Small investor buying individual treasury securities from secondary vs at auction

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Hector
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Small investor buying individual treasury securities from secondary vs at auction

Post by Hector » Thu Nov 07, 2019 12:27 pm

For those who have good experience buying individual treasury securities from secondary market,
how much premium does a small investor pay when buying from secondary vs at auction?

Rate changes at least a little everyday. If you don't want to pay premium (when buying from secondary vs at auction), you might have to wait a bit as notes auction once a month. You can buy whenever from secondary. So its better to pay premium and buy from secondary vs buying from auction.

At broker like Fidelity, you need to have cash before placing order to buy from auction. So you have no choice but to be out of market for few days if you are buying from auction. So it makes sense to buy from secondary?
At broker like Charles Schwab, you can place order as long as you have something maturity on or before settlement date.

A separate question:
If I buy zero coupon treasury and let it mature, is it considered interest or capital gain?

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Svensk Anga
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Re: Small investor buying individual treasury securities from secondary vs at auction

Post by Svensk Anga » Thu Nov 07, 2019 1:40 pm

My experience is all with TIPS, 5 and 10 years. I used both Schwab and Vanguard. No commissions with either. The yields I obtained were indistinguishable from what the WSJ published.

I liked to grab an issue in the secondary market whenever yields spiked upwards, rather than take a chance on auction results. There can be some adverse moves on auction day. The secondary market provides clarity on what you will obtain. They tend to auction TIPS the day after the Fed OMC meets, which caused some gyrations.

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Hector
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Re: Small investor buying individual treasury securities from secondary vs at auction

Post by Hector » Thu Nov 07, 2019 3:49 pm

Svensk Anga wrote:
Thu Nov 07, 2019 1:40 pm
My experience is all with TIPS, 5 and 10 years. I used both Schwab and Vanguard. No commissions with either. The yields I obtained were indistinguishable from what the WSJ published.

I liked to grab an issue in the secondary market whenever yields spiked upwards, rather than take a chance on auction results. There can be some adverse moves on auction day. The secondary market provides clarity on what you will obtain. They tend to auction TIPS the day after the Fed OMC meets, which caused some gyrations.
Do you keep some cash to get TIPS when yields spike?

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Klewles
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Re: Small investor buying individual treasury securities from secondary vs at auction

Post by Klewles » Fri Nov 08, 2019 3:55 am

Hector wrote:
Thu Nov 07, 2019 12:27 pm
A separate question:
If I buy zero coupon treasury and let it mature, is it considered interest or capital gain?
Interest. You have to pay tax on it each year, even though you don't receive it until maturity. See Pub 550, "Original Issue Discount (OID)".

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jeffyscott
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Re: Small investor buying individual treasury securities from secondary vs at auction

Post by jeffyscott » Fri Nov 08, 2019 8:28 am

Hector wrote:
Thu Nov 07, 2019 12:27 pm
You can buy whenever from secondary. So its better to pay premium and buy from secondary vs buying from auction.
I have very little experience, my first time buying T-bills was from Treasury Direct less than 18 months ago. I eventually decided to switch to just buying secondaries via brokerage for the reason that I quoted. With secondary can put it in treasuries or TIPS right away. This seems easier and more convenient than working around auction schedules.

People that are more experienced than me have indicated that Schwab gives the best pricing on treasuries for small investors. Many of theirs have a minimum of only 1 ($1000) to get the best price. The one time I did a little comparing of TIPS prices it seemed that Schwab had better prices for small quantities while Fidelity had better pricing for large quantities. I don't know if this is always the case and/or if it is also the case for nominals and I did not compare Vanguard at that time.
Time is your friend; impulse is your enemy. - John C. Bogle

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Hector
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Re: Small investor buying individual treasury securities from secondary vs at auction

Post by Hector » Fri Nov 08, 2019 10:02 am

Klewles wrote:
Fri Nov 08, 2019 3:55 am
Hector wrote:
Thu Nov 07, 2019 12:27 pm
A separate question:
If I buy zero coupon treasury and let it mature, is it considered interest or capital gain?
Interest. You have to pay tax on it each year, even though you don't receive it until maturity. See Pub 550, "Original Issue Discount (OID)".
Thanks. So its interest.
Tax on interest has to be paid each year in non-retirement account.
Interest vs capital gain does not matter in retirement account.
Exempt from state tax in HSA in California.

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