm

triceratop wrote:
Tue May 22, 2018 4:05 pm
bberris wrote:
Tue May 22, 2018 4:02 pm
Buy new issues if you can to avoid the spread. Some brokers charge some customers a fee, so check first. Or you can use treasury direct.
OP uses Schwab (I recognize the screengrab) which has no commissions and no markups on T-bills.
I'm also looking to enter this market and have never bought anything but mutual funds and I-bonds. Is there any advantage to Schwab over Treasury Direct for T-bills? I already have both a Treasury Direct account and never been used* Schwab brokerage account.

I'm in the process of phasing out savings account in favor of T-bills. I thought I would buy some 4, 13, and 26 week to start a short term ladder (also may use money from maturing ones to buy I-bonds in Nov/Dec.). Looked briefly and did not see 4 week T-bills at Schwab, so thought I'd just use treasury direct for all of them.

*got it when it was needed to open a checking account, related to their old 2% rebate credit card
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duricka
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Re: US T bills - first time user

Post by duricka » Tue May 22, 2018 7:13 pm

Thank you all for explanation.
Last edited by duricka on Tue May 22, 2018 7:24 pm, edited 1 time in total.

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Re: US T bills - first time user

Post by whodidntante » Tue May 22, 2018 7:23 pm

triceratop wrote:
Tue May 22, 2018 4:05 pm
bberris wrote:
Tue May 22, 2018 4:02 pm
Buy new issues if you can to avoid the spread. Some brokers charge some customers a fee, so check first. Or you can use treasury direct.
OP uses Schwab (I recognize the screengrab) which has no commissions and no markups on T-bills.
What you wrote is true, but there is still potential for Schwab to make money on each transaction. They are acting as broker-dealer and running a secondary market. At least that is my understanding; I'm happy to be corrected since I don't know anything about bonds.

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Re: US T bills - first time user

Post by Grt2bOutdoors » Tue May 22, 2018 7:38 pm

whodidntante wrote:
Tue May 22, 2018 7:23 pm
triceratop wrote:
Tue May 22, 2018 4:05 pm
bberris wrote:
Tue May 22, 2018 4:02 pm
Buy new issues if you can to avoid the spread. Some brokers charge some customers a fee, so check first. Or you can use treasury direct.
OP uses Schwab (I recognize the screengrab) which has no commissions and no markups on T-bills.
What you wrote is true, but there is still potential for Schwab to make money on each transaction. They are acting as broker-dealer and running a secondary market. At least that is my understanding; I'm happy to be corrected since I don't know anything about bonds.
If you buy at auction, the broker dealer is bidding the competitive price to US Treasury, the price you pay may be slightly more than price they pay - the spread. If you buy direct from Treasury Direct on a non competitive basis, you will get the high rate usually a few bps higher than that of one who goes through a broker dealer.
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Re: US T bills - first time user

Post by bberris » Tue May 22, 2018 9:25 pm

I thought that all buyers (competitive and non) pay the same price at treasury auctions; the lowest price that clears the offer.

I pay TDAmeritrade the same price for new issue tbills as reported on the treasury website to 4 decimals. Maybe they rake a penny here and there, like they did on "Office Space".

The chart displayed in OP sure looks like there is a spread in the secondary market.

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Re: US T bills - first time user

Post by triceratop » Tue May 22, 2018 9:42 pm

bberris wrote:
Tue May 22, 2018 9:25 pm
I thought that all buyers (competitive and non) pay the same price at treasury auctions; the lowest price that clears the offer.

I pay TDAmeritrade the same price for new issue tbills as reported on the treasury website to 4 decimals. Maybe they rake a penny here and there, like they did on "Office Space".

The chart displayed in OP sure looks like there is a spread in the secondary market.
I didn't state there were no spreads; spreads are a feature of markets. Commissions and markups are different from spreads. Though, as whodidntante said, it is Schwab making a market here so they may still make money off of your trades.
"To play the stock market is to play musical chairs under the chord progression of a bid-ask spread."

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Re: US T bills - first time user

Post by Grt2bOutdoors » Tue May 22, 2018 9:44 pm

bberris wrote:
Tue May 22, 2018 9:25 pm
I thought that all buyers (competitive and non) pay the same price at treasury auctions; the lowest price that clears the offer.

I pay TDAmeritrade the same price for new issue tbills as reported on the treasury website to 4 decimals. Maybe they rake a penny here and there, like they did on "Office Space".

The chart displayed in OP sure looks like there is a spread in the secondary market.
https://www.treasurydirect.gov/instit/a ... 0522_2.pdf

^^Results of the latest 4 week bill; non competitive automatically gets the high rate, all else is subject to competitive bidding, a fair amount gets picked up at the high rate, but there are a good number than get lower rates. If they are raking pennies, think about the volumes, in the billions. Do it enough times and now you're talking real money.
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duricka
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Re: US T bills - first time user

Post by duricka » Tue May 22, 2018 9:49 pm

What does this mean "Tenders at high rate were alloted at 54.11%"? I saw it in the "Review order page".

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Re: US T bills - first time user

Post by Grt2bOutdoors » Wed May 23, 2018 6:09 am

duricka wrote:
Tue May 22, 2018 9:49 pm
What does this mean "Tenders at high rate were alloted at 54.11%"? I saw it in the "Review order page".
Tenders are the total amount of submitted applications to purchase those Treasury bills. As one “tenders” their resignation from a job, the word tender means “submissions” or “handed in”. In this instance, 54.11% of all applications received the high rate.
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bberris
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Re: US T bills - first time user

Post by bberris » Wed May 23, 2018 6:11 am

Here's a quote from Treasury:

"At the close of an auction, Treasury awards all noncompetitive bids that comply with the auction rules and then accepts competitive bids in ascending order of their rate, yield, or discount margin (lowest to highest) until the quantity of awarded bids reaches the offering amount. All bidders will receive the same rate, yield, or discount margin at the highest accepted bid."

I take that to mean that all buyers pay the same price. They report the competitive bids, but even if you bid too high, you get the lowest price that clears. If you bid too low, you don't get filled.

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Re: US T bills - first time user

Post by gmaynardkrebs » Wed May 23, 2018 7:33 am

Grt2bOutdoors wrote:
Tue May 22, 2018 7:38 pm
whodidntante wrote:
Tue May 22, 2018 7:23 pm
triceratop wrote:
Tue May 22, 2018 4:05 pm
bberris wrote:
Tue May 22, 2018 4:02 pm
Buy new issues if you can to avoid the spread. Some brokers charge some customers a fee, so check first. Or you can use treasury direct.
OP uses Schwab (I recognize the screengrab) which has no commissions and no markups on T-bills.
What you wrote is true, but there is still potential for Schwab to make money on each transaction. They are acting as broker-dealer and running a secondary market. At least that is my understanding; I'm happy to be corrected since I don't know anything about bonds.
If you buy at auction, the broker dealer is bidding the competitive price to US Treasury, the price you pay may be slightly more than price they pay - the spread. If you buy direct from Treasury Direct on a non competitive basis, you will get the high rate usually a few bps higher than that of one who goes through a broker dealer.
I believe that when buying through auction on Vanguard you get the exact same price as buying through Treasury Direct. Does anyone think otherwise?

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Re: US T bills - first time user

Post by Grt2bOutdoors » Wed May 23, 2018 7:50 am

gmaynardkrebs wrote:
Wed May 23, 2018 7:33 am
Grt2bOutdoors wrote:
Tue May 22, 2018 7:38 pm
whodidntante wrote:
Tue May 22, 2018 7:23 pm
triceratop wrote:
Tue May 22, 2018 4:05 pm
bberris wrote:
Tue May 22, 2018 4:02 pm
Buy new issues if you can to avoid the spread. Some brokers charge some customers a fee, so check first. Or you can use treasury direct.
OP uses Schwab (I recognize the screengrab) which has no commissions and no markups on T-bills.
What you wrote is true, but there is still potential for Schwab to make money on each transaction. They are acting as broker-dealer and running a secondary market. At least that is my understanding; I'm happy to be corrected since I don't know anything about bonds.
If you buy at auction, the broker dealer is bidding the competitive price to US Treasury, the price you pay may be slightly more than price they pay - the spread. If you buy direct from Treasury Direct on a non competitive basis, you will get the high rate usually a few bps higher than that of one who goes through a broker dealer.
I believe that when buying through auction on Vanguard you get the exact same price as buying through Treasury Direct. Does anyone think otherwise?
You can elect to make a competitive or non-competitive bid through TreasuryDirect. Which price do you think Vanguard is providing to you, the non competitive bid or the competitive bid? You'll have to ask them though, I buy Direct and since I'm not dealing in millions of dollars, I restrict my applications to non-competitive bid ensuring I receive the high rate.
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boglewill34
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Re: US T bills - first time user

Post by boglewill34 » Wed May 23, 2018 8:23 am

jeffyscott wrote:
Tue May 22, 2018 7:01 pm
I'm also looking to enter this market and have never bought anything but mutual funds and I-bonds. Is there any advantage to Schwab over Treasury Direct for T-bills? I already have both a Treasury Direct account and never been used* Schwab brokerage account.

I'm in the process of phasing out savings account in favor of T-bills. I thought I would buy some 4, 13, and 26 week to start a short term ladder (also may use money from maturing ones to buy I-bonds in Nov/Dec.). Looked briefly and did not see 4 week T-bills at Schwab, so thought I'd just use treasury direct for all of them.

*got it when it was needed to open a checking account, related to their old 2% rebate credit card
I'm going through the process now on TD, and also have a Schwab account.

The advantages of buying new issues on Schwab are that it could be your one stop for everything, and that they could serve as your broker if you want to sell any treasury issues prior to maturity. If you want to sell any issues that you hold on Treasury Direct prior to maturity, you have to transfer them to a broker.

The disadvantage of buying new issues on Schwab, and was a moderate dealbreaker for me, is that you can only place the order in a limited time window, I think it's only one day a week with the shorter bills, and iirc it's on auction day. On TD, you can place a non-competitive order well in advance, and even on a recurring schedule, which was handy for me. Also, on TD, it's pretty easy to set the issues to roll over into new issues on maturity, so it kind of automates the ladder once you get them all into the longer duration you'll hold in your ladder.

The apparent disadvantage of TD is that the web site is indeed a little clunky, a little non intuitive, won't share data with an aggregator (like Mint), etc. I felt the advantages outweighed the downsides, so I've kind of learned along the way what I'd need to use on there and it's ok. The automation of the roll overs and the scheduled buys were actually pretty easy to use features imo, and that overcomes some of the negatives.

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Re: US T bills - first time user

Post by Looking4Answers » Wed May 23, 2018 8:36 am

This might merit its own post, but I have some of the same questions about T Bills. However, I wonder about using Merrill Edge. I have seen recommendations in the past for Fidelity for this, but have incentive to keep transactions at Merrill Edge for Preferred Rewards. Any pros/cons to using Merrill Edge for T-bills?

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Re: US T bills - first time user

Post by jeffyscott » Wed May 23, 2018 8:46 am

boglewill34 wrote:
Wed May 23, 2018 8:23 am
The apparent disadvantage of TD is that the web site is indeed a little clunky, a little non intuitive, won't share data with an aggregator (like Mint), etc. I felt the advantages outweighed the downsides, so I've kind of learned along the way what I'd need to use on there and it's ok. The automation of the roll overs and the scheduled buys were actually pretty easy to use features imo, and that overcomes some of the negatives.
Thanks for the comments, sounds like Treasury Direct will work better for me too. I'm used to the website and don't use an aggregator. I have some EE and I bonds, so have to keep the account in any case, negating the one stop shop possibility somewhat.
press on, regardless - John C. Bogle

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Re: US T bills - first time user

Post by shipwreck » Wed May 23, 2018 8:48 am

I have purchased a few through Fidelity. The only issue is you have to buy $1000 - discount price. I think at Treasury Direct you can get in $100 increments. I had a Treasury Direct account a couple years ago but it was closed so I just went with Fidelity.

This week I bought 8000$ worth of 4 week tbills for $7989.30
$7989.30 / 8 = $998.6625 / 10 = $99.86625

Which I think it went for $99.866222 so .
$99.866222 * 10 * 8 = $7989.29776

Unless I am wrong, Fidelity can keep the fractional penny.

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Re: US T bills - first time user

Post by triceratop » Wed May 23, 2018 10:07 am

Looking4Answers wrote:
Wed May 23, 2018 8:36 am
This might merit its own post, but I have some of the same questions about T Bills. However, I wonder about using Merrill Edge. I have seen recommendations in the past for Fidelity for this, but have incentive to keep transactions at Merrill Edge for Preferred Rewards. Any pros/cons to using Merrill Edge for T-bills?
A major con is that it’s not free like it is at Fidelity, Schwab, Vanguard. An easy way to look at this is to find the bid/ask YTM for a given CUSIP and compare between brokerages (or post here for others to help if this is not possible).
"To play the stock market is to play musical chairs under the chord progression of a bid-ask spread."

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Re: US T bills - first time user

Post by baliktad » Wed May 23, 2018 3:21 pm

I'm a little confused about purchasing treasuries at Fidelity. Here's a listing of 1-year tbills:

Image

Under Qty(min) column, the minimum quantity is listed in the hundreds (200 to 500). Since my understanding is that a quantity of 1 represents $1000, I'm hoping this doesn't mean I have to buy a minimum of $200K+ at a time? Does this mean I will only be able to purchase if there are aggregate purchases in this quantity? Or is there some other meaning?

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Re: US T bills - first time user

Post by triceratop » Wed May 23, 2018 3:24 pm

The quotes you see are ranked by YTM/YTW, then displayed by quantity. That means that the available bid/ask quotes at your desired quantity are not as favorable.
"To play the stock market is to play musical chairs under the chord progression of a bid-ask spread."

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Re: US T bills - first time user

Post by ofckrupke » Wed May 23, 2018 3:38 pm

baliktad wrote:
Wed May 23, 2018 3:21 pm
Does this mean I will only be able to purchase if there are aggregate purchases in this quantity? Or is there some other meaning?
As per above, that's minimum quantity to get best available pricing. If you click on "depth of book" for a particular issue I think you will see a greater variety of offers with various min and max quantities, presumably sorted to put the most favorable bids/offers at the top (like the snapshot from the Schwab desk). In any case, the picture will be more attractive if you check during US market hours. At Schwab the best pricing for small (typically $10k min) quantities is frequently from their own dealer desk, but these are typically only shown during market hours (and sometimes not in the first or last minutes).

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Re: US T bills - first time user

Post by ofckrupke » Wed May 23, 2018 3:55 pm

Grt2bOutdoors wrote:
Wed May 23, 2018 6:09 am
duricka wrote:
Tue May 22, 2018 9:49 pm
What does this mean "Tenders at high rate were alloted at 54.11%"? I saw it in the "Review order page".
Tenders are the total amount of submitted applications to purchase those Treasury bills. As one “tenders” their resignation from a job, the word tender means “submissions” or “handed in”. In this instance, 54.11% of all applications received the high rate.
Actually what this means is that of bids at the highest rate (so lowest bid price) to be accepted, 54.11% of the bid-for quantities were filled.

These are dutch auctions, so everyone who offers a competitive bid that is accepted in part or full gets the lowest price (thus, highest yield) that will allot the entire offered quantity. Higher priced bids are filled at 100%, but there is always a higher volume bid for than remaining bonds/notes/bills at the break point, so bidders at this break point get fractional acceptance in order to exhaust the lot. Noncompetitive bids get 100% of their quantity filled at that same price. By bidding noncompetitively, one gives up the right to buy none if the struck price ends up too high (yield too low) for one's requirements, in return for a guarantee that competitive bidders don't have: that one's bid-for quantity will be filled in full.

What I don't know, but I'm sure can be found out with an ounce of cleverness and the search engine at treasurydirect, is whether the 54.11% cited above includes the non-competitive bids filled as well as the partially filled competitive bids-at-highest-accepted-yield. The volume of non-competitive bids is usually so much smaller than competitive bid volume or quantity offered that the difference between "includes" and "doesn't include" would probably tend to be less than one percent.

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Re: US T bills - first time user

Post by Doc » Thu May 24, 2018 10:46 am

ofckrupke wrote:
Wed May 23, 2018 3:55 pm
What I don't know, but I'm sure can be found out with an ounce of cleverness and the search engine at treasurydirect, is whether the 54.11% cited above includes the non-competitive bids filled as well as the partially filled competitive bids-at-highest-accepted-yield. The volume of non-competitive bids is usually so much smaller than competitive bid volume or quantity offered that the difference between "includes" and "doesn't include" would probably tend to be less than one percent.
Footnotes to a recent auction results:

1 All tenders at lower rates were accepted in full.
2 Equivalent coupon-issue yield.
3 50% of the amount of accepted competitive tenders was tendered at or below that rate.
4 5% of the amount of accepted competitive tenders was tendered at or below that rate.
5 Bid-to-Cover Ratio: $88,259,071,900/$26,000,439,900 = 3.39
6 Awards to TreasuryDirect = $238,702,000.
7 Primary dealers as submitters bidding for their own house accounts.
8 Non-Primary dealer submitters bidding for their own house accounts.
9 Customers placing competitive bids through a direct submitter, including Foreign and International Monetary Authorities placing bids through the Federal Reserve Bank of New York.

You can find the announcements here: https://www.treasurydirect.gov/instit/a ... reanre.htm

Somebody else can figure out what it all means. It is not something I care about. Non-competitive bidders like all of us, get the best price at auction. What difference does it make how many if any, bidders got a worse price.
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Re: US T bills - first time user

Post by gweezer » Thu May 24, 2018 11:08 am

What wouldn't you just pick the first bond in the list, the one with the highest YTM?

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Re: US T bills - first time user

Post by triceratop » Thu May 24, 2018 11:23 am

gweezer wrote:
Thu May 24, 2018 11:08 am
What wouldn't you just pick the first bond in the list, the one with the highest YTM?
They might not have $200,000 in cash lying around in their settlement account.
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Re: US T bills - first time user

Post by Kevin M » Thu May 24, 2018 12:07 pm

baliktad wrote:
Wed May 23, 2018 3:21 pm
I'm a little confused about purchasing treasuries at Fidelity. Here's a listing of 1-year tbills:

Image

Under Qty(min) column, the minimum quantity is listed in the hundreds (200 to 500). Since my understanding is that a quantity of 1 represents $1000, I'm hoping this doesn't mean I have to buy a minimum of $200K+ at a time? Does this mean I will only be able to purchase if there are aggregate purchases in this quantity? Or is there some other meaning?
Some of this has already been covered, but some has not.

First, what you are looking at are not Treasury Bills, but Treasury notes that have about one year left to maturity. This is a technical point, and I don't really care what it is if it has the term to maturity I'm looking for. Treasury Bills are auctioned at a discount with no coupon, and have 52 weeks or less to maturity. A true T-bill would show 0% in the coupon column.

Next, note that the maturity dates are different, so not really 1-year Treasuries. You captured this on 5/23, and if you bought then it would settle on 5/24/2018. So closest to actual 1-year maturity would be the ones maturing 5/31/2019.

Note the the yields generally are a little higher as maturity increases, as you'd expect with a positively sloped yield curve. However, the coupon rate also affects yield.

Finally, as already mentioned, you need to click the depth of book icon to find yields for the quantity you are interested in. So first pick maturity of interest, then click depth of book, then find highest yield with minimum quantity less than or equal to how many you want to buy. You can then click "buy" next to that one.

Of course it's easier to just buy at auction, and as discussed you will get the best price that way, since you get institutional (large quantity) pricing. A downside is that you won't know exactly what yield you'll get. So you could end up getting a higher yield if you buy at a higher price for smaller quantity today, but then yield for large quantity drops by day of auction.

In other threads, we've discovered that Schwab seems to give higher yields for minimum quantity 10 than does Fidelity--maybe even higher than for larger quantities. They appear to be making buying Treasuries more attractive for small investors--perhaps to attract and retain their business.

Kevin
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Re: US T bills - first time user

Post by livesoft » Thu May 24, 2018 12:49 pm

Just wanted to say Thanks! to the others who have responded in this thread. This could be the start of a Bogleheads.org Wiki page on T-bills.
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Re: US T bills - first time user

Post by gweezer » Thu May 24, 2018 1:33 pm

Kevin M wrote:
Thu May 24, 2018 12:07 pm

Finally, as already mentioned, you need to click the depth of book icon to find yields for the quantity you are interested in. So first pick maturity of interest, then click depth of book, then find highest yield with minimum quantity less than or equal to how many you want to buy. You can then click "buy" next to that one.
When I do this it brings up the order screen. It has some info about the bond and the “Order Type” is set for “Limit Price” with the price from specific row I selected on the previous screen already filled in. I then enter a quantity of 10 and then click on “preview order”. The result shows “Estimated Order Value” that is more than 100x the price value, for example the price shown was 99.23 but the Value was $9,995.53. Why is that? …something to do with accrued interest?

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Re: US T bills - first time user

Post by Kevin M » Thu May 24, 2018 1:40 pm

gweezer wrote:
Thu May 24, 2018 1:33 pm
Kevin M wrote:
Thu May 24, 2018 12:07 pm

Finally, as already mentioned, you need to click the depth of book icon to find yields for the quantity you are interested in. So first pick maturity of interest, then click depth of book, then find highest yield with minimum quantity less than or equal to how many you want to buy. You can then click "buy" next to that one.
When I do this it brings up the order screen. It has some info about the bond and the “Order Type” is set for “Limit Price” with the price from specific row I selected on the previous screen already filled in. I then enter a quantity of 10 and then click on “preview order”. The result shows “Estimated Order Value” that is more than 100x the price value, for example the price shown was 99.23 but the Value was $9,995.53. Why is that? …something to do with accrued interest?
Part of it is that 1 bond = $1,000 face value, so 10 = $10,000 face value. The remainder would be accrued interest (9,995.53-9,923).

EDIT. The preview screen shows you the accrued interest at the bottom.

Kevin
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Re: US T bills - first time user

Post by Kevin M » Thu May 24, 2018 2:46 pm

Some additional clarification might be useful to those unfamiliar with the way bond prices are quoted.

Prices are quoted as a percentage of par value (par value = 100% of face value), but as mentioned already, one bond is face value of $1,000.

So if you see a price quote of 99.5, it means that the bond is selling for 99.5% of face value.

This quote does not include accrued interest, which also is included in the final price you pay for the bond. The accrued interest goes to the seller, and then you get it back when you receive your first coupon payment.

So if you order 1 bond at a price of 99.5, you will pay $995 plus accrued interest. If the most recent coupon payment date was recent, accrued interest will be a relatively small number, and if close to the next coupon date, it will be almost as large as the coupon payment you'll receive on that date.

Treasury bills don't pay coupon interest, so there will never be accrued interest on a T-bill.

Fidelity, Vanguard and Schwab don't charge commissions for Treasury trades, so the price you see is the price you get.

Fidelity charges $1/bond on other types of bonds and CDs bought on the secondary market, so add 0.1 to the quoted price. Vanguard charges $2/bond unless you own at least $500K of Vanguard products (individual bonds and CDs don't count), in which case that also charge $1/bond or CD for non-Treasuries. So for smaller accounts at Vanguard add 0.2 to the price.

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Re: US T bills - first time user

Post by gweezer » Thu May 24, 2018 3:45 pm

Thanks very much Kevin. Just to finalize the details of this example…This bond has 1.5 coupon and matures on 5/31/2019. Further info on the bond says that the next coupon is 5/30/2018 and last coupon is 11/30/2018. If I execute this order I pay $9,995.53 out now. On 5/30/2018 I will get back the $72.53 (9,995.53-9,923=72.53) of accrued interest plus whatever is earned in the few days that I am the actual owner. Then on 11/30/2018 I will get the full 1.5 coupon payment, which should be $150 (1000*.015*10). And lastly and I will get back $10K in principal on 5/31/2019. Is this correct?

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Re: US T bills - first time user

Post by fortfun » Thu May 24, 2018 3:50 pm

What is the expected return on T-bills?

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Re: US T bills - first time user

Post by livesoft » Thu May 24, 2018 3:59 pm

Kevin M wrote:
Thu May 24, 2018 2:46 pm
Fidelity, Vanguard and Schwab don't charge commissions for Treasury trades, so the price you see is the price you get.
One can write the same thing about TDAmeritrade.

Note that the commissions can be unseen and embedded in the price one pays. That is, it can be pretty hard to tell when there is a mark-up.
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Re: US T bills - first time user

Post by livesoft » Thu May 24, 2018 4:00 pm

fortfun wrote:
Thu May 24, 2018 3:50 pm
What is the expected return on T-bills?
The expected return is shown in the Yield-to-Maturity (YTM), so about 1.92% annualized. A 3-month bill would get one-fourth of that because 3 months is one-fourth of 12 months which is a year.
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Re: US T bills - first time user

Post by Kevin M » Thu May 24, 2018 4:12 pm

gweezer wrote:
Thu May 24, 2018 3:45 pm
Thanks very much Kevin. Just to finalize the details of this example…This bond has 1.5 coupon and matures on 5/31/2019.
OK, I see this. I see price 99.230 for minimum quantity 25, so as of now, you can't get this price for 10. I enter a trial order for 25, and I see on the preview screen that accrued interest is 181.32, and total price is $24,988.82. Checking, 99.230 * 25 * 10 + 181.32 = 24,988.82.
Further info on the bond says that the next coupon is 5/30/2018 and last coupon is 11/30/2018. If I execute this order I pay $9,995.53 out now. On 5/30/2018 I will get back the $72.53 (9,995.53-9,923=72.53) of accrued interest plus whatever is earned in the few days that I am the actual owner.

Yes, with the qualifications that it doesn't look like you can get this price for only 10, and use the math I showed in previous paragraph for an actual, accurate example.
Then on 11/30/2018 I will get the full 1.5 coupon payment, which should be $150 (1000*.015*10).
No. The 1.5% is an annual rate, and you get 1/2 of that every six months. So you will get 0.75% as a semi-annual coupon payment, so $75 on quantity 10. You can see this in that the accrued interest you calculate above is a little less than $75.
And lastly and I will get back $10K in principal on 5/31/2019. Is this correct?
Yes, plus the last coupon payment of $75.

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Re: US T bills - first time user

Post by fortfun » Thu May 24, 2018 9:11 pm

livesoft wrote:
Thu May 24, 2018 4:00 pm
fortfun wrote:
Thu May 24, 2018 3:50 pm
What is the expected return on T-bills?
The expected return is shown in the Yield-to-Maturity (YTM), so about 1.92% annualized. A 3-month bill would get one-fourth of that because 3 months is one-fourth of 12 months which is a year.
Thanks Livesoft. Why did they return 8% back in the day that Your Money or Your Life was written? What happened to them?

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Re: US T bills - first time user

Post by fortfun » Thu May 24, 2018 9:12 pm

livesoft wrote:
Thu May 24, 2018 4:00 pm
fortfun wrote:
Thu May 24, 2018 3:50 pm
What is the expected return on T-bills?
The expected return is shown in the Yield-to-Maturity (YTM), so about 1.92% annualized. A 3-month bill would get one-fourth of that because 3 months is one-fourth of 12 months which is a year.
At 1.92% why bother? Online banks are beating that now.

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Re: US T bills - first time user

Post by livesoft » Thu May 24, 2018 9:19 pm

fortfun wrote:
Thu May 24, 2018 9:12 pm
At 1.92% why bother? Online banks are beating that now.
One reason to bother is that there is no need for FDIC insurance with T-bills, so one could have several million dollars in T-bills and not worry about risk of a bank failure.
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Re: US T bills - first time user

Post by livesoft » Thu May 24, 2018 9:20 pm

fortfun wrote:
Thu May 24, 2018 9:11 pm
Thanks Livesoft. Why did they return 8% back in the day that Your Money or Your Life was written? What happened to them?
The rate of inflation was crushed since then.
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Re: US T bills - first time user

Post by fortfun » Thu May 24, 2018 9:32 pm

livesoft wrote:
Thu May 24, 2018 9:20 pm
fortfun wrote:
Thu May 24, 2018 9:11 pm
Thanks Livesoft. Why did they return 8% back in the day that Your Money or Your Life was written? What happened to them?
The rate of inflation was crushed since then.
In her updated version of Your Life or Your Money, Robin recommends Index funds instead of t-bills. Will index funds go the way of t-bills? Fast forward 20 years, what will she recommend then, or are index funds here to stay?

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Re: US T bills - first time user

Post by smectym » Fri May 25, 2018 12:06 am

Who knows (I don’t), but the rate spike at the short end of the Treasury curve may prove to be short-lived. I too have been buying some T-bills but also leavening the portfolio by purchasing 2 year notes, which, last I checked, were yielding 2.52%. The 2-year may prove to be the sweet spot on the yield curve; but nevertheless, best to buy the bills as well, and even the longer notes.

Smectym

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Re: US T bills - first time user

Post by Kevin M » Fri May 25, 2018 9:26 am

smectym wrote:
Fri May 25, 2018 12:06 am
<snip> ... leavening the portfolio by purchasing 2 year notes, which, last I checked, were yielding 2.52%.
Yes, 2-year Treasury about 2.48% today for large quantities, so a bit less for smaller quantities. But, 2-year CD is 2.80%, so more than 30 basis points higher. Big spike in the CD yield curve at 2 years. Treasuries beat CDs in tax-advantaged out to about 1.5 years, then CDs take the lead, but Treasury taxable-equivalent yield (TEY) could be higher than CDs in a taxable account beyond that if you pay state income tax.

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Re: US T bills - first time user

Post by jeffyscott » Fri May 25, 2018 10:14 am

fortfun wrote:
Thu May 24, 2018 9:12 pm
livesoft wrote:
Thu May 24, 2018 4:00 pm
fortfun wrote:
Thu May 24, 2018 3:50 pm
What is the expected return on T-bills?
The expected return is shown in the Yield-to-Maturity (YTM), so about 1.92% annualized. A 3-month bill would get one-fourth of that because 3 months is one-fourth of 12 months which is a year.
At 1.92% why bother? Online banks are beating that now.
It's state tax free, my marginal rate is 7.5% so the 1.92% is equivalent to 2.08%.

My own savings accounts are more like 1.6% and hold a pretty small amount. More convenient to just move to TD, rather than search out new banks.
press on, regardless - John C. Bogle

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Re: US T bills - first time user

Post by fortfun » Fri May 25, 2018 10:21 am

jeffyscott wrote:
Fri May 25, 2018 10:14 am
fortfun wrote:
Thu May 24, 2018 9:12 pm
livesoft wrote:
Thu May 24, 2018 4:00 pm
fortfun wrote:
Thu May 24, 2018 3:50 pm
What is the expected return on T-bills?
The expected return is shown in the Yield-to-Maturity (YTM), so about 1.92% annualized. A 3-month bill would get one-fourth of that because 3 months is one-fourth of 12 months which is a year.
At 1.92% why bother? Online banks are beating that now.
It's state tax free, my marginal rate is 7.5% so the 1.92% is equivalent to 2.08%.

My own savings accounts are more like 1.6% and hold a pretty small amount. More convenient to just move to TD, rather than search out new banks.
Makes sense.

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Re: US T bills - first time user

Post by gweezer » Fri May 25, 2018 12:20 pm

Kevin M wrote:
Thu May 24, 2018 4:12 pm
gweezer wrote:
Thu May 24, 2018 3:45 pm
Thanks very much Kevin. Just to finalize the details of this example…This bond has 1.5 coupon and matures on 5/31/2019.
OK, I see this. I see price 99.230 for minimum quantity 25, so as of now, you can't get this price for 10. I enter a trial order for 25, and I see on the preview screen that accrued interest is 181.32, and total price is $24,988.82. Checking, 99.230 * 25 * 10 + 181.32 = 24,988.82.
Further info on the bond says that the next coupon is 5/30/2018 and last coupon is 11/30/2018. If I execute this order I pay $9,995.53 out now. On 5/30/2018 I will get back the $72.53 (9,995.53-9,923=72.53) of accrued interest plus whatever is earned in the few days that I am the actual owner.

Yes, with the qualifications that it doesn't look like you can get this price for only 10, and use the math I showed in previous paragraph for an actual, accurate example.
Then on 11/30/2018 I will get the full 1.5 coupon payment, which should be $150 (1000*.015*10).
No. The 1.5% is an annual rate, and you get 1/2 of that every six months. So you will get 0.75% as a semi-annual coupon payment, so $75 on quantity 10. You can see this in that the accrued interest you calculate above is a little less than $75.
And lastly and I will get back $10K in principal on 5/31/2019. Is this correct?
Yes, plus the last coupon payment of $75.

Kevin
Thanks again Kevin. As the final chapter to this, what yield would I actually earn on this transaction? Using my numbers (even though it is now a hypothetical example), on 5/31/2019 I will have effectively received 3 coupon payments of $75 + $10K return of principal equals $10,225. I paid out $9995.53 initially, so I end up with $229.47 "profit". The yield calculation is (229.47/9995.53)*100 = 2.29%. To get the TEY (I'm a NY resident in the 24/6.65 brackets, no itemize): TEY = 2.29 (1 - .24) / (1 - .24 - .0665) which results in 2.509...does this look correct?

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Re: US T bills - first time user

Post by Blueskies123 » Fri May 25, 2018 12:32 pm

I have been following this thread with some interest. I have been with Fidelity for 30 years and done a lot of trading over the years but never individual bonds. This last week I purchased my first Tbills, notes and CDs because the yields are so compelling vs ETFs and mutual funds with fees and price fluctuations.

I bought 2 years CDs at 2.8%, 1 years T notes at 2.3% (if I recall correctly) and some 3 and 6 month treasuries. I had to study the Fidelity bond screens for a bit but once I understood them I have to admit buying bonds is very easy and I save on the fees.

I will probably always keep at least half my bond portfolio in ETFs or mutual funds for liquidity purposes in case a 1987 style buying opportunity opens up.

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