Buying T-bills at Fidelity

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student
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Buying T-bills at Fidelity

Post by student »

I just entered an order of T-bills at Fidelity and now I am worried. I made sure that I entered quantity is 1 bond (equals $1000 face value). When I looked at the order page, it says quantity 1000.00. I hope this means $1000 and not 1000 bonds. I am waiting to speak to someone. Anybody knows the answer?
frugalecon
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Re: Buying T-bills at Fidelity

Post by frugalecon »

student wrote: Tue May 10, 2022 3:56 pm I just entered an order of T-bills at Fidelity and now I am worried. I made sure that I entered quantity is 1 bond (equals $1000 face value). When I looked at the order page, it says quantity 1000.00. I hope this means $1000 and not 1000 bonds. I am waiting to speak to someone. Anybody knows the answer?
Unless you have $1 million of cash in your account, I don’t think it would let you buy 1000 bonds. I think everything will be fine.
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student
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Re: Buying T-bills at Fidelity

Post by student »

frugalecon wrote: Tue May 10, 2022 3:57 pm
student wrote: Tue May 10, 2022 3:56 pm I just entered an order of T-bills at Fidelity and now I am worried. I made sure that I entered quantity is 1 bond (equals $1000 face value). When I looked at the order page, it says quantity 1000.00. I hope this means $1000 and not 1000 bonds. I am waiting to speak to someone. Anybody knows the answer?
Unless you have $1 million of cash in your account, I don’t think it would let you buy 1000 bonds. I think everything will be fine.
Thanks. You gave me an idea. I went in the system and attempt to buy 5 more bonds. It says I don't have enough money. lol. I am still on the phone. I will give it 30 more minutes. Then I will give up.
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HueyLD
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Re: Buying T-bills at Fidelity

Post by HueyLD »

Shouldn’t it say “ value” of $1,000 instead of quantity of 1000?
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student
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Re: Buying T-bills at Fidelity

Post by student »

HueyLD wrote: Tue May 10, 2022 4:10 pm Shouldn’t it say “ value” of $1,000 instead of quantity of 1000?
It says "quantity: 1000.00" with no dollar sign. That's why I am worried.
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student
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Re: Buying T-bills at Fidelity

Post by student »

Thanks for the responses. I just talked to Fidelity and the person confirmed that I did it correctly.
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Re: Buying T-bills at Fidelity

Post by oldcomputerguy »

I bought some brokered CDs from Fidelity some time back. As I recall it did the same thing there (listed quantity where I thought it should have listed cost). The purchase turned out just as I intended, so I think you're okay.
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student
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Re: Buying T-bills at Fidelity

Post by student »

oldcomputerguy wrote: Tue May 10, 2022 4:41 pm I bought some brokered CDs from Fidelity some time back. As I recall it did the same thing there (listed quantity where I thought it should have listed cost). The purchase turned out just as I intended, so I think you're okay.
Thanks.
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Re: Buying T-bills at Fidelity

Post by Hebell »

I went through the same worry as you, the first time. It was unsettling.
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Re: Buying T-bills at Fidelity

Post by student »

Hebell wrote: Tue May 10, 2022 10:01 pm I went through the same worry as you, the first time. It was unsettling.
I am glad that I am not the only one who is paranoid.
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Re: Buying T-bills at Fidelity

Post by RetiredAL »

student wrote: Tue May 10, 2022 3:56 pm I just entered an order of T-bills at Fidelity and now I am worried. I made sure that I entered quantity is 1 bond (equals $1000 face value). When I looked at the order page, it says quantity 1000.00. I hope this means $1000 and not 1000 bonds. I am waiting to speak to someone. Anybody knows the answer?
That is correct. 1 shows as pending order Qty 1000. Seems stupid, but that is how it shows on the order status screen.

Remember, these are T-Bills, which are zero coupon. The 1000 is face value, the actual purchase will be less, say around $997 if you bought a 13-week bill or around $992 for a 26-week bill. The actual price is set by the auction.
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Re: Buying T-bills at Fidelity

Post by student »

RetiredAL wrote: Wed May 11, 2022 1:21 am
student wrote: Tue May 10, 2022 3:56 pm I just entered an order of T-bills at Fidelity and now I am worried. I made sure that I entered quantity is 1 bond (equals $1000 face value). When I looked at the order page, it says quantity 1000.00. I hope this means $1000 and not 1000 bonds. I am waiting to speak to someone. Anybody knows the answer?
That is correct. 1 shows as pending order Qty 1000. Seems stupid, but that is how it shows on the order status screen.

Remember, these are T-Bills, which are zero coupon. The 1000 is face value, the actual purchase will be less, say around $997 if you bought a 13-week bill or around $992 for a 26-week bill. The actual price is set by the auction.
Thanks for the info.
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Re: Buying T-bills at Fidelity

Post by student »

Another update. Order executed. The email that I got is

Your order to BUY: 1000.00 bonds of 912796XV6 was FILLED.
Filled: 1000.00 bonds @ $99.62
Execution Time: 11:40 a.m. ET

So 1 bond with face value $1000. It lists as 1000.00 bonds that I mentioned in my OP. The "unit price" is $99.62 which is per $100. So they are using 3 difference units.
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Harry Livermore
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Re: Buying T-bills at Fidelity

Post by Harry Livermore »

student wrote: Wed May 11, 2022 12:47 pm Another update. Order executed. The email that I got is

Your order to BUY: 1000.00 bonds of 912796XV6 was FILLED.
Filled: 1000.00 bonds @ $99.62
Execution Time: 11:40 a.m. ET

So 1 bond with face value $1000. It lists as 1000.00 bonds that I mentioned in my OP. The "unit price" is $99.62 which is per $100. So they are using 3 difference units.
Wow. Confusing as heck.
Cheers
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Re: Buying T-bills at Fidelity

Post by johnegonpdx »

As someone about to ladder bonds at Fidelity, I thank you for this scouting report.
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Re: Buying T-bills at Fidelity

Post by longlife »

I have been buying T-bills on Fidelity recently too and had the same question before. I agree without the $ it's quite confusing. I think it's same for CDs too.
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Re: Buying T-bills at Fidelity

Post by student »

longlife wrote: Sat Jun 18, 2022 7:32 pm I have been buying T-bills on Fidelity recently too and had the same question before. I agree without the $ it's quite confusing. I think it's same for CDs too.
The CS person that I talked to gave me a tip. If it has two decimal points, it usually means dollar amount.
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Re: Buying T-bills at Fidelity

Post by Retirement_Life »

Long-time Fidelity investor, but new to fixed income investing. Dipped my toe into buying treasures on Fidelity site. Purchased 1-year (details below). Trying to figure out what my personal total return will be. Before purchasing, I did get call Fidelity to help me understand the process and terminology. I purchased $10,000 at a price of $98.1750 on 22 June 2022. Details below.

UNITED STATES TREAS SER N-2023 NTS NOTE
WE HAVE ACTED AS PRINCIPAL.
COUPON 1.25000% MATURITY DATE
07/31/2023
CURRENT YIELD 1.273200
YIELD TO MATURITY 2.935790%
MOODY'S AAA , STANDARD & POOR – NR
INTEREST PAID SEMI-ANNUALLY

Principal Amount 9,817.50
Interest 49.03
Settlement Amount 9,866.53

So, if my all-in price was $9866.53, then at maturity, I would receive $10,000 (a gain of $133.47), correct? Plus, the coupon rate of 1.25% (on $10,000?) for approximately 13 months (22 June 2022 to 31 July 2023) for an amount approximately $135. So, my total gain would be approximately $133.47 + $135 = $268.47. So, about a 2.685% personal return on my investment. Is this the correct way to think of this?
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Re: Buying T-bills at Fidelity

Post by evelynmanley »

student wrote: Tue May 10, 2022 3:56 pm I just entered an order of T-bills at Fidelity and now I am worried. I made sure that I entered quantity is 1 bond (equals $1000 face value). When I looked at the order page, it says quantity 1000.00. I hope this means $1000 and not 1000 bonds. I am waiting to speak to someone. Anybody knows the answer?
I had the same question in a recent thread, and several Bogleheads, especially Kevin M, walked me through it:

viewtopic.php?p=6662541#p6662541
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Re: Buying T-bills at Fidelity

Post by student »

evelynmanley wrote: Wed Jun 22, 2022 10:31 am
student wrote: Tue May 10, 2022 3:56 pm I just entered an order of T-bills at Fidelity and now I am worried. I made sure that I entered quantity is 1 bond (equals $1000 face value). When I looked at the order page, it says quantity 1000.00. I hope this means $1000 and not 1000 bonds. I am waiting to speak to someone. Anybody knows the answer?
I had the same question in a recent thread, and several Bogleheads, especially Kevin M, walked me through it:

viewtopic.php?p=6662541#p6662541
This has been resolved upthread.
LittleMaggieMae
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Re: Buying T-bills at Fidelity

Post by LittleMaggieMae »

Any answer to this from Retirement_Life's post?
So, if my all-in price was $9866.53, then at maturity, I would receive $10,000 (a gain of $133.47), correct? Plus, the coupon rate of 1.25% (on $10,000?) for approximately 13 months (22 June 2022 to 31 July 2023) for an amount approximately $135. So, my total gain would be approximately $133.47 + $135 = $268.47. So, about a 2.685% personal return on my investment. Is this the correct way to think of this?
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Re: Buying T-bills at Fidelity

Post by gobel »

LittleMaggieMae wrote: Wed Jun 22, 2022 12:28 pm Any answer to this from Retirement_Life's post?
So, if my all-in price was $9866.53, then at maturity, I would receive $10,000 (a gain of $133.47), correct? Plus, the coupon rate of 1.25% (on $10,000?) for approximately 13 months (22 June 2022 to 31 July 2023) for an amount approximately $135. So, my total gain would be approximately $133.47 + $135 = $268.47. So, about a 2.685% personal return on my investment. Is this the correct way to think of this?
They should receive 3 interest payments of 62.50 each (not 13 months interest). If they enter that into excel and use XIRR, they can find their annualized internal rate of return. (I'm not sure if that'll just work out to be the YIELD TO MATURITY that they were quoted, but it'll be close)
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Re: Buying T-bills at Fidelity

Post by ModifiedDuration »

gobel wrote: Wed Jun 22, 2022 1:43 pm
LittleMaggieMae wrote: Wed Jun 22, 2022 12:28 pm Any answer to this from Retirement_Life's post?
So, if my all-in price was $9866.53, then at maturity, I would receive $10,000 (a gain of $133.47), correct? Plus, the coupon rate of 1.25% (on $10,000?) for approximately 13 months (22 June 2022 to 31 July 2023) for an amount approximately $135. So, my total gain would be approximately $133.47 + $135 = $268.47. So, about a 2.685% personal return on my investment. Is this the correct way to think of this?
They should receive 3 interest payments of 62.50 each (not 13 months interest). If they enter that into excel and use XIRR, they can find their annualized internal rate of return. (I'm not sure if that'll just work out to be the YIELD TO MATURITY that they were quoted, but it'll be close)
They will receive 3 interest payments of $62.50, but they paid $49.03 for accrued interest at settlement.

So, they will earn the $133.47 of discount plus $138.47 of interest payments ($62.50 x 3, less $49.03), or $271.94 in total.
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Re: Buying T-bills at Fidelity

Post by Retirement_Life »

Thank you. Now, I understand about the 3 semiannual interest payments minus the accrued interest paid to the seller.
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Re: Buying T-bills at Fidelity

Post by Retirement_Life »

So, the 271.94 profit on 10k bond held for about 13 months (from settlement date to maturity date) is about 2.72% or about 2.5% annualized return. Considerably different from the 2.96% YTM
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Re: Buying T-bills at Fidelity

Post by gobel »

Retirement_Life wrote: Sat Jul 02, 2022 4:43 pm So, the 271.94 profit on 10k bond held for about 13 months (from settlement date to maturity date) is about 2.72% or about 2.5% annualized return. Considerably different from the 2.96% YTM
You guys are double counting the accrued interest. You will get back 62.50 x3 + 10000. You paid 9866.53. The difference is your profit. To calculate the annualized return, enter these cashflows and dates into excel and use =XIRR

6/22/22 -9866.53
7/31/22 62.50
1/31/23 62.50
7/31/23 10062.50

or just trust the quote. They are never wrong.
Last edited by gobel on Sat Jul 02, 2022 11:06 pm, edited 1 time in total.
Retirement_Life
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Re: Buying T-bills at Fidelity

Post by Retirement_Life »

Thanks. This is all new to me. It just seems that shopping for new issue CDs on Fidelity is more straightforward. I pick a duration and interest rate, and I more easily can determine the ROI. I’ve been buying both treasuries and CDs to understand the process better.
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Re: Buying T-bills at Fidelity

Post by ModifiedDuration »

The discount on the bond is actually $182.50 ($10,000 less the price of $9,817.50) plus interest of about $138.47.

So, you are making about $320.97 on $9,817.50 or about 3.27% over the 13 months.

About 3.0% annualized and that is about as close as you will get using this simplistic method.
Retirement_Life
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Re: Buying T-bills at Fidelity

Post by Retirement_Life »

Thank you. From a bond perspective, I agree with the approximate 3% annual return based solely on the discount and remaining interest earned. However, the cost basis did include the accrued interest. So from a cost basis versus perspective, the annual return is more like 2.6%. Unless I’m totally misunderstanding. All things being equal, I find the CD purchase process more straightforward and easier to determine what I’m getting. I find this all very interesting and educational. I enjoy learning from this forum.
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Re: Buying T-bills at Fidelity

Post by ModifiedDuration »

Retirement_Life wrote: Sat Jul 02, 2022 10:36 pm Thank you. From a bond perspective, I agree with the approximate 3% annual return based solely on the discount and remaining interest earned. However, the cost basis did include the accrued interest. So from a cost basis versus perspective, the annual return is more like 2.6%. Unless I’m totally misunderstanding. All things being equal, I find the CD purchase process more straightforward and easier to determine what I’m getting. I find this all very interesting and educational. I enjoy learning from this forum.
Your cost basis in the bond does not include the accrued interest.

The accrued interest is what the bond has earned since the last interest payment date and what you owe the seller for the interest they have earned since the last interest payment, since you are the one who will get the next actual next interest payment.

Stated another way: if the bond last paid interest on December 31, the seller is owed the interest from that date until the date you buy. You are paying them that accrued interest amount when you buy the bond.

When you receive the actual interest payment, part of the payment is what the seller has earned while holding the bond (the accrued interest you paid him) and the rest will be your interest earned since buying the bond.

Your cost basis in the bond is only the $9,817.50 that you actually paid for the bond.
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