Ultra Short Term Treasury ETFs

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Topic Author
Caduceus
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Ultra Short Term Treasury ETFs

Post by Caduceus » Fri Nov 15, 2019 10:42 am

One of the discount brokers I use has crappy sweep options. I want to buy an ultra short-term treasury ETF to replicate the lack of a good default sweep option. Weirdly enough, searching the forum for "Treasury ETFs" or "Ultra Short Term Bond ETF" doesn't come up with any results ... or maybe the search gods are playing a trick on me.

In any case, here is my question: If I want to buy an ultra-short term treasury ETF with a duration of less than 6 months (even shorter is fine), and it has to be an ETF (no mutual funds), and it has to be government treasuries only (no corporate bonds), what are my options?

Would you take:

1) SPDR® Bloomberg Barclays 1-3 Month T-Bill ETF (BIL)
2) iShares Short Treasury Bond ETF (SHV)

or are there other good options?

Thanks in advance!

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elcadarj
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Re: Ultra Short Term Treasury ETFs

Post by elcadarj » Fri Nov 15, 2019 10:53 am

Try this site, it has list of 18 ultra short fixed-income etfs: https://www.etf.com/channels/ultra-short-term-etfs

lazyday
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Re: Ultra Short Term Treasury ETFs

Post by lazyday » Fri Nov 15, 2019 11:16 am

Caduceus wrote:
Fri Nov 15, 2019 10:42 am
1) SPDR® Bloomberg Barclays 1-3 Month T-Bill ETF (BIL)
2) iShares Short Treasury Bond ETF (SHV)
Either of those should be fine.

I'm willing to take on a bit more duration, so have used VGSH before. It has a slightly lower expense ratio.
searching the forum for "Treasury ETFs" or "Ultra Short Term Bond ETF" doesn't come up with any results
To find old discussions, you could google Bogleheads shv bil.

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petercooperjr
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Re: Ultra Short Term Treasury ETFs

Post by petercooperjr » Fri Nov 15, 2019 11:50 am

While I understand that some people would find using ETFs simpler, for my money that's short-term-but-I-don't-want-to-keep-in-a-sweep I just buy treasury bills directly at auction. At most brokerages there's no commissions for treasury auction purchases. If you want the exposure and interest of a three-month or six-month treasury bill, you can just buy one when they come up for auction each week. Some brokerages even have an option to automatically roll it over upon maturity, which makes it even more similar to how a fund or ETF would do it.

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Re: Ultra Short Term Treasury ETFs

Post by MotoTrojan » Fri Nov 15, 2019 11:54 am

petercooperjr wrote:
Fri Nov 15, 2019 11:50 am
While I understand that some people would find using ETFs simpler, for my money that's short-term-but-I-don't-want-to-keep-in-a-sweep I just buy treasury bills directly at auction. At most brokerages there's no commissions for treasury auction purchases. If you want the exposure and interest of a three-month or six-month treasury bill, you can just buy one when they come up for auction each week. Some brokerages even have an option to automatically roll it over upon maturity, which makes it even more similar to how a fund or ETF would do it.
+1. Auto-roll at Fidelity. At these yields the expense ratio of the ETF is not trivial.

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Caduceus
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Re: Ultra Short Term Treasury ETFs

Post by Caduceus » Fri Nov 15, 2019 12:06 pm

petercooperjr wrote:
Fri Nov 15, 2019 11:50 am
While I understand that some people would find using ETFs simpler, for my money that's short-term-but-I-don't-want-to-keep-in-a-sweep I just buy treasury bills directly at auction. At most brokerages there's no commissions for treasury auction purchases. If you want the exposure and interest of a three-month or six-month treasury bill, you can just buy one when they come up for auction each week. Some brokerages even have an option to automatically roll it over upon maturity, which makes it even more similar to how a fund or ETF would do it.
So that's what I've been thinking about. But here's my question then. I am hard pressed to figure out a single reason to use ultra-short term ETFs then. Why does anyone even use these ETFs instead of investing in treasuries directly and not paying the expense ratio?

Are there any advantages - even just one will do - to using an ultra short treasury etf like BIL instead of going direct? There must be one, or the product would not exist.

lazyday
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Re: Ultra Short Term Treasury ETFs

Post by lazyday » Fri Nov 15, 2019 1:51 pm

Some brokers charge for Treasuries.

If using Fidelity then you don’t have to worry about rolling bills, and can trade them for free.

You might buy on the secondary market if you don’t want to wait for the next auction, and later sell if the bill doesn’t mature soon enough.

Has anyone estimated the cost to do this? What’s the round trip cost in bps at, say, Fidelity or Vanguard for bills?

I’d guess a round trip on VGSH is under 1 basis point: viewtopic.php?t=237602#p3718036

Ferdinand2014
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Re: Ultra Short Term Treasury ETFs

Post by Ferdinand2014 » Fri Nov 15, 2019 8:58 pm

Caduceus wrote:
Fri Nov 15, 2019 10:42 am
One of the discount brokers I use has crappy sweep options. I want to buy an ultra short-term treasury ETF to replicate the lack of a good default sweep option. Weirdly enough, searching the forum for "Treasury ETFs" or "Ultra Short Term Bond ETF" doesn't come up with any results ... or maybe the search gods are playing a trick on me.

In any case, here is my question: If I want to buy an ultra-short term treasury ETF with a duration of less than 6 months (even shorter is fine), and it has to be an ETF (no mutual funds), and it has to be government treasuries only (no corporate bonds), what are my options?

Would you take:

1) SPDR® Bloomberg Barclays 1-3 Month T-Bill ETF (BIL)
2) iShares Short Treasury Bond ETF (SHV)

or are there other good options?

Thanks in advance!
4 week zero coupon treasury bills at auction every Tuesday. Avoid expense ratio fees, middleman counterparty risk, transaction costs, bid-ask spreads, premium discounts. I have mine set on auto roll. Safest most liquid investment in the world. I pay exactly $0 in any cost at Fidelity for the service.
“You only find out who is swimming naked when the tide goes out.“ — Warren Buffett

stan1
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Re: Ultra Short Term Treasury ETFs

Post by stan1 » Fri Nov 15, 2019 9:46 pm

For those of you using treasury bills (not ETFs) for cash funds in a brokerage fund what did you use to buy stocks around December 26, 2018 (best buying opportunity in a few years)? Isn't that the reason you are holding cash in a brokerage account to begin with? No market timing lecture please.

ETF answer is easy. You put in a market sell order for the bond ETFs and bought equity ETFs. Part of what you are paying the single digit basis point in expenses is for liquidity.

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Kevin M
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Re: Ultra Short Term Treasury ETFs

Post by Kevin M » Fri Nov 15, 2019 9:50 pm

Neither Vanguard, Fidelity or Schwab charges commissions for Treasuries traded on secondary market or bought at auction. The bid/ask spreads are minuscule--in the past they were lower at Schwab for smaller quantites, but I recently sold a few Tbills at Fidelity (quantity = 5), and I think the bid/ask was less than one basis point--certainly not much more than that.

Treasuries are so liquid and easy to buy and sell that I really don't see the point of using an ultra-short-term Treasury fund.

If your discount broker charges commissions on Treasuries, then maybe switch brokers.

Kevin
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123
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Re: Ultra Short Term Treasury ETFs

Post by 123 » Fri Nov 15, 2019 11:48 pm

Is this a taxable or tax-advantaged (IRA/Roth) account? If it's a taxable account and there is significant activity you may find that the tax reporting requirements of ETF buy/sell transactions for managing cash burdensome. Sure a lot of tax activity reporting (download) is automated but it can still be tedious to deal with.
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Makefile
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Re: Ultra Short Term Treasury ETFs

Post by Makefile » Fri Nov 15, 2019 11:53 pm

Why must it be an ETF? Surely there is a no transaction free money market fund offered? Would you be willing to share which discount broker it is?

Topic Author
Caduceus
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Re: Ultra Short Term Treasury ETFs

Post by Caduceus » Sat Nov 16, 2019 12:49 am

Ferdinand2014 wrote:
Fri Nov 15, 2019 8:58 pm

4 week zero coupon treasury bills at auction every Tuesday. Avoid expense ratio fees, middleman counterparty risk, transaction costs, bid-ask spreads, premium discounts. I have mine set on auto roll. Safest most liquid investment in the world. I pay exactly $0 in any cost at Fidelity for the service.
I have two questions. When you buy treasury bills at Fidelity, is it through Fidelity's website? Everything is inside their site and you don't have to click through to any third party links like Treasury Direct or something like that?

Second question: How fast is settlement? Let's say you sell the treasury in the secondary market. Can you use the proceeds to buy stocks the same day (I would be able to do that with a treasury ETF), or do you have to wait until the treasuries settle, and if so, how long does that take? Is it still T+2?

Topic Author
Caduceus
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Re: Ultra Short Term Treasury ETFs

Post by Caduceus » Sat Nov 16, 2019 12:50 am

Makefile wrote:
Fri Nov 15, 2019 11:53 pm
Why must it be an ETF? Surely there is a no transaction free money market fund offered? Would you be willing to share which discount broker it is?
Nope there is no good no transaction-fee money market funds offered. The fee-free ones are terrible with high expense ratios, and the ones with no fees have high commission costs, which easily eats into the returns.

Topic Author
Caduceus
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Re: Ultra Short Term Treasury ETFs

Post by Caduceus » Sat Nov 16, 2019 12:52 am

Kevin M wrote:
Fri Nov 15, 2019 9:50 pm
Neither Vanguard, Fidelity or Schwab charges commissions for Treasuries traded on secondary market or bought at auction. The bid/ask spreads are minuscule--in the past they were lower at Schwab for smaller quantites, but I recently sold a few Tbills at Fidelity (quantity = 5), and I think the bid/ask was less than one basis point--certainly not much more than that.

Treasuries are so liquid and easy to buy and sell that I really don't see the point of using an ultra-short-term Treasury fund.

If your discount broker charges commissions on Treasuries, then maybe switch brokers.

Kevin
OK, I'm going to devote the rest of this weekend to learning how to do this through my broker's interface. If you can think in advance of any useful things a beginner to buying/selling Treasures might miss or unexpected mistakes I might make in the buying/selling process, please let me know.

stlutz
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Re: Ultra Short Term Treasury ETFs

Post by stlutz » Sat Nov 16, 2019 1:51 am

How much in dollars does the 12 or 15 bps from the ETF cost you? If it matters you probably have too much in money market equivalents. Buy BIL or SHV and do something else with your weekend unless messing with individual bonds is something you want to do for entertainment.

Disclosure:. I mess with individual Treasuries for entertainment.

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Caduceus
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Re: Ultra Short Term Treasury ETFs

Post by Caduceus » Sat Nov 16, 2019 6:02 am

I didn't realize how great the Vanguard Prime Money Market Fund (VMMXX) was. It has a similar duration to BIL, and a shorter duration than SHV, and yet it manages to beat both. What I don't understand is how the Vanguard money market fund manages to beat a treasury etf (SHV) that holds longer duration treasuries than it does - that's just pretty odd (and impressive) to me.

I will give Vanguard a call on Monday, but does anyone know if Vanguard has the ETF-equivalent of VMMXX? I can't find it, so I'm assuming not but thought i'd throw it out there.

Ferdinand2014
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Re: Ultra Short Term Treasury ETFs

Post by Ferdinand2014 » Sat Nov 16, 2019 7:50 am

Caduceus wrote:
Sat Nov 16, 2019 12:49 am
Ferdinand2014 wrote:
Fri Nov 15, 2019 8:58 pm

4 week zero coupon treasury bills at auction every Tuesday. Avoid expense ratio fees, middleman counterparty risk, transaction costs, bid-ask spreads, premium discounts. I have mine set on auto roll. Safest most liquid investment in the world. I pay exactly $0 in any cost at Fidelity for the service.
I have two questions. When you buy treasury bills at Fidelity, is it through Fidelity's website? Everything is inside their site and you don't have to click through to any third party links like Treasury Direct or something like that?

Second question: How fast is settlement? Let's say you sell the treasury in the secondary market. Can you use the proceeds to buy stocks the same day (I would be able to do that with a treasury ETF), or do you have to wait until the treasuries settle, and if so, how long does that take? Is it still T+2?
Through Fidelity website. Under ‘News and Research’ > ‘Fixed income, bonds and CD’s’> ‘New Issues’ > ‘Treasury’ then check box for a zero coupon treasury and trade with whatever account you want to use. Each 1 bond = $1,000 for treasuries. The bonds are direct from the treasury (not treasury direct) with a CUSIP number listed in your holding. They are held for you by Fidelity. There is no counterparty risk. The treasury schedule:

https://www.treasury.gov/resource-cente ... ctions.pdf


New treasury announcement day (Tuesday for 4 and 8 week T-Bills) is when they are available for purchase on Fidelity website. It will auction on Thursday and settle on following Tuesday. You can cancel up until Thursday morning day of auction and sell anytime after that. As T-Bills are zero coupon, you buy say $10,000 (10 bonds), but pay say $9,930 and then in 4 weeks, receive full $10,000 back. When you purchase, you have the option of auto roll which keeps rolling into whatever week t-bill you had purchased, but at the new auction coupon rate. It floats you the credit during the 1 week overlap between auctions so you always have availability to cash out.


You can sell and purchase in increments of $1,000. If you sell during normal business hours, a credit for cash (available for all uses of cash) is available within a few seconds. It takes about 24-48 hours to settle fully. Fidelity automatically puts in a fill/kill parameter for you. It is so liquid that the fill/kill spread is .001. If you keep on auto roll, it is free and no spread.

If you are not sure, or need a walk through, the bond desk is very helpful. You can ask all the questions you want for free. They only charge you if you have them do purchase for you, which is totally unnecessary. It seems cumbersome, but it really is easy. Short of a nuclear war, your money is as safe as it gets. Safer then FDIC, money market or ETF and it costs $0.
“You only find out who is swimming naked when the tide goes out.“ — Warren Buffett

livesoft
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Re: Ultra Short Term Treasury ETFs

Post by livesoft » Sat Nov 16, 2019 8:28 am

I have used T-bills and BIL when I didn't want to have fixed income in Total US Bond Index fund, Vanguard Short-term corporate bond index fund, nor FLRN an investment grade floating rate note ETF.

The reality for me was that a T bill was a hassle because none of this money was for long-term investing. After all, how could short-term fixed income be useful for investing anyways? I wanted the money to be in equities or Total US Bond Index for the long term.

The main reason for me to try out a T bill was to see what all the fuss was about. There was nothing to see there and for my investing style it informed me that I don't want to use them in the same way that I learned that I don't want to use I bonds.

OTOH, BIL worked well during the time I owned it since I could sell any number of shares and buy something a moment later. Same with FLRN.

Full disclosure: I own no shares now of BIL, FLRN, VCSH, SPSB, nor any T-bills.
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stan1
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Re: Ultra Short Term Treasury ETFs

Post by stan1 » Sat Nov 16, 2019 8:33 am

Caduceus wrote:
Sat Nov 16, 2019 6:02 am
I will give Vanguard a call on Monday, but does anyone know if Vanguard has the ETF-equivalent of VMMXX? I can't find it, so I'm assuming not but thought i'd throw it out there.
Out of luck on that one, Vanguard does not have ETF equivalents of their money market funds.

lazyday
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Re: Ultra Short Term Treasury ETFs

Post by lazyday » Sat Nov 16, 2019 8:45 am

Caduceus wrote:
Sat Nov 16, 2019 6:02 am
I didn't realize how great the Vanguard Prime Money Market Fund (VMMXX) was. .... What I don't understand is how the Vanguard money market fund manages to beat a treasury etf (SHV) that holds longer duration treasuries than it does ....
Look at the portfolio, most of Prime's holdings are not Treasuries.

People on this forum often talk of Prime as if it has zero risk, which isn't quite true.

livesoft
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Re: Ultra Short Term Treasury ETFs

Post by livesoft » Sat Nov 16, 2019 8:50 am

lazyday wrote:
Sat Nov 16, 2019 8:45 am
People on this forum often talk of Prime as if it has zero risk, which isn't quite true.
But so what? Porterhouse, T-bone, NY Strip, car driving, walking, sleeping are not zero risk either.

My point is that one should have a modicum of common sense.
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UpperNwGuy
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Re: Ultra Short Term Treasury ETFs

Post by UpperNwGuy » Sat Nov 16, 2019 8:51 am

stan1 wrote:
Sat Nov 16, 2019 8:33 am
Caduceus wrote:
Sat Nov 16, 2019 6:02 am
I will give Vanguard a call on Monday, but does anyone know if Vanguard has the ETF-equivalent of VMMXX? I can't find it, so I'm assuming not but thought i'd throw it out there.
Out of luck on that one, Vanguard does not have ETF equivalents of their money market funds.
OP, why are you insistent that it must be an ETF? What's wrong with a money market fund or a mutual fund?

UpperNwGuy
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Re: Ultra Short Term Treasury ETFs

Post by UpperNwGuy » Sat Nov 16, 2019 8:54 am

livesoft wrote:
Sat Nov 16, 2019 8:28 am
I have used T-bills and BIL when I didn't want to have fixed income in Total US Bond Index fund, Vanguard Short-term corporate bond index fund, nor FLRN an investment grade floating rate note ETF.

The reality for me was that a T bill was a hassle because none of this money was for long-term investing. After all, how could short-term fixed income be useful for investing anyways? I wanted the money to be in equities or Total US Bond Index for the long term.

The main reason for me to try out a T bill was to see what all the fuss was about. There was nothing to see there and for my investing style it informed me that I don't want to use them in the same way that I learned that I don't want to use I bonds.

OTOH, BIL worked well during the time I owned it since I could sell any number of shares and buy something a moment later. Same with FLRN.

Full disclosure: I own no shares now of BIL, FLRN, VCSH, SPSB, nor any T-bills.
Livesoft is one of the few people here who intentionally experiments with different investments to see for himself how they work. More of us should adopt this learning-through-doing approach. He also reads the IRS tax publications. We should too.

lazyday
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Re: Ultra Short Term Treasury ETFs

Post by lazyday » Sat Nov 16, 2019 8:55 am

Ferdinand2014 wrote:
Sat Nov 16, 2019 7:50 am
It floats you the credit during the 1 week overlap between auctions so you always have availability to cash out.
Fidelity just keeps sounding better and better. :)
If you sell during normal business hours, a credit for cash (available for all uses of cash) is available within a few seconds.
It is so liquid that the fill/kill spread is .001. If you keep on auto roll, it is free and no spread.
Very nice.

lazyday
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Re: Ultra Short Term Treasury ETFs

Post by lazyday » Sat Nov 16, 2019 8:56 am

Kevin M wrote:
Fri Nov 15, 2019 9:50 pm
If your discount broker charges commissions on Treasuries, then maybe switch brokers.
I've used VGSH at brokers where, as I recall, Treasuries weren't free to trade. Checking now, I see that they are free today at Etrade and Merrill Edge, but not Wellstrade or TD Ameritrade.

I do some bonus hopping. Will probably leave Wellstrade eventually, though I am grandfathered in to free traditional mutual fund trading... which I've never used.

stan1
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Re: Ultra Short Term Treasury ETFs

Post by stan1 » Sat Nov 16, 2019 9:01 am

UpperNwGuy wrote:
Sat Nov 16, 2019 8:51 am
stan1 wrote:
Sat Nov 16, 2019 8:33 am
Caduceus wrote:
Sat Nov 16, 2019 6:02 am
I will give Vanguard a call on Monday, but does anyone know if Vanguard has the ETF-equivalent of VMMXX? I can't find it, so I'm assuming not but thought i'd throw it out there.
Out of luck on that one, Vanguard does not have ETF equivalents of their money market funds.
OP, why are you insistent that it must be an ETF? What's wrong with a money market fund or a mutual fund?
Not OP, but his account is at a discount brokerage that presumably stays in business in part by making money off cash left in low yielding accounts. He's trying to put in a little effort using his free ETF trades to end run that which seems like a good idea.

lazyday
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Re: Ultra Short Term Treasury ETFs

Post by lazyday » Sat Nov 16, 2019 9:03 am

livesoft wrote:
Sat Nov 16, 2019 8:50 am
lazyday wrote:
Sat Nov 16, 2019 8:45 am
People on this forum often talk of Prime as if it has zero risk, which isn't quite true.
But so what? Porterhouse, T-bone, NY Strip, car driving, walking, sleeping are not zero risk either.

My point is that one should have a modicum of common sense.
I've seen posts where people say that Prime is better than an FDIC account because at the time Prime paid, say, .1% more per year.

I doubt that's enough compensation for the risk.

I have used Prime MM before, but am not as big a fan as some here.

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Caduceus
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Re: Ultra Short Term Treasury ETFs

Post by Caduceus » Sat Nov 16, 2019 8:50 pm

Ferdinand2014 wrote:
Sat Nov 16, 2019 7:50 am

New treasury announcement day (Tuesday for 4 and 8 week T-Bills) is when they are available for purchase on Fidelity website. It will auction on Thursday and settle on following Tuesday. You can cancel up until Thursday morning day of auction and sell anytime after that. As T-Bills are zero coupon, you buy say $10,000 (10 bonds), but pay say $9,930 and then in 4 weeks, receive full $10,000 back. When you purchase, you have the option of auto roll which keeps rolling into whatever week t-bill you had purchased, but at the new auction coupon rate. It floats you the credit during the 1 week overlap between auctions so you always have availability to cash out.
Thanks, Ferdinand. Are you sure I can sell anytime after buying on Thursday? With equities, I can sell only after the equities settle. And it seems from the Treasury site the issues only settle the following Tuesday. So shouldn't it be that I can only sell the following Tuesday? Or are you sure that I can, for example, buy on Thursday, and sell on Friday (the next day) even before it settles? That just seems odd to me.

RetiredAL
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Re: Ultra Short Term Treasury ETFs

Post by RetiredAL » Sat Nov 16, 2019 10:06 pm

Caduceus wrote:
Fri Nov 15, 2019 10:42 am
One of the discount brokers I use has crappy sweep options. I want to buy an ultra short-term treasury ETF to replicate the lack of a good default sweep option. Weirdly enough, searching the forum for "Treasury ETFs" or "Ultra Short Term Bond ETF" doesn't come up with any results ... or maybe the search gods are playing a trick on me.

In any case, here is my question: If I want to buy an ultra-short term treasury ETF with a duration of less than 6 months (even shorter is fine), and it has to be an ETF (no mutual funds), and it has to be government treasuries only (no corporate bonds), what are my options?

Would you take:

1) SPDR® Bloomberg Barclays 1-3 Month T-Bill ETF (BIL)
2) iShares Short Treasury Bond ETF (SHV)

or are there other good options?

Thanks in advance!
Caduceus,
I have a pile of SHV in my Dad's account in lieu of ready cash. I've been happy with it. Do be aware that it's chart looks really funky. As I understand it, it's income is credited to NAV daily, then paid out monthly as a dividend.

Topic Author
Caduceus
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Re: Ultra Short Term Treasury ETFs

Post by Caduceus » Sun Nov 17, 2019 1:38 am

RetiredAL wrote:
Sat Nov 16, 2019 10:06 pm

Caduceus,
I have a pile of SHV in my Dad's account in lieu of ready cash. I've been happy with it. Do be aware that it's chart looks really funky. As I understand it, it's income is credited to NAV daily, then paid out monthly as a dividend.
So that means you see the value increase steadily, and then it suddenly drops on one day, just as you also receive a dividend? Interesting. I guess that is how they allow people to sell and lock in the interest prior to the dividend instead of having to calculate individually the number of days each person held the fund before selling it. Does it go "ex-dividend" though? Otherwise, how does it people from double-dipping by getting both the capital gains (by selling) and also the dividend (and then re-entering)?

Ferdinand2014
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Re: Ultra Short Term Treasury ETFs

Post by Ferdinand2014 » Sun Nov 17, 2019 11:16 am

Caduceus wrote:
Sat Nov 16, 2019 8:50 pm
Ferdinand2014 wrote:
Sat Nov 16, 2019 7:50 am

New treasury announcement day (Tuesday for 4 and 8 week T-Bills) is when they are available for purchase on Fidelity website. It will auction on Thursday and settle on following Tuesday. You can cancel up until Thursday morning day of auction and sell anytime after that. As T-Bills are zero coupon, you buy say $10,000 (10 bonds), but pay say $9,930 and then in 4 weeks, receive full $10,000 back. When you purchase, you have the option of auto roll which keeps rolling into whatever week t-bill you had purchased, but at the new auction coupon rate. It floats you the credit during the 1 week overlap between auctions so you always have availability to cash out.
Thanks, Ferdinand. Are you sure I can sell anytime after buying on Thursday? With equities, I can sell only after the equities settle. And it seems from the Treasury site the issues only settle the following Tuesday. So shouldn't it be that I can only sell the following Tuesday? Or are you sure that I can, for example, buy on Thursday, and sell on Friday (the next day) even before it settles? That just seems odd to me.
I know that I have been able to use the credit from unsettled sales of my T-bills to buy equities and transfer as cash to other accounts. I believe that I have done exactly as you described about 3 months ago (if my memory is correct) which would be consistent with being able to use credit from unsettled sales at other times (which I am very sure I have done before). For example, I know that I sold $20,000 of T-bills that were 2 weeks before maturity with unsettled credit available within about 10 seconds (I hit button on my computer and a text came to my phone 'sold' about 5 seconds later) and available for use which I then bought FXAIX (Fido 500 index) the same day. It can only be done during business hours (8-5) and the remaining credit settled 24 hours later. I would suggest you call the Fidelity bond desk and run through any questions you might have, or trial balloon say 1 T-bill bond ($1,000) and run through the buy/sell process yourself. I infrequently cash out my holdings and when I do, rarely need the money sooner then a few days anyway. I prefer T-bills over MM or ETF short treasury funds because it is completely free, very liquid and no middleman counterparty risk, premium/discount, bid/ask spread (if bought at auction instead of secondary market). For me, the minor inconvenience of the process is outweighed by the aforementioned benefits.
“You only find out who is swimming naked when the tide goes out.“ — Warren Buffett

MotoTrojan
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Re: Ultra Short Term Treasury ETFs

Post by MotoTrojan » Sun Nov 17, 2019 11:27 am

stan1 wrote:
Fri Nov 15, 2019 9:46 pm
For those of you using treasury bills (not ETFs) for cash funds in a brokerage fund what did you use to buy stocks around December 26, 2018 (best buying opportunity in a few years)? Isn't that the reason you are holding cash in a brokerage account to begin with? No market timing lecture please.

ETF answer is easy. You put in a market sell order for the bond ETFs and bought equity ETFs. Part of what you are paying the single digit basis point in expenses is for liquidity.
Stocks/most bonds (and all ETFs) take 2 days to settle where-as government bills/bonds only take one. There is no issue with picking up equities and selling your bills same-day, other than having to sell in $1000 increments.

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Re: Ultra Short Term Treasury ETFs

Post by RetiredAL » Sun Nov 17, 2019 9:35 pm

Caduceus wrote:
Sun Nov 17, 2019 1:38 am
RetiredAL wrote:
Sat Nov 16, 2019 10:06 pm

Caduceus,
I have a pile of SHV in my Dad's account in lieu of ready cash. I've been happy with it. Do be aware that it's chart looks really funky. As I understand it, it's income is credited to NAV daily, then paid out monthly as a dividend.
So that means you see the value increase steadily, and then it suddenly drops on one day, just as you also receive a dividend? Interesting. I guess that is how they allow people to sell and lock in the interest prior to the dividend instead of having to calculate individually the number of days each person held the fund before selling it. Does it go "ex-dividend" though? Otherwise, how does it people from double-dipping by getting both the capital gains (by selling) and also the dividend (and then re-entering)?
I assume they do that to squash any potential double-dip profit related to settling a buy just before the X-date. I know that with LQD, you can create a double-dip.

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nisiprius
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Re: Ultra Short Term Treasury ETFs

Post by nisiprius » Mon Nov 18, 2019 7:28 am

Here are some historical results, assuming a holding period of six months. Because the range of available data isn't the same, results for BIL and SHV shouldn't be directly compared to each other.

BIL: SPDR® Bloomberg Barclays 1-3 Month T-Bill
7/2007 - 6/2019; 144 months total
(limited by start of available data for BIL, and by end of available data for CPI data):

Length of holding period: 6 months
Total number of overlapping 6-month periods: 139
Average number of dollars earned in 6 months on a $10,000 investment: $24.96
Average CAGR (annualized rate of return) of those 139 6-month periods: 0.50%
Standard deviation (σ) of single-month returns, annualized): 0.33%

Frequency of underperformance:
Number of periods in which BIL made less than VMMXX: 139/139 = 100.0%
Number of periods in which BIL lost money: 63/139 = 45.3%
Number of periods in which BIL failed to keep up with inflation: 113/139 = 81.3%

Average amount of underperformance in the times where it occurred:
Versus VMMXX over those 139 disappointing periods: -$14.37
Dollar loss over those 63 disappointing periods: -$3.67
Real loss (inflation-corrected) over those 113 disappointing periods: -$107.31

Worst single 6-month performance:
Compared to VMMXX, 10/2008 - 3/2009: -$70.31
Dollar loss, 5/2015 - 10/2015: -$6.63
Real loss (inflation-corrected), 2/2008 - 7/2008: -$340.21

BIL vs VMMXX, 10/2008 - 3/2009

Reward for taking that risk:
Average additional return above VMMXX, over 139 overlapping 6-month periods: -$14.37
Return in dollars, over 139 overlapping 6-month periods: +$24.96
Real return above inflation, over 139 overlapping 6-month periods: -$61.73





SHV: iShares Short Treasury Bond
3/2007 - 6/2019; 148 months total
(limited by start of available data for SHV, and by end of available data for CPI data):

Length of holding period: 6 months
Total number of overlapping 6-month periods: 143
Average number of dollars earned in 6 months on a $10,000 investment: $42.10
Average CAGR (annualized rate of return) of those 143 6-month periods: 0.84%
Standard deviation (σ) of single-month returns, annualized): 0.46%

Frequency of underperformance:
Number of periods in which SHV made less than VMMXX: 78/143 = 54.5%
Number of periods in which SHV lost money: 14/143 = 9.8%
Number of periods in which SHV failed to keep up with inflation: 109/143 = 76.2%

Average amount of underperformance in the times where it occurred:
Versus VMMXX over those 78 disappointing periods: -$10.26
Dollar loss over those 14 disappointing periods: -$1.70
Real loss (inflation-corrected) over those 109 disappointing periods: -$103.22

Worst single 6-month performance:
Compared to VMMXX, 12/2008 - 5/2009: -$41.20
Dollar loss, 7/2015 - 12/2015: -$5.11
Real loss (inflation-corrected), 12/2010 - 5/2011: -$319.33

SHV vs VMMXX, 12/2008 - 5/2009

Reward for taking that risk:
Average additional return above VMMXX, over 143 overlapping 6-month periods: -$3.35
Return in dollars, over 143 overlapping 6-month periods: +$42.10
Real return above inflation, over 143 overlapping 6-month periods: -$46.26
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Re: Ultra Short Term Treasury ETFs

Post by mervinj7 » Mon Nov 18, 2019 2:11 pm

nisiprius wrote:
Mon Nov 18, 2019 7:28 am
Here are some historical results, assuming a holding period of six months. Because the range of available data isn't the same, results for BIL and SHV shouldn't be directly compared to each other.
Excellent analysis, as usual. One question that comes to mind, is it possible to compare the performance of BIL vs an auto-rolling ladder of Treasury Bills? For example, I keep 6 months of EF in six 6 month T-bills at Fido. Each one automatically auto-rolls to a new 6 month T-Bill. There is no fees, thus the ER is effectively 0. Since BIL has a ER of 0.136%, I should have an outperformance of 0.136% if I implement a similar ladder to match the effective duration of BIL.

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Re: Ultra Short Term Treasury ETFs

Post by Caduceus » Mon Nov 18, 2019 10:20 pm

nisiprius wrote:
Mon Nov 18, 2019 7:28 am
Here are some historical results, assuming a holding period of six months. Because the range of available data isn't the same, results for BIL and SHV shouldn't be directly compared to each other.
That's brilliant, Nisiprius. Thank you so much for taking the time to compile these results for me (and the board). I found it especially helpful (and I've also read your earlier posts on BIL) before entering the ETF.

I would buy VMMXX if I could, but my discount broker charges $40 to buy funds as opposed to ETFs, so I am stuck with using only ETFs for my positions. This broker has significant advantages in other areas, so I'm not looking to change brokers.

On VMMXX, doesn't the outperformance come from the more than 50% holding in Yankee/Foreign? What does that mean? My understanding is that VMMXX holds a significant amount of money in US-denominated debt that's issued by foreign entities. I don't know how to evaluate the credit quality of that versus the basically 100% AAA Treasuries in BIL. Is there no risk at all to this part of VMMXX's portfolio?

Does the analysis change if the rolling period is shorter? BIL tracks the 1-3 month index, and its duration is every shorter than that. VMMXX's duration is also currently shorter. I wonder if your analysis would change at all if we are talking about a 1 or 2 month rolling period. I think BIL has had a shorter duration than VMMXX in the past, so it would not surprise me that there would be 1 month periods in which BIL would outperform VMMXX. BIL seems to be a vehicle for ultra-risk averse investors who need somewhere to park their cash for a month or two, not six months.

I need a space to put cash in for an estimated one - six months. I think if I kept it in cash for as long as six months, VMMXX is as you say almost certain to outperform, but I don't know about a one or two month period.

I was just reading Berkshire Hathaway's quarterly report and I'm amazed at how much money they have (and have recently purchased) in short term treasuries (less than 3 months duration). It seems that over the decades, Berkshire has invested its cash mostly in ultra-short treasuries rather than going farther up the yield curve. (I wonder if that decision was correct in the Great Recession, i.e. ultra short treasuries performed better for capital re-deployment into equities than longer-term bonds, or if your analysis still holds and Berkshire would have still been better holding longer duration bonds). And Berkshire is giving up serious amounts of cash right? If going up the duration from three month treasuries to 1 year treasuries was a no-brainer, Berkshire is throwing away a significant amount of money.

Interested in hearing your thoughts!

the way
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Re: Ultra Short Term Treasury ETFs

Post by the way » Thu Nov 21, 2019 7:26 pm

nisiprius wrote:
Mon Nov 18, 2019 7:28 am
Average additional return above VMMXX, over 143 overlapping 6-month periods: -$3.35
Return in dollars, over 143 overlapping 6-month periods: +$42.10
Real return above inflation, over 143 overlapping 6-month periods: -$46.26
Not sure if SHV/BIL and VMMXX can be compared head-to-head like this if one has state tax implications and the other doesn't.

btw I see ICSH mentioned here all the time in threads on this topic, but I don't know how it compares to VMMXX in terms of duration, liquidity, and risk (probably all worse). But it does have an SEC yield 50 bp higher than SHV, so likely beats VMMXX in a similar analysis as above if we're only going to look at simple dollar returns.

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Re: Ultra Short Term Treasury ETFs

Post by whodidntante » Thu Nov 21, 2019 7:32 pm

the way wrote:
Thu Nov 21, 2019 7:26 pm
nisiprius wrote:
Mon Nov 18, 2019 7:28 am
Average additional return above VMMXX, over 143 overlapping 6-month periods: -$3.35
Return in dollars, over 143 overlapping 6-month periods: +$42.10
Real return above inflation, over 143 overlapping 6-month periods: -$46.26
Not sure if SHV/BIL and VMMXX can be compared head-to-head like this if one has state tax implications and the other doesn't.

btw I see ICSH mentioned here all the time in threads on this topic, but I don't know how it compares to VMMXX in terms of duration, liquidity, and risk (probably all worse). But it does have an SEC yield 50 bp higher than SHV, so likely beats VMMXX in a similar analysis as above if we're only going to look at simple dollar returns.
Well, markets price risk, so if ICSH isn't higher risk in some way, it's an anomaly. However, it might still be an acceptable risk. I don't think anyone will get rich buying it.

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Re: Ultra Short Term Treasury ETFs

Post by Ferdinand2014 » Fri Nov 22, 2019 10:48 am

Caduceus wrote:
Sat Nov 16, 2019 8:50 pm
Ferdinand2014 wrote:
Sat Nov 16, 2019 7:50 am

New treasury announcement day (Tuesday for 4 and 8 week T-Bills) is when they are available for purchase on Fidelity website. It will auction on Thursday and settle on following Tuesday. You can cancel up until Thursday morning day of auction and sell anytime after that. As T-Bills are zero coupon, you buy say $10,000 (10 bonds), but pay say $9,930 and then in 4 weeks, receive full $10,000 back. When you purchase, you have the option of auto roll which keeps rolling into whatever week t-bill you had purchased, but at the new auction coupon rate. It floats you the credit during the 1 week overlap between auctions so you always have availability to cash out.
Thanks, Ferdinand. Are you sure I can sell anytime after buying on Thursday? With equities, I can sell only after the equities settle. And it seems from the Treasury site the issues only settle the following Tuesday. So shouldn't it be that I can only sell the following Tuesday? Or are you sure that I can, for example, buy on Thursday, and sell on Friday (the next day) even before it settles? That just seems odd to me.
I confirmed today. The answer is yes. You can sell a 4 week treasury coupon Friday, purchased at auction on Thursday, even though it settles then following Tuesday. The old 4-week treasury coupon that has matured, but hasn't settled, is still listed under holdings and floats the money to the next treasury until Tuesday. Bottom line is you can sell 4 week t-bills Monday through Friday 8-5pm in $1000 increments uninterrupted and free at Fidelity.
“You only find out who is swimming naked when the tide goes out.“ — Warren Buffett

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Re: Ultra Short Term Treasury ETFs

Post by Caduceus » Fri Nov 22, 2019 11:46 pm

Ferdinand2014 wrote:
Fri Nov 22, 2019 10:48 am
Caduceus wrote:
Sat Nov 16, 2019 8:50 pm
Ferdinand2014 wrote:
Sat Nov 16, 2019 7:50 am

New treasury announcement day (Tuesday for 4 and 8 week T-Bills) is when they are available for purchase on Fidelity website. It will auction on Thursday and settle on following Tuesday. You can cancel up until Thursday morning day of auction and sell anytime after that. As T-Bills are zero coupon, you buy say $10,000 (10 bonds), but pay say $9,930 and then in 4 weeks, receive full $10,000 back. When you purchase, you have the option of auto roll which keeps rolling into whatever week t-bill you had purchased, but at the new auction coupon rate. It floats you the credit during the 1 week overlap between auctions so you always have availability to cash out.
Thanks, Ferdinand. Are you sure I can sell anytime after buying on Thursday? With equities, I can sell only after the equities settle. And it seems from the Treasury site the issues only settle the following Tuesday. So shouldn't it be that I can only sell the following Tuesday? Or are you sure that I can, for example, buy on Thursday, and sell on Friday (the next day) even before it settles? That just seems odd to me.
I confirmed today. The answer is yes. You can sell a 4 week treasury coupon Friday, purchased at auction on Thursday, even though it settles then following Tuesday. The old 4-week treasury coupon that has matured, but hasn't settled, is still listed under holdings and floats the money to the next treasury until Tuesday. Bottom line is you can sell 4 week t-bills Monday through Friday 8-5pm in $1000 increments uninterrupted and free at Fidelity.
Thank you - this is much appreciated.

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