evelynmanley wrote: ↑Sun Aug 07, 2022 9:18 am
I purchased the following T-bills on May 20, 2022;

1. CUSIP 912796XP9

Price 99.698

YTM .995

Maturity 8/30/22

(in my SEP, quantity 72k,principal 71,782.88)

2. CUSIP912796T66

Price 99.688

YTM 1.012

Maturity 9/1/22

(in my Roth, quantity 55k, principal 54,828.22)

Since the Treasury rates are so much higher now, would it make sense to sell these and purchase either T-bills or T-notes at a higher rate, even though the maturity dates are only 23 and 25 days away? These were my first and so far only Treasury purchases, so I don't have any experience selling. These are funds I don't need to access for 5-7 years, maybe longer. Is it correct that the interest I'll make on these, if held to maturity, is $388.90?

Thank you in advance for your input!

The first thing to understand is that your Treasuries now are at the market yields and prices. So selling and re-buying the same Treasuries will incur a loss due to the bid/ask spread; i.e., you will pay a higher price to buy than you will receive to sell.

So the question I'd ask is do I have a better opportunity to invest the money in something else? Or perhaps my objectives have changed since the purchase; e.g., I've realized I want to invest in a longer maturity Treasury. I would look forward to make this decision; i.e., I would compare to the existing yield to maturity (2.05% for bill1 and 2.04% for bill 2) to other opportunities, regardless of how much I've earned since the original purchase. Still, you want to understand the difference, so we can look at that.

To evaluate the difference between selling now and holding to maturity, we can look at the internal rate of return (IRR) for the two scenarios. IRR will be slightly higher than the original YTM if held to maturity.

To determine how much you'd get for selling you want to use the bid price for the appropriate minimum quantity. I'll use the best bid prices pulled from Fidelity on Friday afternoon; you might have received a slightly lower bid price for your quantities, but the large/small-quantity spreads for T bills are quite small, so this will give you a good idea.

If you know how to use a spreadsheet, this is fairly simple to set up. The results are below. The first of each set of tables is for having sold on Friday, and the second set is for holding to maturity (price = 100).

First, as a sanity check, note that the IRR for the hold to maturity case (cell B9) for the first bill is 1.09%, which is slightly more than the original YTM of 0.995%, as expected. Now, looking at cell B4 shows that the IRR for having sold on Friday is 0.79%, so less than what you'll earn if you hold to maturity. The ask yield for this bill was 2.05% on Friday, so that's the yardstick I'd use to compare alternative investments.

For the second bill, the IRR for Friday sale would have been 0.80%, so lower than the 1.10% if held to maturity. The ask yield for this one was 2.04% on Friday.

The values in columns D and E are the cash flow setup to use the XIRR function to calculate the IRR. For example, the formula in cell B4 is

I used your dates and values for the 5/20/2022 settlements. To get the bid price you could do a search on the CUSIP at Fidelity, and get the bid price for your quantity. I had already downloaded the Fidelity 0-6m Treasury quotes into the same spreadsheet, so I did a lookup on that to get the bid prices; e.g., formula in cell F3 is

Code: Select all

`=VLOOKUP(B1, '0-6m'!A:H, COLUMN($H$1),0)`

Again, you can just enter the bid price manually if you don't understand a formula like this.

The formula for the settle sell cash flow uses the bid price and quantity; e.g., for cell E3 is this:

Hope this helps,

Kevin

If I make a calculation error, #Cruncher probably will let me know.