Vanguard 3 month Treasury bill

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kvdecide
Posts: 41
Joined: Tue Apr 19, 2022 4:15 am

Vanguard 3 month Treasury bill

Post by kvdecide »

Hello All

I have a joint non-tax-sheltered account with my wife at Vanguard.
If I buy a 3 month treasury bill in this account, (now available for 3.262% yield), do I have to worry about SIPC/FDIC insurance? Since US Treasuries are directly invested with the Govt of US, they are insured, right? I am planning to put a big amount, hence the query.

Also, I see the following message when I try to buy the Tbill. Why would it say that the value can decline. I do plan to hold the Tbill until its maturity (in 3 months).

This investment is subject to interest rate risk. The value can decline due to rising interest rates. Longer maturities have higher interest rate risk.
jebmke
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Joined: Thu Apr 05, 2007 2:44 pm
Location: Delmarva Peninsula

Re: Vanguard 3 month Treasury bill

Post by jebmke »

Treasuries are backed by the full faith and credit of the US government. They really aren't "insured", per se.

My understanding of SIPC coverage is that it protects you from the brokerage mishandling the custody of your assets. It would have nothing to do with respect to loss of value (in this case, credit risk).
Don't trust me, look it up. https://www.irs.gov/forms-instructions-and-publications
cjg
Posts: 98
Joined: Sat Jan 11, 2014 8:03 pm

Re: Vanguard 3 month Treasury bill

Post by cjg »

The holding could lose value due to rising interest rates but will have the fixed value after 3 months. This is backed by the US government and is considered on of the least risky investments since they control the money printer.

SIPC insurance covers you in case Vanguard doesn't actually have the security or takes it and intermixes it with company funds and goes bankrupt.
dbr
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Joined: Sun Mar 04, 2007 8:50 am

Re: Vanguard 3 month Treasury bill

Post by dbr »

I guess one interpretation of "Longer maturities have higher interest rate risk." is that shorter maturities have less interest rate risk. As a practical matter a 3 month T bill does not have interest rate risk, but a person could hypothetically do something that would result in a loss.
Geologist
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Joined: Fri Jan 02, 2009 6:35 pm

Re: Vanguard 3 month Treasury bill

Post by Geologist »

kvdecide wrote: Fri Sep 30, 2022 2:28 pm
Also, I see the following message when I try to buy the Tbill. Why would it say that the value can decline. I do plan to hold the Tbill until its maturity (in 3 months).

This investment is subject to interest rate risk. The value can decline due to rising interest rates. Longer maturities have higher interest rate risk.
If interest rates go up, then the value of your 13 week Treasury bill will go down. (All bonds or bond-like investments fluctuate with interest rates.) This will be visible in your Vanguard account while the Treasury Bill is outstanding. While T-bills are discount securities, especially early in its life, if interest rates rise fast enough, the value could be less than you paid for it. Its value will rise to the maturity value over the course of its life.
dbr
Posts: 46181
Joined: Sun Mar 04, 2007 8:50 am

Re: Vanguard 3 month Treasury bill

Post by dbr »

Geologist wrote: Fri Sep 30, 2022 6:04 pm
kvdecide wrote: Fri Sep 30, 2022 2:28 pm
Also, I see the following message when I try to buy the Tbill. Why would it say that the value can decline. I do plan to hold the Tbill until its maturity (in 3 months).

This investment is subject to interest rate risk. The value can decline due to rising interest rates. Longer maturities have higher interest rate risk.
If interest rates go up, then the value of your 13 week Treasury bill will go down. (All bonds or bond-like investments fluctuate with interest rates.) This will be visible in your Vanguard account while the Treasury Bill is outstanding. While T-bills are discount securities, especially early in its life, if interest rates rise fast enough, the value could be less than you paid for it. Its value will rise to the maturity value over the course of its life.
That is exactly right, but who, knowing that, would spend the 13 weeks watching to make sure it all works out. I suppose there are people who would. On a 30 year bond a person might think long and hard about the implications.
Topic Author
kvdecide
Posts: 41
Joined: Tue Apr 19, 2022 4:15 am

Re: Vanguard 3 month Treasury bill

Post by kvdecide »

Geologist wrote: Fri Sep 30, 2022 6:04 pm
kvdecide wrote: Fri Sep 30, 2022 2:28 pm
Also, I see the following message when I try to buy the Tbill. Why would it say that the value can decline. I do plan to hold the Tbill until its maturity (in 3 months).

This investment is subject to interest rate risk. The value can decline due to rising interest rates. Longer maturities have higher interest rate risk.
If interest rates go up, then the value of your 13 week Treasury bill will go down. (All bonds or bond-like investments fluctuate with interest rates.) This will be visible in your Vanguard account while the Treasury Bill is outstanding. While T-bills are discount securities, especially early in its life, if interest rates rise fast enough, the value could be less than you paid for it. Its value will rise to the maturity value over the course of its life.
I understood this concept. For example, if I buy a 52 week T-note for $97000 (3%), I will get $100000 at the end of the 52 weeks. During the course of those 52 weeks, if I login to my Vanguard account, it could show the "current market value" that is different from the $100000, depending on interest rate fluctuations.

However at the end of the 52 weeks, I will get $100000. When Vanguard tells me, "The value can decline due to rising interest rates." it is misleading. It makes it appear like I will lose some of my principal, even if I hold on till the fully maturity of the T-note. Hence I asked the query as to why Vanguard is mentioning this in the last screen of the purchase process
Geologist
Posts: 3056
Joined: Fri Jan 02, 2009 6:35 pm

Re: Vanguard 3 month Treasury bill

Post by Geologist »

kvdecide wrote: Sun Oct 02, 2022 2:53 am
Geologist wrote: Fri Sep 30, 2022 6:04 pm
kvdecide wrote: Fri Sep 30, 2022 2:28 pm
Also, I see the following message when I try to buy the Tbill. Why would it say that the value can decline. I do plan to hold the Tbill until its maturity (in 3 months).

This investment is subject to interest rate risk. The value can decline due to rising interest rates. Longer maturities have higher interest rate risk.
If interest rates go up, then the value of your 13 week Treasury bill will go down. (All bonds or bond-like investments fluctuate with interest rates.) This will be visible in your Vanguard account while the Treasury Bill is outstanding. While T-bills are discount securities, especially early in its life, if interest rates rise fast enough, the value could be less than you paid for it. Its value will rise to the maturity value over the course of its life.
I understood this concept. For example, if I buy a 52 week T-note for $97000 (3%), I will get $100000 at the end of the 52 weeks. During the course of those 52 weeks, if I login to my Vanguard account, it could show the "current market value" that is different from the $100000, depending on interest rate fluctuations.

However at the end of the 52 weeks, I will get $100000. When Vanguard tells me, "The value can decline due to rising interest rates." it is misleading. It makes it appear like I will lose some of my principal, even if I hold on till the fully maturity of the T-note. Hence I asked the query as to why Vanguard is mentioning this in the last screen of the purchase process
This has nothing to do with value at maturity. Annette Thau thinks that "All bonds are subject to interest rate risk" is so important that she mentions it three times in a row in different kinds of type in her well known book The Bond Book. Interest rate risk has to do with principal value changes while the bond is outstanding.

It is not misleading. Vanguard mentions this because many investors think that the principal value of a bond, especially a Treasury, is guaranteed throughout its life because it should return its face value at maturity. This isn't true. We get people posting on this board who don't understand this and want to know why the value of the bond or brokered CD shown on their account fluctuates. If for some reason you need to sell before maturity, you are not guaranteed to get all your principal.

For a T-bill that you buy at 97,000 but "face value" of 100,000, even if interest rates are flat, the current market value will be below 100,000 until just before maturity (in other words, it will hardly ever show 100,000 in this simple case). However, if interest rates go up, the value could even be below the 97,000 you paid for it for some amount of time.

It is certainly true that the longer the maturity, the more the interest rate risk.
Rudedog
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Re: Vanguard 3 month Treasury bill

Post by Rudedog »

You have some interest rate risk with a T-bill, but three months is a short time. You may want to note, Warren Buffett has said many times that he buys T-bills, or "treasuries".
LongTerm1
Posts: 23
Joined: Thu May 25, 2017 3:45 pm

Re: Vanguard 3 month Treasury bill

Post by LongTerm1 »

Can you please explain how we would buy 3 month T-bills through vanguard. This is new to me.

I’m trying to figure out something to do with cash. VMRXX seems like a good option for a money market. Any suggestions?
placeholder
Posts: 8421
Joined: Tue Aug 06, 2013 12:43 pm

Re: Vanguard 3 month Treasury bill

Post by placeholder »

LongTerm1 wrote: Sun Oct 02, 2022 5:32 pm Can you please explain how we would buy 3 month T-bills through vanguard. This is new to me.
There are a number of threads on buying treasuries and here is one:
viewtopic.php?t=373860
evelynmanley
Posts: 1029
Joined: Tue Sep 21, 2010 9:13 am

Re: Vanguard 3 month Treasury bill

Post by evelynmanley »

LongTerm1 wrote: Sun Oct 02, 2022 5:32 pm Can you please explain how we would buy 3 month T-bills through vanguard. This is new to me.

I’m trying to figure out something to do with cash. VMRXX seems like a good option for a money market. Any suggestions?

How To Buy Treasury Bills & Notes Without Fee at Online Brokers
https://thefinancebuff.com/treasury-bil ... arket.html

Short-term Treasurys: Even more attractive now
https://tipswatch.com/2022/09/21/short- ... ctive-now/

Guide to Money Market Fund & High Yield Savings Account (2022)
https://thefinancebuff.com/money-market ... guide.html

viewtopic.php?p=6662541#p6662541

viewtopic.php?p=6898235#p6898235

a thread about Vanguard VMFXX as an option for cash:
viewtopic.php?t=381812
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