Trading Treasuries (nominal and TIPS)

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david9117
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Re: Trading Treasuries (nominal and TIPS)

Post by david9117 »

If yields are not different.....Why does treasury have a reopening instead of a new auction. Easier book keeping ?
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Kevin M
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Re: Trading Treasuries (nominal and TIPS)

Post by Kevin M »

This morning I placed a buy order for 10 of 912828VM9, TIPS maturing 7/15/2023 at a price of 102.50. It was not filled, and was cancelled by Fidelity in less than 30 minutes. I resubmitted the order at 102.507, and it was filled in 6 seconds at that price. Again, I cannot edit the prices--I must accept what Fidelity offers for my quantity.

Lesson: place orders earlier in the day so you have time to resubmit the order if it is cancelled without being filled.

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Re: Buying T-Bills at Auction on Fidelity - Confounding Figures?

Post by FactualFran »

Elmo wrote: Wed Jun 22, 2022 9:48 am How can they use the same CUSIP if all the people buying at the new auction (when it is a 13 week new Bill issue) are getting the NEW auction price and still be using the same CUSIP for someone who bought it, say 13 weeks ago when it was a 26 week Bill, and has/d a different price. Something seems odd to me and I want to understand before I make a purchase.
In general, if the result of a Treasury auction is that the security being auctioned has the same interest rate and maturity date as an existing Treasury security, then the auction issues more of the existing security (with the existing CUSIP) rather than issuing a new security.

The interest rate and maturity date of a T-bill auction are known prior to the auction. The interest rate is zero.

The interest rate of Treasury T-notes and T-bonds are established by the competitive bids of an auction. The result of an auction can be that the security being auctioned has the same interest rate and maturity date as an existing security.

For example, there was an auction of 5-year T-notes on 01/25/2022 to mature on 01/31/2027. The interest rate established by the competitive bids was 1.5%. Because an existing Treasury security (CUSIP 912828Z78, originally auctioned as a 7-year T-note) had the same interest rate and maturity date, more of the existing security were issued for the auction of 5-year T-notes.
Last edited by FactualFran on Wed Jun 22, 2022 12:34 pm, edited 1 time in total.
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Re: Trading Treasuries (nominal and TIPS)

Post by Kevin M »

For about 5 minutes, Vanguard's bond and cd quick search page came up blank. Now, the search screen comes up, but when I search on all Treasuries, no offerings match my search criteria. I am trying to place an order and can't. Hopefully will be fixed soon.
If I make a calculation error, #Cruncher probably will let me know.
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Re: Buying T-Bills at Auction on Fidelity - Confounding Figures?

Post by Elmo »

Kevin M wrote: Wed Jun 22, 2022 11:52 am
Elmo wrote: Wed Jun 22, 2022 10:25 am I think I understand that at auction Treasury will set the price and I will purchase it from Treasury. Then 2 minutes or hours later when the bill reprices on the secondary market it will continue to fluctuate and then at maturity be paid the par. Gotcha, new light dawning I think. So simple once you understand. Ha Ha
You really don't have to worry about this. Even though what was the 26-week bill is being auctioned as a 13-week bill, everyone gets the same price/yield at auction, so you will too.

I just bought some of the 13-week on secondary that was auctioned today, since I did not get in on the auction. I paid a slightly higher price. Yield at auction was 1.700%, and I got something like 1.6%, but I only decided today that I wanted to add that to the ladder in that account. I noticed that the bid price was slightly higher than the auction price, so institutional traders are making money by selling what they bought at auction for a small profit.

I have bought before on secondary at slightly higher yield than at auction, so it could go either way.

Kevin
Thank you all for hanging in there with me until I understood and clarifying.

I called Fidelity and the rep in Fixed Income showed me how to look for what I want in secondary market and I've looked enough now it is starting to make sense.

I did forget to ask how Fidelity is making money on this though if they aren't charging for the buy trades. Do you pay a fee for selling? If not are counting on you having money in their low yielding money market funds/core accounts when not invested and it more than balances out the work effort involved on the treasuries?

Elmo
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Re: Trading Treasuries (nominal and TIPS)

Post by rbd789 »

Kevin M wrote: Wed Jun 22, 2022 12:28 pm For about 5 minutes, Vanguard's bond and cd quick search page came up blank. Now, the search screen comes up, but when I search on all Treasuries, no offerings match my search criteria. I am trying to place an order and can't. Hopefully will be fixed soon.
I experienced this yesterday and finally gave up. I was surprised, as I generally have not had issues with the Vanguard site.
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REQUEST HELP WITH PROBLEM

Post by mur44 »

I deposited a BANK check (from CD that matured) into my checking account last Friday, 6/17/2022.
The Bank put a 6-day hold for a random reason and the bank is not helpful.

I placed an order to purchase 26-week Treasury bill last Saturday, 6/18/2022.
Tomorrow, Treasury Direct will try to collect funds from my checking account.
Can I cancel the order today at Treasury Direct. Any ideas as to how to handle this problem?

Thanks in advance.

mur44
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Re: Trading Treasuries (nominal and TIPS)

Post by Kevin M »

rbd789 wrote: Wed Jun 22, 2022 1:08 pm
Kevin M wrote: Wed Jun 22, 2022 12:28 pm For about 5 minutes, Vanguard's bond and cd quick search page came up blank. Now, the search screen comes up, but when I search on all Treasuries, no offerings match my search criteria. I am trying to place an order and can't. Hopefully will be fixed soon.
I experienced this yesterday and finally gave up. I was surprised, as I generally have not had issues with the Vanguard site.
Went for a quick swim, and now it's working again. Was able to place my order for 21 of 912796U56, bill maturing 9/22/2022. Did not get as good of a price as my earlier order for this at Fidelity, but close enough.

Auction price was 99.577861, which comes to 9,957.79 for $10K face.

First purchase for 10 at Fidelity on secondary was at 99.6055, so 9,960.55 per $10K, or $2.76 over auction.

Second purchase for 21 at Vanguard (finally) on secondary was 99.61072222 or 9,961.07 per $10K and 20,918.25 for 21 so $6.90 more than at auction. Why 21? This person has 3 beneficiaries, so am trying to order quantities in multiples of 3, having been through settling an estate where the securities were not evenly divisible by number of beneficiaries; tt wasn't terrible, but had to do some distributions that weren't exactly equal (with help from Vanguard).

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Re: Buying T-Bills at Auction on Fidelity - Confounding Figures?

Post by squirrel1963 »

Elmo wrote: Wed Jun 22, 2022 1:04 pm
Kevin M wrote: Wed Jun 22, 2022 11:52 am
Elmo wrote: Wed Jun 22, 2022 10:25 am I think I understand that at auction Treasury will set the price and I will purchase it from Treasury. Then 2 minutes or hours later when the bill reprices on the secondary market it will continue to fluctuate and then at maturity be paid the par. Gotcha, new light dawning I think. So simple once you understand. Ha Ha
You really don't have to worry about this. Even though what was the 26-week bill is being auctioned as a 13-week bill, everyone gets the same price/yield at auction, so you will too.

I just bought some of the 13-week on secondary that was auctioned today, since I did not get in on the auction. I paid a slightly higher price. Yield at auction was 1.700%, and I got something like 1.6%, but I only decided today that I wanted to add that to the ladder in that account. I noticed that the bid price was slightly higher than the auction price, so institutional traders are making money by selling what they bought at auction for a small profit.

I have bought before on secondary at slightly higher yield than at auction, so it could go either way.

Kevin
Thank you all for hanging in there with me until I understood and clarifying.

I called Fidelity and the rep in Fixed Income showed me how to look for what I want in secondary market and I've looked enough now it is starting to make sense.

I did forget to ask how Fidelity is making money on this though if they aren't charging for the buy trades. Do you pay a fee for selling? If not are counting on you having money in their low yielding money market funds/core accounts when not invested and it more than balances out the work effort involved on the treasuries?

Elmo

There is a transaction fee which is built into the price you get. So your ASK price when you buy will be a bit higher than compared to a large transaction. Likewise when you sell your BID price will be lower.
Unfortunately this is not very transparent.
I just bought TIPS last week from Schwab, I then compared my purchase price with WSJ prices on the same day and found the transaction cost to be in the 0.3% range, see this post for details :

viewtopic.php?p=6737584#p6737584
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Re: Buying T-Bills at Auction on Fidelity - Confounding Figures?

Post by Kevin M »

squirrel1963 wrote: Wed Jun 22, 2022 1:32 pm There is a transaction fee which is built into the price you get. So your ASK price when you buy will be a bit higher than compared to a large transaction. Likewise when you sell your BID price will be lower.
Unfortunately this is not very transparent.
I just bought TIPS last week from Schwab, I then compared my purchase price with WSJ prices on the same day and found the transaction cost to be in the 0.3% range, see this post for details :

viewtopic.php?p=6737584#p6737584
Based on the transcript of the Fidelity presentation on fixed income pricing at Fidelity, this does not seem to be true. They do have a small inventory, but they also put your order out to the large dealers who are the market makers, and you get whatever price they are offering (if your order gets filled). So the market makers make a profit on the bid/ask spread, and Fidelity would make a profit on it if your order is filled from their inventory. Fidelity adds no markup or fee. According to the Fidelity presentation, this is all quite transparent. You should read it.

I haven't found details on what dealers/brokers are included in the quotes WSJ publishes. For example, primary dealers trade amongst themselves, so if their prices are included, I would think they'd be better than the prices offered at the brokers.

Kevin
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protagonist
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Re: Buying T-Bills at Auction on Fidelity - Confounding Figures?

Post by protagonist »

squirrel1963 wrote: Wed Jun 22, 2022 1:32 pm
Elmo wrote: Wed Jun 22, 2022 1:04 pm
Kevin M wrote: Wed Jun 22, 2022 11:52 am
Elmo wrote: Wed Jun 22, 2022 10:25 am I think I understand that at auction Treasury will set the price and I will purchase it from Treasury. Then 2 minutes or hours later when the bill reprices on the secondary market it will continue to fluctuate and then at maturity be paid the par. Gotcha, new light dawning I think. So simple once you understand. Ha Ha
You really don't have to worry about this. Even though what was the 26-week bill is being auctioned as a 13-week bill, everyone gets the same price/yield at auction, so you will too.

I just bought some of the 13-week on secondary that was auctioned today, since I did not get in on the auction. I paid a slightly higher price. Yield at auction was 1.700%, and I got something like 1.6%, but I only decided today that I wanted to add that to the ladder in that account. I noticed that the bid price was slightly higher than the auction price, so institutional traders are making money by selling what they bought at auction for a small profit.

I have bought before on secondary at slightly higher yield than at auction, so it could go either way.

Kevin
Thank you all for hanging in there with me until I understood and clarifying.

I called Fidelity and the rep in Fixed Income showed me how to look for what I want in secondary market and I've looked enough now it is starting to make sense.

I did forget to ask how Fidelity is making money on this though if they aren't charging for the buy trades. Do you pay a fee for selling? If not are counting on you having money in their low yielding money market funds/core accounts when not invested and it more than balances out the work effort involved on the treasuries?

Elmo

There is a transaction fee which is built into the price you get. So your ASK price when you buy will be a bit higher than compared to a large transaction. Likewise when you sell your BID price will be lower.
Unfortunately this is not very transparent.
I just bought TIPS last week from Schwab, I then compared my purchase price with WSJ prices on the same day and found the transaction cost to be in the 0.3% range, see this post for details :

viewtopic.php?p=6737584#p6737584
I just compared the TIPS yield maturing on 4/15/27 between Fidelity's secondary market page and auction page (tomorrow's 5- year reopening auction), and the expected Treasury price.
Secondary market page ask (Fidelity): .438 (price 98.508)
Tomorrow's auction expected (Fidelity): .437
Expected yield via the Treasury (Bloomberg): .46 https://www.bloomberg.com/markets/rates ... t-bonds/us

Not a significant difference (I am assuming you get the same price buying at auction from Fidelity as you would via the Treasury, correct?)
.023% difference via Fidelity equates to ~$2.30/yr interest/$10K invested. Not something I would worry about.
Last edited by protagonist on Wed Jun 22, 2022 2:06 pm, edited 1 time in total.
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Re: Trading Treasuries (nominal and TIPS)

Post by protagonist »

Kevin, if the Fed raises rates again by 75 points as expected in July, do you think that is already priced into the current yields on TIPS, or do you think that the yields will rise significantly again in July following the announcement (based on experience)?

I am asking because I expect to have more cash to invest in July and wonder whether to wait.
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Re: Buying T-Bills at Auction on Fidelity - Confounding Figures?

Post by Kevin M »

protagonist wrote: Wed Jun 22, 2022 1:56 pm I just compared the TIPS yield maturing on 4/15/27 between Fidelity's secondary market page and auction page (tomorrow's 5- year reopening auction), and the expected Treasury price.
Secondary market page: .438 (price 98.508)
Tomorrow's auction expected: .437
Expected yield via the Treasury (Bloomberg): .46 https://www.bloomberg.com/markets/rates ... t-bonds/us

Not a significant difference (I am assuming you get the same price buying at auction from Fidelity as you would via the Treasury, correct?)
.023% difference via Fidelity equates to ~$2.30/yr interest/$10K invested. Not something I would worry about.
Correct; everyone gets the same price at auction, regardless of whether they are a primary dealer who submitted a competitive bid, or someone who bought $100 worth at TD, or someone who bought any amount at a broker that charges no commissions or fees.

The expected yield is based on secondary market quotes. No one really knows what it will be.

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Re: Trading Treasuries (nominal and TIPS)

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protagonist wrote: Wed Jun 22, 2022 2:02 pm Kevin, if the Fed raises rates again by 75 points as expected in July, do you think that is already priced into the current yields on TIPS, or do you think that the yields will rise significantly again in July following the announcement (based on experience)?

I am asking because I expect to have more cash to invest in July and wonder whether to wait.
I think it's already priced into everything pretty much. That doesn't mean that the yields couldn't increase more in July. And then they could come back down, like they basically have over the last week or so.

The standard BH approach is to buy when you have the money. I am not doing that. I have been sitting on cash while yields were super low, and am gradually moving that cash into fixed income as I've discussed. Moved quite a lot in since May. Yes, this is market timing, so what I do may not be the right thing for others to do (certainly not by BH consensus).

Kevin
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Re: Trading Treasuries (nominal and TIPS)

Post by Doc »

protagonist wrote: Wed Jun 22, 2022 2:02 pm Kevin, if the Fed raises rates again by 75 points as expected in July, do you think that is already priced into the current yields on TIPS ...
Kevin M wrote: Wed Jun 22, 2022 2:05 pm The expected yield is based on secondary market quotes. No one really knows what it will be.
I'm looking at nominals not TIPS but the "street" is predicting 75 BPS or maybe 50. So what. I'm waiting. I'll get at least get the 50.
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Re: Trading Treasuries (nominal and TIPS)

Post by jeffyscott »

Doc wrote: Wed Jun 22, 2022 2:37 pm
protagonist wrote: Wed Jun 22, 2022 2:02 pm Kevin, if the Fed raises rates again by 75 points as expected in July, do you think that is already priced into the current yields on TIPS ...
Kevin M wrote: Wed Jun 22, 2022 2:05 pm The expected yield is based on secondary market quotes. No one really knows what it will be.
I'm looking at nominals not TIPS but the "street" is predicting 75 BPS or maybe 50. So what. I'm waiting. I'll get at least get the 50.
50 on what? Longer term bonds should already have incorporated (most of) an expected 75 BP increase. If you are waiting to invest in 4 or 8 week bills at a higher rate, where is they money while you wait.

But a somewhat related question, with the current target at 1.5-1.75%, why is the 1 month treasury rate at only 1.08%?
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Re: Buying T-Bills at Auction on Fidelity - Confounding Figures?

Post by squirrel1963 »

Kevin M wrote: Wed Jun 22, 2022 1:52 pm
squirrel1963 wrote: Wed Jun 22, 2022 1:32 pm There is a transaction fee which is built into the price you get. So your ASK price when you buy will be a bit higher than compared to a large transaction. Likewise when you sell your BID price will be lower.
Unfortunately this is not very transparent.
I just bought TIPS last week from Schwab, I then compared my purchase price with WSJ prices on the same day and found the transaction cost to be in the 0.3% range, see this post for details :

viewtopic.php?p=6737584#p6737584
Based on the transcript of the Fidelity presentation on fixed income pricing at Fidelity, this does not seem to be true. They do have a small inventory, but they also put your order out to the large dealers who are the market makers, and you get whatever price they are offering (if your order gets filled). So the market makers make a profit on the bid/ask spread, and Fidelity would make a profit on it if your order is filled from their inventory. Fidelity adds no markup or fee. According to the Fidelity presentation, this is all quite transparent. You should read it.

I haven't found details on what dealers/brokers are included in the quotes WSJ publishes. For example, primary dealers trade amongst themselves, so if their prices are included, I would think they'd be better than the prices offered at the brokers.

Kevin

Thanks for correcting me, I need to read that transcript again. So this means that the 0.3% I paid compared to WSJ is simply the higher ASK on account of my trades being very small (10-30 bonds)?

Edit: sometimes in the next couple weeks I'll buy more TIPS from Fidelity, it'll be interesting to see if I get similar pricing compared to WSJ.
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Fidelity quotes vs WSJ quotes

Post by Kevin M »

squirrel1963 wrote: Wed Jun 22, 2022 3:24 pm Thanks for correcting me, I need to read that transcript again. So this means that the 0.3% I paid compared to WSJ is simply the higher ASK on account of my trades being very small (10-30 bonds)?
No, not compared to say 100, 500, or 1,000 on secondary. This is what I call the large/small-qty spread, and it has typically been less than one basis point for nominals, and maybe slightly higher for TIPS. Certainly not 30 basis points. However, maybe compared to 100,000 or other really large quantities that are traded institutionally. The large/small-qty spread is the only thing I check.
squirrel1963 wrote: Wed Jun 22, 2022 3:24 pm Edit: sometimes in the next couple weeks I'll buy more TIPS from Fidelity, it'll be interesting to see if I get similar pricing compared to WSJ.
Why? You can't buy TIPS from WSJ. If anyone can find out what dealers or brokers are included in the source of their quotes, I'd like to hear about it, especially if there is visibility to the quotes. I can only find the name of the data service they use for their quotes.

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Re: Trading Treasuries (nominal and TIPS)

Post by Kevin M »

jeffyscott wrote: Wed Jun 22, 2022 3:10 pm But a somewhat related question, with the current target at 1.5-1.75%, why is the 1 month treasury rate at only 1.08%?
The 1-month tends to lag a bit, then catch up. The 3-month seems to anticipate the FFR increase more..

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Re: Buying T-Bills at Auction on Fidelity - Confounding Figures?

Post by jeffyscott »

squirrel1963 wrote: Wed Jun 22, 2022 3:24 pm
Kevin M wrote: Wed Jun 22, 2022 1:52 pm
squirrel1963 wrote: Wed Jun 22, 2022 1:32 pm There is a transaction fee which is built into the price you get. So your ASK price when you buy will be a bit higher than compared to a large transaction. Likewise when you sell your BID price will be lower.
Unfortunately this is not very transparent.
I just bought TIPS last week from Schwab, I then compared my purchase price with WSJ prices on the same day and found the transaction cost to be in the 0.3% range, see this post for details :

viewtopic.php?p=6737584#p6737584
Based on the transcript of the Fidelity presentation on fixed income pricing at Fidelity, this does not seem to be true. They do have a small inventory, but they also put your order out to the large dealers who are the market makers, and you get whatever price they are offering (if your order gets filled). So the market makers make a profit on the bid/ask spread, and Fidelity would make a profit on it if your order is filled from their inventory. Fidelity adds no markup or fee. According to the Fidelity presentation, this is all quite transparent. You should read it.

I haven't found details on what dealers/brokers are included in the quotes WSJ publishes. For example, primary dealers trade amongst themselves, so if their prices are included, I would think they'd be better than the prices offered at the brokers.

Kevin

Thanks for correcting me, I need to read that transcript again. So this means that the 0.3% I paid compared to WSJ is simply the higher ASK on account of my trades being very small (10-30 bonds)?

Edit: sometimes in the next couple weeks I'll buy more TIPS from Fidelity, it'll be interesting to see if I get similar pricing compared to WSJ.
On the Treasury quotes page they say:
Treasury note and bond data are representative over-the-counter quotations as of 3pm Eastern time.

While that's not on the TIPS page, presumably it applies to those as well. So unless you are always buying at 3 PM eastern, you can't really use those to determine your price difference.

(Also anyone looking at those should be aware that the part of the price to the right of the decimal point is in 32nds, not cents)
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Re: Trading Treasuries (nominal and TIPS)

Post by protagonist »

Kevin M wrote: Wed Jun 22, 2022 2:09 pm
protagonist wrote: Wed Jun 22, 2022 2:02 pm Kevin, if the Fed raises rates again by 75 points as expected in July, do you think that is already priced into the current yields on TIPS, or do you think that the yields will rise significantly again in July following the announcement (based on experience)?

I am asking because I expect to have more cash to invest in July and wonder whether to wait.
I think it's already priced into everything pretty much. That doesn't mean that the yields couldn't increase more in July. And then they could come back down, like they basically have over the last week or so.

The standard BH approach is to buy when you have the money. I am not doing that. I have been sitting on cash while yields were super low, and am gradually moving that cash into fixed income as I've discussed. Moved quite a lot in since May. Yes, this is market timing, so what I do may not be the right thing for others to do (certainly not by BH consensus).

Kevin
I agree with your approach.

I think market timing probably does not tend to work when dealing with the stock market, which is a complex, emergent phenomenon with too many unknown and unpredictable variables to make sense of trends.

On the other hand, I think there is a certain degree, (I don't know how high), of predictability in the bond market. The Fed. interest rates are manipulated by humans in response to a handful of known variables...those variables are limited in number and scope and within the scope of understanding by the people making the decisions, as well as, to an extent, us. So in the face of inflation, relatively low unemployment, a fairly robust economy and extremely low interest rates (recently historic lows), we can expect the Fed. to probably raise their interest rates , which they even acknowledge they plan to do....thus bond values will probably respond and go down and yields go up. Of course, anybody or everybody could be wrong, since we don't know what unexpected things can happen in the future, but really we only have to be right over 50% of the time to make a good, informed, binary "market timing" decision (buy or don't buy).

Does my thinking make sense to you? I am not an economist or finance expert...but I have a decent layman's understanding of complexity theory and that is my take on things.

The problem with waiting is that at the current level of inflation and cash earning 0-1%, one month's waiting on cash can equate to a loss of around 0.7% profit for the year. So whether to jump in becomes a more complex call. I think I will spread out my buying like you are doing .... but not too much given the large current discrepancy between bank rates and TIPS composite yields.

And based on what I learned from you, if I understand correctly, it seems that there would be little if anything to gain by participating in tomorrow's auction, as opposed to buying at leisure on the secondary market, so that takes the pressure off.
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Re: Trading Treasuries (nominal and TIPS)

Post by Doc »

jeffyscott wrote: Wed Jun 22, 2022 3:10 pm 50 on what? Longer term bonds should already have incorporated (most of) an expected 75 BP increase. If you are waiting to invest in 4 or 8 week bills at a higher rate, where is they money while you wait.
In the news this week I saw the expected discount rate to rise some 75 bps at the next FOMC meeting. A few weeks or so ago I was seeing only 50.
jeffyscott wrote: Wed Jun 22, 2022 3:10 pm But a somewhat related question, with the current target at 1.5-1.75%, why is the 1 month treasury rate at only 1.08%?
I'm seeing a US Discount rate of 1.75%. I'm seeing the 8/25/22 bill at 1.280%.

What target rate are you addressing?
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Re: Trading Treasuries (nominal and TIPS)

Post by Itster »

Kevin M wrote: Wed Jun 22, 2022 12:18 am
GetSmarter wrote: Tue Jun 21, 2022 9:28 pm Thanks, I want to fully understand so please tell me, what's a box spread? And do you recommend keeping a certain amount of cash on sidelines to take advantage of new rates over time, or wait as one of your ladder rungs rolls over?
Box spread thread: viewtopic.php?t=371120

I have been heavy in cash recently, as large CDs matured and rates were too low to reinvest much in comparable fixed income. Have moved a large portion of cash into the indicated securities over the last few weeks.

Kevin
Eagerly awaiting the new Box Spread ETF or mutual fund, admiral shares. :)
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Re: Trading Treasuries (nominal and TIPS)

Post by jeffyscott »

Doc wrote: Wed Jun 22, 2022 4:32 pm
jeffyscott wrote: Wed Jun 22, 2022 3:10 pm 50 on what? Longer term bonds should already have incorporated (most of) an expected 75 BP increase. If you are waiting to invest in 4 or 8 week bills at a higher rate, where is they money while you wait.
In the news this week I saw the expected discount rate to rise some 75 bps at the next FOMC meeting. A few weeks or so ago I was seeing only 50.
Right, but my question was about why you expect to benefit by waiting.
What target rate are you addressing?
The Fed target is for the shortest term rates, Fed funds rate, so I thought other rates should be there or higher.

Anyway the current target range is 150-175 and the expectation that it will be increased to 2.25%-2.5% is currently approaching 100, based on this: https://www.cmegroup.com/trading/intere ... -fomc.html
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Re: Trading Treasuries (nominal and TIPS)

Post by Kevin M »

protagonist wrote: Wed Jun 22, 2022 4:03 pm
Kevin M wrote: Wed Jun 22, 2022 2:09 pm
protagonist wrote: Wed Jun 22, 2022 2:02 pm Kevin, if the Fed raises rates again by 75 points as expected in July, do you think that is already priced into the current yields on TIPS, or do you think that the yields will rise significantly again in July following the announcement (based on experience)?

I am asking because I expect to have more cash to invest in July and wonder whether to wait.
I think it's already priced into everything pretty much. That doesn't mean that the yields couldn't increase more in July. And then they could come back down, like they basically have over the last week or so.

The standard BH approach is to buy when you have the money. I am not doing that. I have been sitting on cash while yields were super low, and am gradually moving that cash into fixed income as I've discussed. Moved quite a lot in since May. Yes, this is market timing, so what I do may not be the right thing for others to do (certainly not by BH consensus).

Kevin
I agree with your approach.

I think market timing probably does not tend to work when dealing with the stock market, which is a complex, emergent phenomenon with too many unknown and unpredictable variables to make sense of trends.

On the other hand, I think there is a certain degree, (I don't know how high), of predictability in the bond market. The Fed. interest rates are manipulated by humans in response to a handful of known variables...those variables are limited in number and scope and within the scope of understanding by the people making the decisions, as well as, to an extent, us. So in the face of inflation, relatively low unemployment, a fairly robust economy and extremely low interest rates (recently historic lows), we can expect the Fed. to probably raise their interest rates , which they even acknowledge they plan to do....thus bond values will probably respond and go down and yields go up. Of course, anybody or everybody could be wrong, since we don't know what unexpected things can happen in the future, but really we only have to be right over 50% of the time to make a good, informed, binary "market timing" decision (buy or don't buy).

Does my thinking make sense to you? I am not an economist or finance expert...but I have a decent layman's understanding of complexity theory and that is my take on things.

The problem with waiting is that at the current level of inflation and cash earning 0-1%, one month's waiting on cash can equate to a loss of around 0.7% profit for the year. So whether to jump in becomes a more complex call. I think I will spread out my buying like you are doing .... but not too much given the large current discrepancy between bank rates and TIPS composite yields.

And based on what I learned from you, if I understand correctly, it seems that there would be little if anything to gain by participating in tomorrow's auction, as opposed to buying at leisure on the secondary market, so that takes the pressure off.
What you say makes some sense. I don't think I know anything that the institutional bond traders don't know (probably much less), and they are setting the prices. I just tend to move kind of slowly with these kind of things, as I did when moving lots of cash into the market in 2008, which turned out to be a good thing. Holding cash can waiting for better rates has turned out OK so far too. You never know.

I have ramped up though, but keeping nominals weighted toward the very short term, and TIPS from 1-year to 5-year maturity.

The auction may give us a positive surprise, hence my order for 10 more at auction. I will continue to buy TIPS on secondary in mine and my family's accounts, hopefully with yields increasing.

Kevin
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Re: Trading Treasuries (nominal and TIPS)

Post by Doc »

jeffyscott wrote: Wed Jun 22, 2022 5:48 pm Right, but my question was about why you expect to benefit by waiting.
Depends on your time frame. If I wait 3 months at a "loss" but am ahead for the next 33 months I come out better.

Taking a lower rate for 3 compared to a higher rate for 33 months may (?) make sense. And if I am wrong it won't cost a whole lot by waiting.
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Re: Trading Treasuries (nominal and TIPS)

Post by protagonist »

Kevin M wrote: Wed Jun 22, 2022 5:51 pm
What you say makes some sense. I don't think I know anything that the institutional bond traders don't know (probably much less), and they are setting the prices. I just tend to move kind of slowly with these kind of things, as I did when moving lots of cash into the market in 2008, which turned out to be a good thing. Holding cash can waiting for better rates has turned out OK so far too. You never know.

I have ramped up though, but keeping nominals weighted toward the very short term, and TIPS from 1-year to 5-year maturity.

The auction may give us a positive surprise, hence my order for 10 more at auction. I will continue to buy TIPS on secondary in mine and my family's accounts, hopefully with yields increasing.

Kevin
You convinced me to do the same. I put a bid in for 10 of the 4/ 2027 TIPS at auction via Fidelity, even though they were selling at a yield of over 0.6% a couple of days ago and now they are estimated to go for about .43%. I do think rates will go up.

So even though that seems to be a big decline (.6 to .4 is a 33% drop), the bottom line is, on $10K, a .1% difference in yield only amounts to $10/yr. I think the insignificance of the changing rates is important to keep in mind, because watching them moving becomes more of a game to "buy high", than anything that will really significantly impact one's portfolio. It's probably more important to get in sooner, with high inflation now, and who knows, it could potentially get much higher. But like you, I am mainly focusing on the steep portion of the yield curve....especially the 2025 and 2026 bonds, and especially because we don't know what will happen with inflation.
I think I mainly put a bid on 10 of the 2027 bonds because I never did an auction like this before, so it's sort of a game. *chimerical laugh*
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Re: Trading Treasuries (nominal and TIPS)

Post by jeffyscott »

protagonist wrote: Thu Jun 23, 2022 6:53 amSo even though that seems to be a big decline (.6 to .4 is a 33% drop), the bottom line is, on $10K, a .1% difference in yield only amounts to $10/yr. I think the insignificance of the changing rates is important to keep in mind, because watching them moving becomes more of a game to "buy high", than anything that will really significantly impact one's portfolio.
Related to that, when I was looking at TIPS quotes, the changing yields were bothering me more than has happened with CDs or treasuries. I finally figured out that this was because I tend to focus on the first two (non-zero digits) of the yields. IIRC, the TIPS were listed with yields to the 3rd decimal place, 0.XXX%, while CDs and Treasuries had two decimal places, X.XX%, and I would kind of ignore the changes in last digit for each and but was noticing changes that amounted to .01% in one case and 0.1% in the other.
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Treasury Auctions, What are you buying thread?

Post by TheTimeLord »

[Thread merged into here --admin LadyGeek]

There has been an explosion of interest here in Treasury auctions with the rise in interest rates. Hopefully this thread will be educational and helpful for folks just beginning to participate like me.


Today (6/23) I am participating in the 4 week and 8 week T-Bill auctions and the reopened 5 yr. TIPS auction.

I am planning to put orders in for the 6/27 13 week T-Bill and 2 yr Note auctions once they are announced and available later today.
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Re: Treasury Auctions, What are you buying thread?

Post by jebmke »

After adjusting for state and Federal taxes, including NIIT, Treasuries and Munis are about a breakeven for me so I plan to sell my Treasury fund, take the losses and move back to Munis.
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Re: Treasury Auctions, What are you buying thread?

Post by zeep »

jebmke wrote: Thu Jun 23, 2022 7:58 am After adjusting for state and Federal taxes, including NIIT, Treasuries and Munis are about a breakeven for me so I plan to sell my Treasury fund, take the losses and move back to Munis.
With the greater liquidity and lower credit risk of Treasuries, I'd want a meaningful better after tax yield to move from Treasuries to munis.
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Re: Treasury Auctions, What are you buying thread?

Post by jebmke »

zeep wrote: Thu Jun 23, 2022 9:27 am
jebmke wrote: Thu Jun 23, 2022 7:58 am After adjusting for state and Federal taxes, including NIIT, Treasuries and Munis are about a breakeven for me so I plan to sell my Treasury fund, take the losses and move back to Munis.
With the greater liquidity and lower credit risk of Treasuries, I'd want a meaningful better after tax yield to move from Treasuries to munis.
Yes, I allow for some liquidity premium which I will take.
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Re: Treasury Auctions, What are you buying thread?

Post by TheTimeLord »

[Deleted] Not relevant now thread is merged.
Last edited by TheTimeLord on Thu Jun 23, 2022 10:11 am, edited 1 time in total.
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Re: Treasury Auctions, What are you buying thread?

Post by student »

Which brokerage are you using? I have tried Fidelity and Etrade and they seem to be fine.
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Re: Treasury Auctions, What are you buying thread?

Post by lvm919 »

Until HYSA rates catch up, I've been moving that money to 3-month Tbills by participating in one auction a month. The added yield is nice, but this is more of an educational endeavor as I no longer keep a large amount of cash lying around. At the end of this process I might see if there are any nice bonuses for moving the money back to an HYSA.
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Re: Trading Treasuries (nominal and TIPS)

Post by LadyGeek »

I merged TheTimeLord's thread into the ongoing discussion. The combined thread is in the Investing - Theory, News & General forum.
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Re: Trading Treasuries (nominal and TIPS)

Post by GetSmarter »

I finally put my toe in the TIPS market, buying my first bond at today's auction. A small amount for my IRA. A start. Meanwhile, I plan to invest more in 3 month to 2 year Treasuries in my taxable account. In past week, my money market account went from .90% to 1.4%, giving me pause. Do I want to wait a bit longer and see where Treasury yields go rather than tie up money, considering current interest rates, which will go higher? Digesting ever-changing fixed income landscape.
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Re: Trading Treasuries (nominal and TIPS)

Post by user9532 »

First time buying T-Bills. Few days ago I placed an order at TD for 20K in 13 weeks bills and 15K in 26 weeks bills. They debited my bank $19,915.57 and $14,818.76. I guess the difference is the interest income and on maturity I will get $20K and $15K. Am I right? The difference of $84.43 and $181.24 is the interest income, and based on my calculation that equate to yield of 1.70% and 2.45%. Am I right?
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Re: Trading Treasuries (nominal and TIPS)

Post by protagonist »

Expected yield on the 4/27 TIPS at auction now is lower than the yield I got on the 4/26 TIPS a couple of days ago.
The Fido site on the 4 yr 10 mo auction says "execution pending". Does that mean that my bid was accepted and it will remain "pending" until settlement date of 6/30?
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Re: Trading Treasuries (nominal and TIPS)

Post by jeffyscott »

Doc wrote: Wed Jun 22, 2022 9:36 am
jeffyscott wrote: Wed Jun 22, 2022 9:27 am I then cancelled the mutual fund order. So far, no calls, emails, or notices from Schwab.
When I had the "confusing" conversation with Schwab last week I got the impression that such a situation would not create I "warning". They assume that the investor knows "better".

I would think that initiating another trade to cover the first would make all OK.
The auction trade executed, the TIPS is now listed in my account holdings. The account shows a negative cash balance now, even though settlement is not for a week. I'm not sure if the negative cash balance means trouble, if I don't enter a trade to cover it today?
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Re: Trading Treasuries (nominal and TIPS)

Post by jeffyscott »

protagonist wrote: Thu Jun 23, 2022 12:55 pm Expected yield on the 4/27 TIPS at auction now is lower than the yield I got on the 4/26 TIPS a couple of days ago.
The Fido site on the 4 yr 10 mo auction says "execution pending". Does that mean that my bid was accepted and it will remain "pending" until settlement date of 6/30?
The auction got 0.362%.
https://tipswatch.com/2022/06/23/5-year ... ve-yields/

I'm sure your order was filled, since it was a non-competitive bid. I'm not familiar with how/when Fidelity confirms that.

Anyway the last 2 TIPS auctions demonstrate the extra uncertainty (aka risk). The 10 year surprised in one direction and this one in the other.
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Re: Trading Treasuries (nominal and TIPS)

Post by TheTimeLord »

Already entered my order for the up coming 2 year Note auction. Rate was showing sub 3%.
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Re: Trading Treasuries (nominal and TIPS)

Post by Tom_T »

user9532 wrote: Thu Jun 23, 2022 12:29 pm First time buying T-Bills. Few days ago I placed an order at TD for 20K in 13 weeks bills and 15K in 26 weeks bills. They debited my bank $19,915.57 and $14,818.76. I guess the difference is the interest income and on maturity I will get $20K and $15K. Am I right? The difference of $84.43 and $181.24 is the interest income, and based on my calculation that equate to yield of 1.70% and 2.45%. Am I right?
Yep. The interest is the face value less the purchase price.
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Re: Trading Treasuries (nominal and TIPS)

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protagonist wrote: Thu Jun 23, 2022 12:55 pm Expected yield on the 4/27 TIPS at auction now is lower than the yield I got on the 4/26 TIPS a couple of days ago.
The Fido site on the 4 yr 10 mo auction says "execution pending". Does that mean that my bid was accepted and it will remain "pending" until settlement date of 6/30?
Yes, yield was disappointing. Hopefully it's at least one lesson that waiting for the auction is not necessarily better than buying on secondary.

Looking at bond ETFs (nominal and TIPS), prices are up across the board, so yields are down across the board.

Yes, we got our orders at Fidelity filled, and mine also shows execution pending. I don't know what the status will be between now and settlement next Thursday, but I assume at some point before then it will change to executed, since secondary market orders say executed on the trade date.

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Re: Trading Treasuries (nominal and TIPS)

Post by Kevin M »

user9532 wrote: Thu Jun 23, 2022 12:29 pm First time buying T-Bills. Few days ago I placed an order at TD for 20K in 13 weeks bills and 15K in 26 weeks bills. They debited my bank $19,915.57 and $14,818.76. I guess the difference is the interest income and on maturity I will get $20K and $15K. Am I right? The difference of $84.43 and $181.24 is the interest income, and based on my calculation that equate to yield of 1.70% and 2.45%. Am I right?
Yes. Bills sell at a discount and pay no interest (coupon rate = 0%), so the difference between what you pay and face value is your "interest".

Yield for the last 13-week auction was 1.700%, and for the 26-week was 2.453%, so your calculations are correct.

Kevin
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Re: Trading Treasuries (nominal and TIPS)

Post by jeffyscott »

Kevin M wrote: Thu Jun 23, 2022 1:56 pm
protagonist wrote: Thu Jun 23, 2022 12:55 pm Expected yield on the 4/27 TIPS at auction now is lower than the yield I got on the 4/26 TIPS a couple of days ago.
The Fido site on the 4 yr 10 mo auction says "execution pending". Does that mean that my bid was accepted and it will remain "pending" until settlement date of 6/30?
Yes, yield was disappointing. Hopefully it's at least one lesson that waiting for the auction is not necessarily better than buying on secondary.

Looking at bond ETFs (nominal and TIPS), prices are up across the board, so yields are down across the board.

Yes, we got our orders at Fidelity filled, and mine also shows execution pending. I don't know what the status will be between now and settlement next Thursday, but I assume at some point before then it will change to executed, since secondary market orders say executed on the trade date.

Kevin
Schwab does it differently, shows mine as "filled" and sent me trade notifications at 1:35 EST.

This was my first auction (other than some bills bought at treasury direct a few years ago). I participated with only 1, since I am not really interested in this particular TIPS, but wanted to do my experiment to see if the time out of market could be reduced (which is another potential issue with, particularly TIPS, auctions).
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Re: Trading Treasuries (nominal and TIPS)

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TheTimeLord wrote: Thu Jun 23, 2022 1:45 pm Already entered my order for the up coming 2 year Note auction. Rate was showing sub 3%.
The 2-year auction is for CUSIP 91282CEX5, maturing 6/30/2024. Auction is on 6/27 (Monday) and issue date is 6/30/2022, the following Thursday.

There is a Treasury trading on secondary with same maturity date. It is CUSIP 912828XX3, dated date 06/30/2017, so it was auctioned as a 7-year note. Now at Fidelity I'm seeing ask yield of 3.009% for min qty 250, 3.008% for min 25, and 2.991% for min qty 1. So the large/small-qty spread is about 2 basis points. So if you're happy with about 3%, you could buy it today for settlement tomorrow.

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Re: Trading Treasuries (nominal and TIPS)

Post by TheTimeLord »

Kevin M wrote: Thu Jun 23, 2022 2:09 pm
TheTimeLord wrote: Thu Jun 23, 2022 1:45 pm Already entered my order for the up coming 2 year Note auction. Rate was showing sub 3%.
The 2-year auction is for CUSIP 91282CEX5, maturing 6/30/2024. Auction is on 6/27 (Monday) and issue date is 6/30/2022, the following Thursday.

There is a Treasury trading on secondary with same maturity date. It is CUSIP 912828XX3, dated date 06/30/2017, so it was auctioned as a 7-year note. Now at Fidelity I'm seeing ask yield of 3.009% for min qty 250, 3.008% for min 25, and 2.991% for min qty 1. So the large/small-qty spread is about 2 basis points. So if you're happy with about 3%, you could buy it today for settlement tomorrow.

Kevin
Thanks. I am not hung up on the 3% level, just noting it.
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Re: Trading Treasuries (nominal and TIPS)

Post by TheTimeLord »

Kevin M wrote: Thu Jun 23, 2022 2:09 pm
TheTimeLord wrote: Thu Jun 23, 2022 1:45 pm Already entered my order for the up coming 2 year Note auction. Rate was showing sub 3%.
The 2-year auction is for CUSIP 91282CEX5, maturing 6/30/2024. Auction is on 6/27 (Monday) and issue date is 6/30/2022, the following Thursday.

There is a Treasury trading on secondary with same maturity date. It is CUSIP 912828XX3, dated date 06/30/2017, so it was auctioned as a 7-year note. Now at Fidelity I'm seeing ask yield of 3.009% for min qty 250, 3.008% for min 25, and 2.991% for min qty 1. So the large/small-qty spread is about 2 basis points. So if you're happy with about 3%, you could buy it today for settlement tomorrow.

Kevin
Looking at some shorter duration TIPS that have a positive yield on the secondary market, any reason not to consider them?
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Re: Trading Treasuries (nominal and TIPS)

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TheTimeLord wrote: Thu Jun 23, 2022 10:12 pm
Kevin M wrote: Thu Jun 23, 2022 2:09 pm
TheTimeLord wrote: Thu Jun 23, 2022 1:45 pm Already entered my order for the up coming 2 year Note auction. Rate was showing sub 3%.
The 2-year auction is for CUSIP 91282CEX5, maturing 6/30/2024. Auction is on 6/27 (Monday) and issue date is 6/30/2022, the following Thursday.

There is a Treasury trading on secondary with same maturity date. It is CUSIP 912828XX3, dated date 06/30/2017, so it was auctioned as a 7-year note. Now at Fidelity I'm seeing ask yield of 3.009% for min qty 250, 3.008% for min 25, and 2.991% for min qty 1. So the large/small-qty spread is about 2 basis points. So if you're happy with about 3%, you could buy it today for settlement tomorrow.

Kevin
Looking at some shorter duration TIPS that have a positive yield on the secondary market, any reason not to consider them?
I would consider shorter duration even with negative yields, as you'll see starting with the OP. I have been buying maturities from 1-year to 5-year.
If I make a calculation error, #Cruncher probably will let me know.
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