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Topic Author
billyt
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I am buying Tbills for the first time, and have a couple of questions. I purchased some 52 week bills today, from both Vanguard and Treasury Direct. At Vanguard, they cost \$98.390/\$100 and at Treasury Direct \$98.392/\$100. I know the difference is tiny, but why any difference at all? If I calculate the rate of return using the Excel XIRR function I get 1.64%. Same answer if I manually iterate it. That seems way to high. Looking at Bloomberg just now the 52 week rate is 1.31%. Am I calculating it wrong, or can auction results be so far different from what I see on Bloomberg? Thanks for the education.

Billyt
bluewater23t
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billyt wrote: Tue Mar 22, 2022 3:39 pm I am buying Tbills for the first time, and have a couple of questions. I purchased some 52 week bills today, from both Vanguard and Treasury Direct. At Vanguard, they cost \$98.390/\$100 and at Treasury Direct \$98.392/\$100. I know the difference is tiny, but why any difference at all? If I calculate the rate of return using the Excel XIRR function I get 1.64%. Same answer if I manually iterate it. That seems way to high. Looking at Bloomberg just now the 52 week rate is 1.31%. Am I calculating it wrong, or can auction results be so far different from what I see on Bloomberg? Thanks for the education.

Billyt
~1.6%ish is the going rate today on 1 yr treasuries, so no it is not wrong. Has gone up considerably in the past month. Can't comment on the difference in price. If anything, I'd have expected purchase through a 3rd party (Vanguard) cost you something vs buying direct.
Topic Author
billyt
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What is the best way to guess, in advance, what the auction rate may be? I was expecting 1.2-1.3, and got 1.64. Happy about that, but it could go the other way too! I am cashing in some low yielding CD's in an effort to boost my return on safe money.

Thanks,
billyt
secondopinion
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billyt wrote: Tue Mar 22, 2022 4:22 pm What is the best way to guess, in advance, what the auction rate may be? I was expecting 1.2-1.3, and got 1.64. Happy about that, but it could go the other way too! I am cashing in some low yielding CD's in an effort to boost my return on safe money.

Thanks,
billyt
Look at the secondary market; you can estimate the yield from there.
Passive investing: not about making big bucks but making profits. Active investing: not about beating the market but meeting goals. Speculation: not about timing the market but taking profitable risks.
Kevin M
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secondopinion wrote: Tue Mar 22, 2022 5:46 pm
billyt wrote: Tue Mar 22, 2022 4:22 pm What is the best way to guess, in advance, what the auction rate may be? I was expecting 1.2-1.3, and got 1.64. Happy about that, but it could go the other way too! I am cashing in some low yielding CD's in an effort to boost my return on safe money.

Thanks,
billyt
Look at the secondary market; you can estimate the yield from there.
Yield on the 1-year Treasury jumped about 20 basis points today, from 1.40 yesterday to 1.59 today. Looking at a comparable maturity on the secondary market is about as good as you can get, but with a relatively big change like today possible, there's going to be some uncertainty.

Kevin
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Kevin M
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billyt wrote: Tue Mar 22, 2022 3:39 pm I am buying Tbills for the first time, and have a couple of questions. I purchased some 52 week bills today, from both Vanguard and Treasury Direct. At Vanguard, they cost \$98.390/\$100 and at Treasury Direct \$98.392/\$100. I know the difference is tiny, but why any difference at all? If I calculate the rate of return using the Excel XIRR function I get 1.64%. Same answer if I manually iterate it. That seems way to high. Looking at Bloomberg just now the 52 week rate is 1.31%. Am I calculating it wrong, or can auction results be so far different from what I see on Bloomberg? Thanks for the education.

Billyt
The price published by Treasury is 98.392333, and the yield (investment rate) is 1.632%. Rather than use XIRR, you'll get a better match to published yields using the YIELD function: =YIELD("3/24/2022", "3/23/2023", 0, 98.392333, 100, 2, 1) gives a yield of 1.632%.

If you bought 1, the cost and price would be 98.39. If you bought 3, the total cost would be 295.18, which comes to a price of 98.393. If you bought 10, total cost would be 983.92, which is a price of 98.392. Other than something like that, the TD price matches the published price.

Whatever you were looking at on Bloomberg doesn't seem consistent with what I recall seeing earlier today looking at 1-year Treasuries, which I think was about 1.6%, and the Treasury.gov 1-year yield today is 1.59%.

Kevin
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atdharris
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Is there any point to buying a 52 week t-bill knowing rates are going up? Why not just buy 4 week t-bills?
moneyflowin
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atdharris wrote: Tue Mar 22, 2022 8:23 pm Is there any point to buying a 52 week t-bill knowing rates are going up? Why not just buy 4 week t-bills?
1mo T-bills yield 0.2% now. Next month they'll yield probably 0.4%. And so on. After 12 months, do you expect their cumulative return to be more than 1.6%?

That's how the yield curve works. The market is pricing in the belief that your way produces the identical amount of interest as buying a 1Y T-bill now. If that crystal ball is wrong and rates rise more than expected over the next 12 months, your way will be more profitable. But if rates rise less than expected, buying the 1Y would be better.

Doing your way is a bet that rates will rise more than expected.
AnnetteLouisan
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atdharris wrote: Tue Mar 22, 2022 8:23 pm Is there any point to buying a 52 week t-bill knowing rates are going up? Why not just buy 4 week t-bills?
That’s what we are doing. One monthers.
tc101
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Is there any advantage to buying them directly rather than on the secondary market?
. | The most important thing you should know about me is that I am not an expert.
Topic Author
billyt
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Thanks for all the help. Never tried this before and trying to gain some basic understanding. Kevin, do you know what the difference is between Excel's XIRR an YIELD functions? Do the handle the effects of compounding differently?

Many thanks,
billyt
Topic Author
billyt
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Yes, I bought different amounts from Vanguard and Treasury Direct, which probably explains the tiny difference in price. Bloomberg has a page called Rates and Bonds, which I thought was displaying the various Treasury yields in more or less real time. I checked it after the close yesterday and it listed the 52 week rate as 1.31%. At this moment it says 1.55%. I guess it was a relatively volatile day for Treasuries yesterday.

billyt
ge1
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Dumb question, but how do you buy Tbills with Vanguard: I have a brokerage account and a mutual fund account.

thanks
iamblessed
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tc101 wrote: Tue Mar 22, 2022 9:58 pm Is there any advantage to buying them directly rather than on the secondary market?
I am guessing less tax work for the new ones.
Tom_T
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ge1 wrote: Wed Mar 23, 2022 6:08 am Dumb question, but how do you buy Tbills with Vanguard: I have a brokerage account and a mutual fund account.

thanks
If you go to the My Accounts menu, Buy and Sell, one of the options on the page will be "CDs and bonds" or something like that. Then you can search based on type and maturity.
cyclist
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Tom_T wrote: Wed Mar 23, 2022 6:12 am If you go to the My Accounts menu, Buy and Sell, one of the options on the page will be "CDs and bonds" or something like that. Then you can search based on type and maturity.
That’s to trade on the secondary market.

You can also choose to participate in the non-competitive auctions of Treasury securities. (There will be “buy” links next to the various security types for which auctions are open at the time you check.)

Cyclist
(Rather pleased with the rate he got in this week’s 1 year tbill auction)
ge1
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Got it, thanks both.
PersonalFinanceJam
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ge1 wrote: Wed Mar 23, 2022 6:08 am Dumb question, but how do you buy Tbills with Vanguard: I have a brokerage account and a mutual fund account.

thanks
I think the screenshots and flow from this article are still relevant for Vanguard. The finance buff shows how to buy treasuries at auction from Vanguard and Fidelity
https://thefinancebuff.com/treasury-bi ... arket.html
ge1
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PersonalFinanceJam wrote: Wed Mar 23, 2022 7:15 am
ge1 wrote: Wed Mar 23, 2022 6:08 am Dumb question, but how do you buy Tbills with Vanguard: I have a brokerage account and a mutual fund account.

thanks
I think the screenshots and flow from this article are still relevant for Vanguard. The finance buff shows how to buy treasuries at auction from Vanguard and Fidelity
https://thefinancebuff.com/treasury-bi ... arket.html
Awesome, thanks.
AnnetteLouisan
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cyclist wrote: Wed Mar 23, 2022 7:05 am
Tom_T wrote: Wed Mar 23, 2022 6:12 am If you go to the My Accounts menu, Buy and Sell, one of the options on the page will be "CDs and bonds" or something like that. Then you can search based on type and maturity.
That’s to trade on the secondary market.

You can also choose to participate in the non-competitive auctions of Treasury securities. (There will be “buy” links next to the various security types for which auctions are open at the time you check.)

Cyclist
(Rather pleased with the rate he got in this week’s 1 year tbill auction)
Right? I bought by chance and just lucked out.
SlowMovingInvestor
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AnnetteLouisan wrote: Tue Mar 22, 2022 9:53 pm
atdharris wrote: Tue Mar 22, 2022 8:23 pm Is there any point to buying a 52 week t-bill knowing rates are going up? Why not just buy 4 week t-bills?
That’s what we are doing. One monthers.
You can get 0.70% at Bask Bank. I think 1 month Treasuries would only beat that if you're in a high state tax bracket?
AnnetteLouisan
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SlowMovingInvestor wrote: Wed Mar 23, 2022 7:52 am
AnnetteLouisan wrote: Tue Mar 22, 2022 9:53 pm
atdharris wrote: Tue Mar 22, 2022 8:23 pm Is there any point to buying a 52 week t-bill knowing rates are going up? Why not just buy 4 week t-bills?
That’s what we are doing. One monthers.
You can get 0.70% at Bask Bank. I think 1 month Treasuries would only beat that if you're in a high state tax bracket?
I’m in NYC in a high bracket, plus we have an additional high city income tax besides the high state income tax. Thanks for the info though about Bask Bank. That’s a great rate.
SlowMovingInvestor
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iamblessed wrote: Wed Mar 23, 2022 6:08 am
tc101 wrote: Tue Mar 22, 2022 9:58 pm Is there any advantage to buying them directly rather than on the secondary market?
I am guessing less tax work for the new ones.
Is that also the case if you hold to maturity and if you use tax software like TT downloading from a major brokerage like Fido?
atdharris
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moneyflowin wrote: Tue Mar 22, 2022 9:41 pm
atdharris wrote: Tue Mar 22, 2022 8:23 pm Is there any point to buying a 52 week t-bill knowing rates are going up? Why not just buy 4 week t-bills?
1mo T-bills yield 0.2% now. Next month they'll yield probably 0.4%. And so on. After 12 months, do you expect their cumulative return to be more than 1.6%?

That's how the yield curve works. The market is pricing in the belief that your way produces the identical amount of interest as buying a 1Y T-bill now. If that crystal ball is wrong and rates rise more than expected over the next 12 months, your way will be more profitable. But if rates rise less than expected, buying the 1Y would be better.

Doing your way is a bet that rates will rise more than expected.
You're right. My understanding of bonds is not that great. I have been considering moving my cash sitting in a HYSA into t-bills, but there may be more risk there than I'd like. It also looks like buying 4 week t-bills now would yield considerably less per month starting out, but now I understand it's because the bond market expects rates to rise.
Valuethinker
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billyt wrote: Wed Mar 23, 2022 5:50 am Thanks for all the help. Never tried this before and trying to gain some basic understanding. Kevin, do you know what the difference is between Excel's XIRR an YIELD functions? Do the handle the effects of compounding differently?

Many thanks,
billyt
I do not offhand. However there are market conventions:

- for periods of less than one year, we use *simple* interest not compound
- and for US dollars (and Euros) we use a 360 day year (from memory, each month is assumed to be 30 days long)

So a T Bill yield of less than 1 year will in fact be a simple interest rate not a daily compound one.

That's how the yield will be worked on on a subscription screen (such as Bloomberg terminal) and probably a price quote (since they usually take their feed from Bloomberg or a similar service).

For practical purposes XIRR should give you a close enough number.
Valuethinker
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billyt wrote: Tue Mar 22, 2022 3:39 pm I am buying Tbills for the first time, and have a couple of questions. I purchased some 52 week bills today, from both Vanguard and Treasury Direct. At Vanguard, they cost \$98.390/\$100 and at Treasury Direct \$98.392/\$100. I know the difference is tiny, but why any difference at all? If I calculate the rate of return using the Excel XIRR function I get 1.64%. Same answer if I manually iterate it. That seems way to high. Looking at Bloomberg just now the 52 week rate is 1.31%. Am I calculating it wrong, or can auction results be so far different from what I see on Bloomberg? Thanks for the education.

Billyt
I should add (not based in USA):

Is it not just easier to buy a Money Market Fund which only invests in US government securities (of less than 1 year maturity)? Duration should be around 90 days?
jeffyscott
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iamblessed wrote: Wed Mar 23, 2022 6:08 am
tc101 wrote: Tue Mar 22, 2022 9:58 pm Is there any advantage to buying them directly rather than on the secondary market?
I am guessing less tax work for the new ones.
With secondary you can buy something on any day. For new ones you can only buy on the days that they are auctioned. When I was using them for short term investing, I did some of each trying both treasury direct and using brokerage. I found just buying secondary in brokerage account, whenever I had extra money to be more convenient.

I don't really know if there is much difference with regard to taxes, I just entered the numbers from the 1099s into tax software when it was time to file. I remember one that was kind of confusing, I think it was a bond bought at a premium that did not mature until the next year.
The two greatest enemies of the equity fund investor are expenses and emotions. ― John C. Bogle
jeffyscott
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Valuethinker wrote: Wed Mar 23, 2022 8:55 am
billyt wrote: Tue Mar 22, 2022 3:39 pm I am buying Tbills for the first time, and have a couple of questions. I purchased some 52 week bills today, from both Vanguard and Treasury Direct. At Vanguard, they cost \$98.390/\$100 and at Treasury Direct \$98.392/\$100. I know the difference is tiny, but why any difference at all? If I calculate the rate of return using the Excel XIRR function I get 1.64%. Same answer if I manually iterate it. That seems way to high. Looking at Bloomberg just now the 52 week rate is 1.31%. Am I calculating it wrong, or can auction results be so far different from what I see on Bloomberg? Thanks for the education.

Billyt
I should add (not based in USA):

Is it not just easier to buy a Money Market Fund which only invests in US government securities (of less than 1 year maturity)? Duration should be around 90 days?
Easier, but Vanguard treasury or Federal money market funds have 7 day yield of 0.16% and 0.14% vs. the 1.6% on 1 year T-bills.

They do have a short term treasury fund, with duration of 2 years, though.
The two greatest enemies of the equity fund investor are expenses and emotions. ― John C. Bogle
petercooperjr
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tc101 wrote: Tue Mar 22, 2022 9:58 pm Is there any advantage to buying them directly rather than on the secondary market?
Well, when you buy at auction ("noncompetitively"), you're guaranteed to be getting the same rate as the big guys. It's very rare that a little investor with \$1,000 can get the same interest deal as big banks looking to invest billions, but this is one of those cases where you can. So even though you don't know the exact rate ahead of time, you know that it will be "fair" and you're not paying an opaque bid/ask spread. Now, there are cases where the little investor can actually get a better deal sometimes, with bank CDs and savings bonds as such, where due to insurance and purchase limits the big guys don't really have access to the same products. So obviously, one needs to shop around. Sometimes T-Bills are better deals, and sometimes CDs, savings accounts, or I-bonds are better deals. (A lot also depends on how much you're willing to lock the money up, as T-Bills can generally be sold early on the secondary market really easily for a reasonable price which may be an advantage over some other options.) But if T-Bills are the best choice for a short term investment for the moment, then I prefer auctions just because I know I'll get a reasonably good and fair rate (especially for small quantities), matching what everyone else in the market is getting for it.

But if someone else prefers buying on the secondary market because then they know the rate they're agreeing to ahead of time, and can compare with other options and decide if it's really what's they want before buying, well I certainly wouldn't blame them for that in the slightest.

T-bills are auctioned every week (except the 52-week bill is only auctioned every 4 weeks), so waiting for an auction isn't a big deal for me, but if you want to buy right then, I suppose that might be another argument in favor of the secondary market for some people.
Last edited by petercooperjr on Wed Mar 23, 2022 11:43 am, edited 1 time in total.
Topic Author
billyt
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Thanks again for all the help. I had some input mistakes on my spreadsheet, now XIRR is giving the correct value. Valuethinker, thanks for your input. I keep liquid cash at an online bank at 0.5%. I am trying buying Treasuries for the first time to replace low yielding CD's that I hold. Yesterday, I cashed out a 2yr CD earning 0.6% and invested the proceeds in a 1 yr Treasury at 1.63%. I am happy with that result. I found the process very easy, but I see it can get complicated to scale this up into a ladder. A lot to keep track of.

All the best,
billyt
SlowMovingInvestor
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jeffyscott wrote: Wed Mar 23, 2022 9:02 am With secondary you can buy something on any day. For new ones you can only buy on the days that they are auctioned. When I was using them for short term investing, I did some of each trying both treasury direct and using brokerage. I found just buying secondary in brokerage account, whenever I had extra money to be more convenient.

I don't really know if there is much difference with regard to taxes, I just entered the numbers from the 1099s into tax software when it was time to file. I remember one that was kind of confusing, I think it was a bond bought at a premium that did not mature until the next year.

It'd be nice if tax software could handle this automatically, so I don't have to keep track of premiums/discounts on multiple purchases.
jeffyscott
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SlowMovingInvestor wrote: Wed Mar 23, 2022 11:56 am
jeffyscott wrote: Wed Mar 23, 2022 9:02 am With secondary you can buy something on any day. For new ones you can only buy on the days that they are auctioned. When I was using them for short term investing, I did some of each trying both treasury direct and using brokerage. I found just buying secondary in brokerage account, whenever I had extra money to be more convenient.

I don't really know if there is much difference with regard to taxes, I just entered the numbers from the 1099s into tax software when it was time to file. I remember one that was kind of confusing, I think it was a bond bought at a premium that did not mature until the next year.
Did you do a direct download of forms into your tax software? It'd be nice if tax software could handle this automatically, so I don't have to keep track of premiums/discounts on multiple purchases.
What I use doesn't have that capability. I would assume that those who pay for TurboTax or whatever can do that, though.
The two greatest enemies of the equity fund investor are expenses and emotions. ― John C. Bogle
Kevin M
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tc101 wrote: Tue Mar 22, 2022 9:58 pm Is there any advantage to buying them directly rather than on the secondary market?
The main advantage of buying at auction is that you get the same price as institutional investors, and there is no bid/ask spread. However, in my experience Schwab often gives better pricing for small quantities than for large quantities of Treasuries, so buying on the secondary market at Schwab eliminates the first advantage.

At auction you still deal with discounts and premiums (always a discount for bills), so I don't recall them being any easier in terms of taxes.

Kevin
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Kevin M
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billyt wrote: Wed Mar 23, 2022 5:50 am Thanks for all the help. Never tried this before and trying to gain some basic understanding. Kevin, do you know what the difference is between Excel's XIRR an YIELD functions? Do the handle the effects of compounding differently?

Many thanks,
billyt
Yes.

YIELD generates a bond equivalent yield (BEY), which two times the semi-annual YTM. Treasury yields quoted by Treasury.gov are BEYs to be consistent with market practice of quoting yields as BEYs.

XIRR generates an APY. So APY (XIRR) = (1+ YTM/2)^2 - 1. Plug in 1.632% for YTM and you get the XIRR value of 1.638%.

Kevin
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Kevin M
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cyclist wrote: Wed Mar 23, 2022 7:05 am
Tom_T wrote: Wed Mar 23, 2022 6:12 am If you go to the My Accounts menu, Buy and Sell, one of the options on the page will be "CDs and bonds" or something like that. Then you can search based on type and maturity.
That’s to trade on the secondary market.

You can also choose to participate in the non-competitive auctions of Treasury securities. (There will be “buy” links next to the various security types for which auctions are open at the time you check.)

Cyclist
(Rather pleased with the rate he got in this week’s 1 year tbill auction)
This gets you to either secondary market or auctions. Currently, My Accounts -> Buy and Sell gives you many choices, one of which is "Check rates and trade bonds". You then select the account to trade in (at least for me--I have a number of accounts attached to my login).

Next, you are shown the Find brokered CDs and bonds page, with the Quick search tab selected by default, which shows yields for various fixed income securities. Click the Treasuries tab, which brings you to the Basic search screen. There are radio buttons for Auction and Secondary. Click Auction and you'll see the current and upcoming auctions. If the auction is open, there will be a Buy link in the far left column. You can then place your auction order. Currently auctions are open for 1-month and 2-month T bills.

The way I prefer to do it is to go to the account I'm interested in in Balances and Holdings, then click Buy and sell, then select Trade bonds or CDs. This takes you directly to the Find brokered CDs and bonds page (skipping the account selection step).

Kevin
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Kevin M
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Valuethinker wrote: Wed Mar 23, 2022 8:54 am
billyt wrote: Wed Mar 23, 2022 5:50 am Thanks for all the help. Never tried this before and trying to gain some basic understanding. Kevin, do you know what the difference is between Excel's XIRR an YIELD functions? Do the handle the effects of compounding differently?

Many thanks,
billyt
I do not offhand. However there are market conventions:

- for periods of less than one year, we use *simple* interest not compound
- and for US dollars (and Euros) we use a 360 day year (from memory, each month is assumed to be 30 days long)

So a T Bill yield of less than 1 year will in fact be a simple interest rate not a daily compound one.

That's how the yield will be worked on on a subscription screen (such as Bloomberg terminal) and probably a price quote (since they usually take their feed from Bloomberg or a similar service).

For practical purposes XIRR should give you a close enough number.
Treasury uses actual day counts on a 365 or 366 day year. Source:
Does the par yield curve use a day count based on actual days in a year or a 30/360 year basis?

Yields on all Treasury securities are based on actual day counts on a 365- or 366-day year basis, not a 30/360 basis, and the yield curve is based on securities that pay semiannual interest. All yield curve rates are considered "bond-equivalent" yields.
The YIELD formula gives results consistent with published Treasury yields, using a frequency of 1 for bills with maturity of less than 364 days, and 2 for all other maturities. For example, the most recently auctioned 52-week bill has a term of 364 days, so frequency parameter of 2 gives the correct yield, while a freq parameter of 1 is used for all other bills.

Kevin
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Kevin M
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billyt wrote: Wed Mar 23, 2022 10:28 am Thanks again for all the help. I had some input mistakes on my spreadsheet, now XIRR is giving the correct value.
<snip>
XIRR and YIELD do not give the same value. The XIRR calculation is simple:

Code: Select all

``````03/24/2022	-98.392333
03/23/2023	100.000
xirr 		  1.638%
``````
This is not equal to the published yield of 1.632%, which is given by the YIELD formula as already explained.

However, XIRR gives you a better number for your actual return.

Kevin
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RubyTuesday
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Valuethinker wrote: Wed Mar 23, 2022 8:54 am
billyt wrote: Wed Mar 23, 2022 5:50 am Thanks for all the help. Never tried this before and trying to gain some basic understanding. Kevin, do you know what the difference is between Excel's XIRR an YIELD functions? Do the handle the effects of compounding differently?

Many thanks,
billyt
I do not offhand. However there are market conventions:

- for periods of less than one year, we use *simple* interest not compound
- and for US dollars (and Euros) we use a 360 day year (from memory, each month is assumed to be 30 days long)

So a T Bill yield of less than 1 year will in fact be a simple interest rate not a daily compound one.

That's how the yield will be worked on on a subscription screen (such as Bloomberg terminal) and probably a price quote (since they usually take their feed from Bloomberg or a similar service).

For practical purposes XIRR should give you a close enough number.
My understanding is that all treasury securities are simple interest with exceptions of TIPS (inflation adds to principal, in effect compounding the inflation adjustment) and savings bonds.

If you’re calculating discount yield, you’re calculating yield versus face value and typically based on 360 days / term in days. If you’re calculating an investment equivalent yield you’re calculating based on purchase price and I think typically uses a year as 365/366 days.
“Doing nothing is better than being busy doing nothing.” – Lao Tzu
Topic Author
billyt
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Kevin: Thanks for the clarification on the Excel math. Very helpful. I am still learning.

billyt
Tom_T
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I notice on Vanguard that another auction opens today (3/24.) I'll see what it looks like when the market actually opens.
RubyTuesday
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Tom_T wrote: Thu Mar 24, 2022 7:06 am I notice on Vanguard that another auction opens today (3/24.) I'll see what it looks like when the market actually opens.
There’s a 4 week and 8 week Tbill auction today
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Doc
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Kevin M wrote: Wed Mar 23, 2022 12:47 pm
tc101 wrote: Tue Mar 22, 2022 9:58 pm Is there any advantage to buying them directly rather than on the secondary market?
The main advantage of buying at auction is that you get the same price as institutional investors, and there is no bid/ask spread. However, in my experience Schwab often gives better pricing for small quantities than for large quantities of Treasuries, so buying on the secondary market at Schwab eliminates the first advantage.

At auction you still deal with discounts and premiums (always a discount for bills), so I don't recall them being any easier in terms of taxes.

Kevin
Another advantage is that you can set up an autoroll for T-Bills (except the 52 week maybe) so you can set it and forget it.
A scientist looks for THE answer to a problem, an engineer looks for AN answer and lawyers ONLY have opinions. Investing is not a science.
secondopinion
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petercooperjr wrote: Wed Mar 23, 2022 9:55 am
tc101 wrote: Tue Mar 22, 2022 9:58 pm Is there any advantage to buying them directly rather than on the secondary market?
Well, when you buy at auction ("noncompetitively"), you're guaranteed to be getting the same rate as the big guys. It's very rare that a little investor with \$1,000 can get the same interest deal as big banks looking to invest billions, but this is one of those cases where you can. So even though you don't know the exact rate ahead of time, you know that it will be "fair" and you're not paying an opaque bid/ask spread. Now, there are cases where the little investor can actually get a better deal sometimes, with bank CDs and savings bonds as such, where due to insurance and purchase limits the big guys don't really have access to the same products. So obviously, one needs to shop around. Sometimes T-Bills are better deals, and sometimes CDs, savings accounts, or I-bonds are better deals. (A lot also depends on how much you're willing to lock the money up, as T-Bills can generally be sold early on the secondary market really easily for a reasonable price which may be an advantage over some other options.) But if T-Bills are the best choice for a short term investment for the moment, then I prefer auctions just because I know I'll get a reasonably good and fair rate (especially for small quantities), matching what everyone else in the market is getting for it.

But if someone else prefers buying on the secondary market because then they know the rate they're agreeing to ahead of time, and can compare with other options and decide if it's really what's they want before buying, well I certainly wouldn't blame them for that in the slightest.

T-bills are auctioned every week (except the 52-week bill is only auctioned every 4 weeks), so waiting for an auction isn't a big deal for me, but if you want to buy right then, I suppose that might be another argument in favor of the secondary market for some people.
I buy any treasuries at the auction; one can usually estimate the yield prior from the secondary markets as to what I will receive. I leave the secondary market for selling.

But yes, there are times where the small investor can get the better deal. Hence, I actively manage my fixed-income but not really my stocks.
Passive investing: not about making big bucks but making profits. Active investing: not about beating the market but meeting goals. Speculation: not about timing the market but taking profitable risks.
AnnetteLouisan
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Doc wrote: Thu Mar 24, 2022 8:53 am
Kevin M wrote: Wed Mar 23, 2022 12:47 pm
tc101 wrote: Tue Mar 22, 2022 9:58 pm Is there any advantage to buying them directly rather than on the secondary market?
The main advantage of buying at auction is that you get the same price as institutional investors, and there is no bid/ask spread. However, in my experience Schwab often gives better pricing for small quantities than for large quantities of Treasuries, so buying on the secondary market at Schwab eliminates the first advantage.

At auction you still deal with discounts and premiums (always a discount for bills), so I don't recall them being any easier in terms of taxes.

Kevin
Another advantage is that you can set up an autoroll for T-Bills (except the 52 week maybe) so you can set it and forget it.
I do the auto roll on my one and only T bill bought last week (4 weeks, auto roll for 12 months). Who knows if auto roll can be stopped? I assume it can.

If anyone had told me when I was a little girl that Id be auto rolling t bills in my 50s…. Well, maybe I wouldn’t be that pleased but it beats what some of my friends from then are doing now.

My plan is to buy some 2 or 3 year notes after rates shake out. Or just do the EE. Or both.
Valuethinker
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RubyTuesday wrote: Wed Mar 23, 2022 5:16 pm
Valuethinker wrote: Wed Mar 23, 2022 8:54 am
billyt wrote: Wed Mar 23, 2022 5:50 am Thanks for all the help. Never tried this before and trying to gain some basic understanding. Kevin, do you know what the difference is between Excel's XIRR an YIELD functions? Do the handle the effects of compounding differently?

Many thanks,
billyt
I do not offhand. However there are market conventions:

- for periods of less than one year, we use *simple* interest not compound
- and for US dollars (and Euros) we use a 360 day year (from memory, each month is assumed to be 30 days long)

So a T Bill yield of less than 1 year will in fact be a simple interest rate not a daily compound one.

That's how the yield will be worked on on a subscription screen (such as Bloomberg terminal) and probably a price quote (since they usually take their feed from Bloomberg or a similar service).

For practical purposes XIRR should give you a close enough number.
My understanding is that all treasury securities are simple interest with exceptions of TIPS (inflation adds to principal, in effect compounding the inflation adjustment) and savings bonds.

If you’re calculating discount yield, you’re calculating yield versus face value and typically based on 360 days / term in days. If you’re calculating an investment equivalent yield you’re calculating based on purchase price and I think typically uses a year as 365/366 days.
Right. Thank you. That sounds familiar - it's been a long time since I studied this. The difference when you use 360 days v 365.

On the underlined you mean "All Treasury money market securities"? For Yield to Maturity for US Treasury bonds, it's done as one would expect (ie compound interest as expressed by the IRR of the cash flows of the bond).
SlowMovingInvestor
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Kevin M wrote: Wed Mar 23, 2022 12:47 pm
tc101 wrote: Tue Mar 22, 2022 9:58 pm Is there any advantage to buying them directly rather than on the secondary market?
The main advantage of buying at auction is that you get the same price as institutional investors, and there is no bid/ask spread. However, in my experience Schwab often gives better pricing for small quantities than for large quantities of Treasuries, so buying on the secondary market at Schwab eliminates the first advantage.

At auction you still deal with discounts and premiums (always a discount for bills), so I don't recall them being any easier in terms of taxes.

Kevin
Kevin

What if one buys (for example) secondary market notes that expire in around a year (so they'll mature the same time as a 52 week T-bill)?

It seems yield is slightly better for a secondary market note vis-a-vis a secondary market T-bill that matures at the same time. Is that just a liquidity premium for the T-bill or does it reflect the fact that the price shown does not include accrued interest (which is added when you buy, I think)?

Also, I gather notes pay out 6-monthly, so we should get 1099-INTs for those from the broker and a 1099-B when they mature
= par value - purchase price (which should include accrued interest)?
Doc
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Valuethinker wrote: Wed Mar 23, 2022 8:55 am Is it not just easier to buy a Money Market Fund which only invests in US government securities (of less than 1 year maturity)? Duration should be around 90 days?
Piddling dividends 12 times a year for four accounts is a not easier than a four rung 52 week T-bill ladder.

And if you use a 0-1 treasury fund/ETF you can have wash sale issues in some cases. PITA
A scientist looks for THE answer to a problem, an engineer looks for AN answer and lawyers ONLY have opinions. Investing is not a science.
Kevin M
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SlowMovingInvestor wrote: Fri Mar 25, 2022 10:09 am
Kevin M wrote: Wed Mar 23, 2022 12:47 pm
tc101 wrote: Tue Mar 22, 2022 9:58 pm Is there any advantage to buying them directly rather than on the secondary market?
The main advantage of buying at auction is that you get the same price as institutional investors, and there is no bid/ask spread. However, in my experience Schwab often gives better pricing for small quantities than for large quantities of Treasuries, so buying on the secondary market at Schwab eliminates the first advantage.

At auction you still deal with discounts and premiums (always a discount for bills), so I don't recall them being any easier in terms of taxes.

Kevin
Kevin

What if one buys (for example) secondary market notes that expire in around a year (so they'll mature the same time as a 52 week T-bill)?

It seems yield is slightly better for a secondary market note vis-a-vis a secondary market T-bill that matures at the same time. Is that just a liquidity premium for the T-bill or does it reflect the fact that the price shown does not include accrued interest (which is added when you buy, I think)?

Also, I gather notes pay out 6-monthly, so we should get 1099-INTs for those from the broker and a 1099-B when they mature
= par value - purchase price (which should include accrued interest)?
There's not an exact comparison, because the notes/bonds available don't mature on the same date. The Tbill matures on 3/23/2023 at 1.675%, and the closest notes mature 3/31/2023, with yields of 1.691, 1.680, and 1.675. There's also one maturing 3/15/2023 at 1.619.

For the ones maturing 3/31, the coupon rates are different, with the higher coupons having lower yields. I think this is explained by duration, as higher coupon rate results in lower duration.

The Tbill has the highest duration relative to maturity date--duration for a zero-coupon bond (which a Tbill is) equals the term to maturity, while duration will be less than that for a coupon-bearing bond of same term.

So I think differences are explained by liquidity, term to maturity, and duration.

Accrued interest makes little difference, since you get it back with the first coupon payment, but it could make a small difference due to time value of money.

Looking at my 2019 1099-composite from Schwab, I see interest from both bills and notes on the 1099-INT, and both bills and notes are reported on 1099-B. Both accrued interest from sales (positive) and accrued interest paid at purchase (negative) are included in 1099-INT. I think the interest from bills is the interest accrued. At any rate, all the info is reported on the 1099 forms. I do recall the tax reporting being somewhat more complicated than for a fund.

Kevin
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FactualFran
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SlowMovingInvestor wrote: Fri Mar 25, 2022 10:09 am Also, I gather notes pay out 6-monthly, so we should get 1099-INTs for those from the broker and a 1099-B when they mature
= par value - purchase price (which should include accrued interest)?
The accrued interest is not part of the basis reported on a 1099-B. A few years ago the IRS introduced regulations that started requiring brokers to report on a 1099-B the basis and the gain in addition to the proceeds.

By default, a Treasury security covered by those regulations will have a capital gain of zero at maturity (proceeds equal to adjusted basis), unless the security was acquired with what is called a de minimis discount. A de minimis discount is one that 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 the security was acquired.

With a Treasury security bought at a premium, the broker will report amortized bond premium each year on a 1099-DIV, which reduces the amount of interest paid that is taxable. With a Treasury security bought at a discount that is not de minimis, the broker will report accrued market discount each year on a 1099-DIV, which is taxable in addition to the interest paid being taxable. With a Treasury security bought with a de minimis discount, the broker will report each year on a 1099-DIV the amount of interest paid, and the broker will report at maturity on a 1099-B a gain equal to the discount amount.
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