Trading Treasuries (nominal and TIPS)

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TheTimeLord
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Re: Trading Treasuries (nominal and TIPS)

Post by TheTimeLord »

Anyone migrating back towards Brokerage CDs from Treasuries now that they seem to offer better rates across the spectrum?
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Re: Trading Treasuries (nominal and TIPS)

Post by Richard1580 »

hudson wrote: Wed Mar 22, 2023 8:11 am
Kevin M wrote: Thu Feb 09, 2023 12:03 pm
exodusing wrote: Thu Feb 09, 2023 8:18 am There was an earlier discussion of the mechanics of rolling tbills at Vanguard, including whether the proceeds from maturing bills could be used to settle the next auction, but I'm not seeing the conclusion. viewtopic.php?p=6721037#p6721037 Apologies since I'm probably missing something.

There's a 13 week tbill auction every Monday (other than holidays) which settles on Thursday.

Does that mean if I participate in the Monday Feb 13 auction by ordering through a Vanguard brokerage account I'd need available funds on Thursday the 16th and would receive funds at maturity on Thursday May 18 that could be used to settle the 13 week tbill auction on Monday May 15 that settles on Thursday May 18?

If so, does this mean I'd be fully invested at all times, other than that tbills normally trade at a discount, so there would be some rounding error?

I realize that there are alternatives, such as Fidelity autoroll, the secondary market, treasury money market funds, etc.
I'm pretty sure we've seen posts that indicate that you can use the proceeds of a Treasury that matures on the settlement date of a Treasury purchase to settle the purchase at Vanguard. I personally have not tried it yet (per the post you linked, I meant to, but forgot and sold before maturity).
Test of the above bolded text in process

My settlement account did not have enough funds to cover the purchase.

CUSIP 912796U31 matures tomorrow...the 23D
CUSIP I912797FX0 (Settles tomorrow on the 23D) just purchased at Vanguard ("order executed on 03/22/2023 at 8:53 AM, Eastern time") (4.806%)

The email and text I got after the order executed did not warn me about a shortage of funds.

I think that this was a secondary market purchase; the bond market must open before 9:30.
I had this happen a few months ago. When I spoke with the bond trading desk at Vanguard they said it would not be a problem. They normally handle the settlements of maturing bonds first, then process the buy settlements. And that is exactly what happened - no problem.
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Re: Trading Treasuries (nominal and TIPS)

Post by hudson »

Thanks Richard1580!
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Re: Trading Treasuries (nominal and TIPS)

Post by hudson »

TheTimeLord wrote: Wed Mar 22, 2023 8:23 am Anyone migrating back towards Brokerage CDs from Treasuries now that they seem to offer better rates across the spectrum?
Thanks! I didn't realize this.
When I consider that there are no state taxes on the treasuries, the shorter bills pan out about the same as CDs.
The 3 year CDs are paying 1% more which beats the 3 year treasurys even when considering state taxes.
Everyone already knows to watch out for callable CD offerings.
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Re: Trading Treasuries (nominal and TIPS)

Post by jeffyscott »

TheTimeLord wrote: Wed Mar 22, 2023 8:23 am Anyone migrating back towards Brokerage CDs from Treasuries now that they seem to offer better rates across the spectrum?
I'd put just a little in CDs recently, taking funds from short term bond index fund and money market. This question made me think about taking the plunge and actually selling treasuries to buy CDs, I have never sold any before (never have sold anything other than mutual funds before).

I sold a treasury with about a year to maturity that would have earned about 4.7% and bought a CD earning 5.35%. I also extended maturity by about 6 months, though I could've gotten the same CD rate at 1 year. I got $9582 for the treasury that would have been worth $10K at maturity 3/15/24, plus two more coupons at 0.25%. So would have had $10,025. So total gain would've been about $443 vs. about $512 at 5.35%, so it's just an extra $70 or so, without evaluating all the details of the cash flows.

I took about $420 from short term bond index, in order to be able to buy 10 CDs. It was a new CD, but settles tomorrow so no delay in reinvesting. Also it's an IRA account, so I did not have to think about taxes.
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Re: Trading Treasuries (nominal and TIPS)

Post by rockstar »

hudson wrote: Wed Mar 22, 2023 9:43 am
TheTimeLord wrote: Wed Mar 22, 2023 8:23 am Anyone migrating back towards Brokerage CDs from Treasuries now that they seem to offer better rates across the spectrum?
Thanks! I didn't realize this.
When I consider that there are no state taxes on the treasuries, the shorter bills pan out about the same as CDs.
The 3 year CDs are paying 1% more which beats the 3 year treasurys even when considering state taxes.
Everyone already knows to watch out for callable CD offerings.
I’m seeing Schwab at around 5.3% for a year. But based on my past experience, it’s much harder to sell a CD before maturity. I’m not sure I want to give up liquidity for slightly better yields. I’m planning to buy 3 month t bills next week.
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TheTimeLord
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Re: Trading Treasuries (nominal and TIPS)

Post by TheTimeLord »

rockstar wrote: Wed Mar 22, 2023 10:12 am
hudson wrote: Wed Mar 22, 2023 9:43 am
TheTimeLord wrote: Wed Mar 22, 2023 8:23 am Anyone migrating back towards Brokerage CDs from Treasuries now that they seem to offer better rates across the spectrum?
Thanks! I didn't realize this.
When I consider that there are no state taxes on the treasuries, the shorter bills pan out about the same as CDs.
The 3 year CDs are paying 1% more which beats the 3 year treasurys even when considering state taxes.
Everyone already knows to watch out for callable CD offerings.
I’m seeing Schwab at around 5.3% for a year. But based on my past experience, it’s much harder to sell a CD before maturity. I’m not sure I want to give up liquidity for slightly better yields. I’m planning to buy 3 month t bills next week.
Liquidity is a legit consideration.
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jeffyscott
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Re: Trading Treasuries (nominal and TIPS)

Post by jeffyscott »

rockstar wrote: Wed Mar 22, 2023 10:12 am
hudson wrote: Wed Mar 22, 2023 9:43 am
TheTimeLord wrote: Wed Mar 22, 2023 8:23 am Anyone migrating back towards Brokerage CDs from Treasuries now that they seem to offer better rates across the spectrum?
Thanks! I didn't realize this.
When I consider that there are no state taxes on the treasuries, the shorter bills pan out about the same as CDs.
The 3 year CDs are paying 1% more which beats the 3 year treasurys even when considering state taxes.
Everyone already knows to watch out for callable CD offerings.
I’m seeing Schwab at around 5.3% for a year. But based on my past experience, it’s much harder to sell a CD before maturity. I’m not sure I want to give up liquidity for slightly better yields. I’m planning to buy 3 month t bills next week.
Yes, CDs are not things you want to try to sell.

Testing the liquidity of the treasuries sold in small quantities was another reason I thought I'd try a sale. My 10 were instantly sold and the buy/sell spread was maybe $5 for $10K face value.
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Re: Trading Treasuries (nominal and TIPS)

Post by Kevin M »

exodusing wrote: Wed Mar 22, 2023 7:25 am Instead of YIELD you can use the formula

Code: Select all

((100-price)/price) * (365/days)
with 365 or 366 as appropriate. See the discussion above.
Of course. The point is that YIELD produces bill yields that agree with Treasury to the 3 decimal places published when they use 365, but not when they use 366.

YIELD still returns yields that agree with Treasury for notes and bonds.
If I make a calculation error, #Cruncher probably will let me know.
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Re: Trading Treasuries (nominal and TIPS)

Post by Kevin M »

LadyGeek wrote: Wed Mar 22, 2023 7:33 am Is there anything in the wiki that needs a correction? See: Bond pricing (Day count conventions)

The table shows US Treasuries using actual days, whereas corporate bonds use the 30/360 day count convention.
Actual/actual (day count parameter = 1) is correct for Treasuries. Changing the day count parameter does not resolve the issue about bills when they use 366 days in their calculations.
If I make a calculation error, #Cruncher probably will let me know.
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Re: Trading Treasuries (nominal and TIPS)

Post by Kevin M »

jeffyscott wrote: Wed Mar 22, 2023 10:07 am
TheTimeLord wrote: Wed Mar 22, 2023 8:23 am Anyone migrating back towards Brokerage CDs from Treasuries now that they seem to offer better rates across the spectrum?
I'd put just a little in CDs recently, taking funds from short term bond index fund and money market. This question made me think about taking the plunge and actually selling treasuries to buy CDs, I have never sold any before (never have sold anything other than mutual funds before).

I sold a treasury with about a year to maturity that would have earned about 4.7% and bought a CD earning 5.35%. I also extended maturity by about 6 months, though I could've gotten the same CD rate at 1 year. I got $9582 for the treasury that would have been worth $10K at maturity 3/15/24, plus two more coupons at 0.25%. So would have had $10,025. So total gain would've been about $443 vs. about $512 at 5.35%, so it's just an extra $70 or so, without evaluating all the details of the cash flows.

I took about $420 from short term bond index, in order to be able to buy 10 CDs. It was a new CD, but settles tomorrow so no delay in reinvesting. Also it's an IRA account, so I did not have to think about taxes.
In taxable, the state income tax exemption for Treasuries makes this a closer call for some. For me, 4.7% Treasury yield is TEY 5.25%. I would not sacrifice the liquidity of Treasuries for 10 basis points.

I am buying nominal Treasuries is taxable and TIPS in IRAs, so the TEY of nominals is relevant for me.
If I make a calculation error, #Cruncher probably will let me know.
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Re: Trading Treasuries (nominal and TIPS)

Post by rockstar »

Kevin M wrote: Wed Mar 22, 2023 1:45 pm
LadyGeek wrote: Wed Mar 22, 2023 7:33 am Is there anything in the wiki that needs a correction? See: Bond pricing (Day count conventions)

The table shows US Treasuries using actual days, whereas corporate bonds use the 30/360 day count convention.
Actual/actual (day count parameter = 1) is correct for Treasuries. Changing the day count parameter does not resolve the issue about bills when they use 366 days in their calculations.
Is it either or? Or do they ever use 365.25?
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Re: Trading Treasuries (nominal and TIPS)

Post by Kevin M »

rockstar wrote: Wed Mar 22, 2023 2:10 pm
Kevin M wrote: Wed Mar 22, 2023 1:45 pm
LadyGeek wrote: Wed Mar 22, 2023 7:33 am Is there anything in the wiki that needs a correction? See: Bond pricing (Day count conventions)

The table shows US Treasuries using actual days, whereas corporate bonds use the 30/360 day count convention.
Actual/actual (day count parameter = 1) is correct for Treasuries. Changing the day count parameter does not resolve the issue about bills when they use 366 days in their calculations.
Is it either or? Or do they ever use 365.25?
Nope. It's 365 unless there is a leap day in the next year, in which case it's 366. It changed from 365 to 366 for the 02/27/2023 auction of the 26 week bill, issued 3/2/2023 and maturing 8/31/2023; the year from 3/2/2023 to 3/2/2024 includes the leap day Feb 29 2024.
If I make a calculation error, #Cruncher probably will let me know.
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Re: Trading Treasuries (nominal and TIPS)

Post by MisterMister »

Kevin M wrote: Wed Mar 22, 2023 1:45 pm
LadyGeek wrote: Wed Mar 22, 2023 7:33 am Is there anything in the wiki that needs a correction? See: Bond pricing (Day count conventions)

The table shows US Treasuries using actual days, whereas corporate bonds use the 30/360 day count convention.
Actual/actual (day count parameter = 1) is correct for Treasuries. Changing the day count parameter does not resolve the issue about bills when they use 366 days in their calculations.
The other thing is that the usage is not consistent. I bought four treasuries recently at auction via Fidelity and I have three different results: 1) Fidelity's confirmations used 365 days on two of the four and 366 on the other two; 2) TD's results showed yields based on 366 days for all four, and 3) the secondary quotes at Fidelity are using 365 for all four.
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Re: Trading Treasuries (nominal and TIPS)

Post by exodusing »

MisterMister wrote: Wed Mar 22, 2023 3:14 pm
Kevin M wrote: Wed Mar 22, 2023 1:45 pm
LadyGeek wrote: Wed Mar 22, 2023 7:33 am Is there anything in the wiki that needs a correction? See: Bond pricing (Day count conventions)

The table shows US Treasuries using actual days, whereas corporate bonds use the 30/360 day count convention.
Actual/actual (day count parameter = 1) is correct for Treasuries. Changing the day count parameter does not resolve the issue about bills when they use 366 days in their calculations.
The other thing is that the usage is not consistent. I bought four treasuries recently at auction via Fidelity and I have three different results: 1) Fidelity's confirmations used 365 days on two of the four and 366 on the other two; 2) TD's results showed yields based on 366 days for all four, and 3) the secondary quotes at Fidelity are using 365 for all four.
I've bought six t-bills through Vanguard in the secondary market over the past couple of weeks. The largest difference between the yield quoted by Vanguard and the formula yield (using 365 or 366 as appropriate) was 3/10s of a basis point. This is using the total purchase price for each t-bill, not just the per t-bill price, so much less rounding error.
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Re: Trading Treasuries (nominal and TIPS)

Post by hoops777 »

jeffyscott wrote: Wed Mar 22, 2023 10:07 am
TheTimeLord wrote: Wed Mar 22, 2023 8:23 am Anyone migrating back towards Brokerage CDs from Treasuries now that they seem to offer better rates across the spectrum?
I'd put just a little in CDs recently, taking funds from short term bond index fund and money market. This question made me think about taking the plunge and actually selling treasuries to buy CDs, I have never sold any before (never have sold anything other than mutual funds before).

I sold a treasury with about a year to maturity that would have earned about 4.7% and bought a CD earning 5.35%. I also extended maturity by about 6 months, though I could've gotten the same CD rate at 1 year. I got $9582 for the treasury that would have been worth $10K at maturity 3/15/24, plus two more coupons at 0.25%. So would have had $10,025. So total gain would've been about $443 vs. about $512 at 5.35%, so it's just an extra $70 or so, without evaluating all the details of the cash flows.

I took about $420 from short term bond index, in order to be able to buy 10 CDs. It was a new CD, but settles tomorrow so no delay in reinvesting. Also it's an IRA account, so I did not have to think about taxes.
I feel better now after reading your post.
I did something similar.
I cashed in some treasuries maturing the next 4 to 10 months and bought a non callable 5 year CD at 5% at Schwab in my Roth.
K.I.S.S........so easy to say so difficult to do.
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Re: Trading Treasuries (nominal and TIPS)

Post by jeffyscott »

Kevin M wrote: Wed Mar 22, 2023 1:51 pm
jeffyscott wrote: Wed Mar 22, 2023 10:07 am
TheTimeLord wrote: Wed Mar 22, 2023 8:23 am Anyone migrating back towards Brokerage CDs from Treasuries now that they seem to offer better rates across the spectrum?
I'd put just a little in CDs recently, taking funds from short term bond index fund and money market. This question made me think about taking the plunge and actually selling treasuries to buy CDs, I have never sold any before (never have sold anything other than mutual funds before).

I sold a treasury with about a year to maturity that would have earned about 4.7% and bought a CD earning 5.35%. I also extended maturity by about 6 months, though I could've gotten the same CD rate at 1 year. I got $9582 for the treasury that would have been worth $10K at maturity 3/15/24, plus two more coupons at 0.25%. So would have had $10,025. So total gain would've been about $443 vs. about $512 at 5.35%, so it's just an extra $70 or so, without evaluating all the details of the cash flows.

I took about $420 from short term bond index, in order to be able to buy 10 CDs. It was a new CD, but settles tomorrow so no delay in reinvesting. Also it's an IRA account, so I did not have to think about taxes.
In taxable, the state income tax exemption for Treasuries makes this a closer call for some. For me, 4.7% Treasury yield is TEY 5.25%. I would not sacrifice the liquidity of Treasuries for 10 basis points.

I am buying nominal Treasuries is taxable and TIPS in IRAs, so the TEY of nominals is relevant for me.
Taxable would reduce the incremental benefit by about half for me.

There's a bigger difference at 3-5 years, but I had none. For those and longer terms I only have CDs and TIPS. I'm not selling the TIPS but break-even inflation rate vs. CDs has gotten pretty high.
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Re: Trading Treasuries (nominal and TIPS)

Post by jeffyscott »

hoops777 wrote: Wed Mar 22, 2023 4:03 pm
jeffyscott wrote: Wed Mar 22, 2023 10:07 am
TheTimeLord wrote: Wed Mar 22, 2023 8:23 am Anyone migrating back towards Brokerage CDs from Treasuries now that they seem to offer better rates across the spectrum?
I'd put just a little in CDs recently, taking funds from short term bond index fund and money market. This question made me think about taking the plunge and actually selling treasuries to buy CDs, I have never sold any before (never have sold anything other than mutual funds before).

I sold a treasury with about a year to maturity that would have earned about 4.7% and bought a CD earning 5.35%. I also extended maturity by about 6 months, though I could've gotten the same CD rate at 1 year. I got $9582 for the treasury that would have been worth $10K at maturity 3/15/24, plus two more coupons at 0.25%. So would have had $10,025. So total gain would've been about $443 vs. about $512 at 5.35%, so it's just an extra $70 or so, without evaluating all the details of the cash flows.

I took about $420 from short term bond index, in order to be able to buy 10 CDs. It was a new CD, but settles tomorrow so no delay in reinvesting. Also it's an IRA account, so I did not have to think about taxes.
I feel better now after reading your post.
I did something similar.
I cashed in some treasuries maturing the next 4 to 10 months and bought a non callable 5 year CD at 5% at Schwab in my Roth.
I may do something like that. I've got a couple that mature in the same time frame.

Since I'll most likely be redeeming $40K of I-Bonds from August to February, it probably makes sense to go ahead and extend maturities elsewhere now.
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Re: Trading Treasuries (nominal and TIPS)

Post by protagonist »

jeffyscott wrote: Wed Mar 22, 2023 4:15 pm
Kevin M wrote: Wed Mar 22, 2023 1:51 pm
jeffyscott wrote: Wed Mar 22, 2023 10:07 am
TheTimeLord wrote: Wed Mar 22, 2023 8:23 am Anyone migrating back towards Brokerage CDs from Treasuries now that they seem to offer better rates across the spectrum?
I'd put just a little in CDs recently, taking funds from short term bond index fund and money market. This question made me think about taking the plunge and actually selling treasuries to buy CDs, I have never sold any before (never have sold anything other than mutual funds before).

I sold a treasury with about a year to maturity that would have earned about 4.7% and bought a CD earning 5.35%. I also extended maturity by about 6 months, though I could've gotten the same CD rate at 1 year. I got $9582 for the treasury that would have been worth $10K at maturity 3/15/24, plus two more coupons at 0.25%. So would have had $10,025. So total gain would've been about $443 vs. about $512 at 5.35%, so it's just an extra $70 or so, without evaluating all the details of the cash flows.

I took about $420 from short term bond index, in order to be able to buy 10 CDs. It was a new CD, but settles tomorrow so no delay in reinvesting. Also it's an IRA account, so I did not have to think about taxes.
In taxable, the state income tax exemption for Treasuries makes this a closer call for some. For me, 4.7% Treasury yield is TEY 5.25%. I would not sacrifice the liquidity of Treasuries for 10 basis points.

I am buying nominal Treasuries is taxable and TIPS in IRAs, so the TEY of nominals is relevant for me.
Taxable would reduce the incremental benefit by about half for me.

There's a bigger difference at 3-5 years, but I had none. For those and longer terms I only have CDs and TIPS. I'm not selling the TIPS but break-even inflation rate vs. CDs has gotten pretty high.
My thinking on this....If inflation continues at 0.4%/month (big "if", I know, but the current figure is all we have tangible to work with), that would mean roughly 4.8% inflation between now and the maturity date of 3/24. If you add ~1.6% YTM for the 4/15/24 TIPS that would equate to 6.4% /yr. state tax free. Sure, if the Fed reaches its goal of 3% annual inflation by the end of the year it would be less than that, but we don't really know how things will change over the next year, or how soon, and at least with TIPS you know you will beat inflation by 1.6% no matter what.

I'm actually rethinking this and I want to fill in my ladder with longer maturities to lock in existing yields, anticipating that if inflation gets under control, TIPS yields will continue to fall (as they have been doing) and yields upon reinvestment within the next couple of years will be lower.

I agree that migrating to CD's for 10 basis points is not worth it, but I also think buying nominal bonds vs. TIPS is not worth it, if you also factor in the value of inflation protection, for a questionable better or worse yield.

Does this make sense to you?
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Re: Trading Treasuries (nominal and TIPS)

Post by jeffyscott »

^ Well, I was only commenting on what I think is something like 3-3.5% inflation required to break-even with TIPS vs. CDs (in an IRA account), given that the market appears to be forecasting something close to 2%, based on treasuries/TIPS. TIPS over treasuries would be an easy choice for me, but not so much vs. CDs
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Re: Trading Treasuries (nominal and TIPS)

Post by protagonist »

jeffyscott wrote: Wed Mar 22, 2023 10:23 pm ^ Well, I was only commenting on what I think is something like 3-3.5% inflation required to break-even with TIPS vs. CDs (in an IRA account), given that the market appears to be forecasting something close to 2%, based on treasuries/TIPS. TIPS over treasuries would be an easy choice for me, but not so much vs. CDs
Well, if the Fed got inflation down to 3% within a year, and assuming it was a steady, linear decline, that would still mean an average inflation of approx. 3.9% over the course of the year on your investment. 3.9% plus 1.6% YTM= 5.5%, correct? And the inflation protection has to be worth something to you. Even if the market gets it right (which is a big "if") and they do get inflation down to 2% (or lower), you would still be getting a guaranteed 1.6% real, which isn't bad for fixed income.
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Re: Trading Treasuries (nominal and TIPS)

Post by jeffyscott »

protagonist wrote: Thu Mar 23, 2023 8:53 am
jeffyscott wrote: Wed Mar 22, 2023 10:23 pm ^ Well, I was only commenting on what I think is something like 3-3.5% inflation required to break-even with TIPS vs. CDs (in an IRA account), given that the market appears to be forecasting something close to 2%, based on treasuries/TIPS. TIPS over treasuries would be an easy choice for me, but not so much vs. CDs
Well, if the Fed got inflation down to 3% within a year, and assuming it was a steady, linear decline, that would still mean an average inflation of approx. 3.9% over the course of the year on your investment. 3.9% plus 1.6% YTM= 5.5%, correct? And the inflation protection has to be worth something to you. Even if the market gets it right (which is a big "if") and they do get inflation down to 2% (or lower), you would still be getting a guaranteed 1.6% real, which isn't bad for fixed income.
Yesterday, I bought a CD at 5.35% (18 mo., but same rate was available at 1 year). If I had bought the closest TIPS, maybe I'd have gotten about 1.5% for April 15, 2024 or 1.3% for Oct. 2024. So BEI vs. the CD was around 3.9 or 4%. But the nominal Treasury rate was about 4.5% at 1 year and maybe 4.3% at 18 mo., so market expected inflation would appear to be around 3% (how and why that is, I don't know).

Today I just sold a treasury with 2 years remaining and bought a 2.5 year CD with a YTM about 1.1% higher than the Treasury (same CD rate was available at 2 years, but I chose to extend maturity a bit). A 2 year TIPS has a YTM of about 1.5% real, my BEI with the CD is about 3.5% but market expectation is around 2.4% inflation based on nominal treasury rate.

As noted, I am not selling any TIPS, only some nominal treasuries to take advantage what seem to be unusually large spreads vs. CDs.

I didn't buy any but I see a 5 year non-callable CDs at 4.75%, 5 year TIPS are about 1.2% real, and nominal treasury is about 3.5%. So again about 3.5% BEI vs. the CD but only 2.3% vs. the treasury. Of course, some of the difference would be offset by taxes in a taxable account.
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Re: Trading Treasuries (nominal and TIPS)

Post by CraigTester »

jeffyscott wrote: Thu Mar 23, 2023 9:43 am
protagonist wrote: Thu Mar 23, 2023 8:53 am
jeffyscott wrote: Wed Mar 22, 2023 10:23 pm ^ Well, I was only commenting on what I think is something like 3-3.5% inflation required to break-even with TIPS vs. CDs (in an IRA account), given that the market appears to be forecasting something close to 2%, based on treasuries/TIPS. TIPS over treasuries would be an easy choice for me, but not so much vs. CDs
Well, if the Fed got inflation down to 3% within a year, and assuming it was a steady, linear decline, that would still mean an average inflation of approx. 3.9% over the course of the year on your investment. 3.9% plus 1.6% YTM= 5.5%, correct? And the inflation protection has to be worth something to you. Even if the market gets it right (which is a big "if") and they do get inflation down to 2% (or lower), you would still be getting a guaranteed 1.6% real, which isn't bad for fixed income.
Yesterday, I bought a CD at 5.35% (18 mo., but same rate was available at 1 year). If I had bought the closest TIPS, maybe I'd have gotten about 1.5% for April 15, 2024 or 1.3% for Oct. 2024. So BEI vs. the CD was around 3.9 or 4%. But the nominal Treasury rate was about 4.5% at 1 year and maybe 4.3% at 18 mo., so market expected inflation would appear to be around 3% (how and why that is, I don't know).

Today I just sold a treasury with 2 years remaining and bought a 2.5 year CD with a YTM about 1.1% higher than the Treasury (same CD rate was available at 2 years, but I chose to extend maturity a bit). A 2 year TIPS has a YTM of about 1.5% real, my BEI with the CD is about 3.5% but market expectation is around 2.4% inflation based on nominal treasury rate.

As noted, I am not selling any TIPS, only some nominal treasuries to take advantage what seem to be unusually large spreads vs. CDs.

I didn't buy any but I see a 5 year non-callable CDs at 4.75%, 5 year TIPS are about 1.2% real, and nominal treasury is about 3.5%. So again about 3.5% BEI vs. the CD but only 2.3% vs. the treasury. Of course, some of the difference would be offset by taxes in a taxable account.
Good analysis jeffyscott --

Is the CD you bought Brokered or Retail...?

I like the EWP feature of Retail, but Brokered appear to have higher yields at the moment...,

Is liquidity an issue with brokered CD's....? (I'm still a brokered-virgin)

Do you (or anyone else), have any experience trying to sell brokered CD's in a bad market like 2008....?
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jeffyscott
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Re: Trading Treasuries (nominal and TIPS)

Post by jeffyscott »

CraigTester wrote: Thu Mar 23, 2023 10:13 am Good analysis jeffyscott --

Is the CD you bought Brokered or Retail...?

I like the EWP feature of Retail, but Brokered appear to have higher yields at the moment...,

Is liquidity an issue with brokered CD's....? (I'm still a brokered-virgin)

Do you (or anyone else), have any experience trying to sell brokered CD's in a bad market like 2008....?
Brokered CD and yes, they are not very liquid. I have never sold one and don't plan to. Having now sold a couple treasuries, I can see that one kind of hidden advantage to consider, if buying when spreads vs. CDs are small, is that they are easy to sell if the spread vs. CDs later widens. It's pretty cheap and easy to move from a treasury to a CD, but not the reverse.

EWP feature is nice, but shipping IRA money around to random banks is a pain. I endured that to get 2%, when alternatives were near 0, but hope to never need to do so again.
(I did retain a small balance at one bank, because I am grandfathered in to a renewable variable rate add-on CD with a 2% minimum interest rate. I figure I will keep renewing that as long as they let me keep that minimum rate on it, since it can provide a somewhat easier escape hatch vs. creating a new account somewhere.)
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TheTimeLord
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Re: Trading Treasuries (nominal and TIPS)

Post by TheTimeLord »

jeffyscott wrote: Thu Mar 23, 2023 10:39 am
CraigTester wrote: Thu Mar 23, 2023 10:13 am Good analysis jeffyscott --

Is the CD you bought Brokered or Retail...?

I like the EWP feature of Retail, but Brokered appear to have higher yields at the moment...,

Is liquidity an issue with brokered CD's....? (I'm still a brokered-virgin)

Do you (or anyone else), have any experience trying to sell brokered CD's in a bad market like 2008....?
Brokered CD and yes, they are not very liquid. I have never sold one and don't plan to. Having now sold a couple treasuries, I can see that one kind of hidden advantage to consider, if buying when spreads vs. CDs are small, is that they are easy to sell if the spread vs. CDs later widens. It's pretty cheap and easy to move from a treasury to a CD, but not the reverse.

EWP feature is nice, but shipping IRA money around to random banks is a pain. I endured that to get 2%, when alternatives were near 0, but hope to never need to do so again.
(I did retain a small balance at one bank, because I am grandfathered in to a renewable variable rate add-on CD with a 2% minimum interest rate. I figure I will keep renewing that as long as they let me keep that minimum rate on it, since it can provide a somewhat easier escape hatch vs. creating a new account somewhere.)
My suspicion is that the nice rates being offered on Brokered CDs right now are a way of banks locking in deposits since they can't normally be broken but must be sold as opposed to traditional CDs sold at banks.
IMHO, Investing should be about living the life you want, not avoiding the life you fear. | Run, You Clever Boy! [9085]
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jeffyscott
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Re: Trading Treasuries (nominal and TIPS)

Post by jeffyscott »

TheTimeLord wrote: Thu Mar 23, 2023 10:42 am
jeffyscott wrote: Thu Mar 23, 2023 10:39 am
CraigTester wrote: Thu Mar 23, 2023 10:13 am Good analysis jeffyscott --

Is the CD you bought Brokered or Retail...?

I like the EWP feature of Retail, but Brokered appear to have higher yields at the moment...,

Is liquidity an issue with brokered CD's....? (I'm still a brokered-virgin)

Do you (or anyone else), have any experience trying to sell brokered CD's in a bad market like 2008....?
Brokered CD and yes, they are not very liquid. I have never sold one and don't plan to. Having now sold a couple treasuries, I can see that one kind of hidden advantage to consider, if buying when spreads vs. CDs are small, is that they are easy to sell if the spread vs. CDs later widens. It's pretty cheap and easy to move from a treasury to a CD, but not the reverse.

EWP feature is nice, but shipping IRA money around to random banks is a pain. I endured that to get 2%, when alternatives were near 0, but hope to never need to do so again.
(I did retain a small balance at one bank, because I am grandfathered in to a renewable variable rate add-on CD with a 2% minimum interest rate. I figure I will keep renewing that as long as they let me keep that minimum rate on it, since it can provide a somewhat easier escape hatch vs. creating a new account somewhere.)
My suspicion is that the nice rates being offered on Brokered CDs right now are a way of banks locking in deposits since they can't normally be broken but must be sold as opposed to traditional CDs sold at banks.
For a given bank there should always be an illiquidity premium on their brokered CDs, I don't know if there always is, though.

For direct CDs there's usually an inconvenience premium, somewhere. Even now I see one with 5.5% for 2-3 year, so that's better than what I got for brokered.
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TheTimeLord
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Re: Trading Treasuries (nominal and TIPS)

Post by TheTimeLord »

jeffyscott wrote: Thu Mar 23, 2023 10:55 am
TheTimeLord wrote: Thu Mar 23, 2023 10:42 am
jeffyscott wrote: Thu Mar 23, 2023 10:39 am
CraigTester wrote: Thu Mar 23, 2023 10:13 am Good analysis jeffyscott --

Is the CD you bought Brokered or Retail...?

I like the EWP feature of Retail, but Brokered appear to have higher yields at the moment...,

Is liquidity an issue with brokered CD's....? (I'm still a brokered-virgin)

Do you (or anyone else), have any experience trying to sell brokered CD's in a bad market like 2008....?
Brokered CD and yes, they are not very liquid. I have never sold one and don't plan to. Having now sold a couple treasuries, I can see that one kind of hidden advantage to consider, if buying when spreads vs. CDs are small, is that they are easy to sell if the spread vs. CDs later widens. It's pretty cheap and easy to move from a treasury to a CD, but not the reverse.

EWP feature is nice, but shipping IRA money around to random banks is a pain. I endured that to get 2%, when alternatives were near 0, but hope to never need to do so again.
(I did retain a small balance at one bank, because I am grandfathered in to a renewable variable rate add-on CD with a 2% minimum interest rate. I figure I will keep renewing that as long as they let me keep that minimum rate on it, since it can provide a somewhat easier escape hatch vs. creating a new account somewhere.)
My suspicion is that the nice rates being offered on Brokered CDs right now are a way of banks locking in deposits since they can't normally be broken but must be sold as opposed to traditional CDs sold at banks.
For a given bank there should always be an illiquidity premium on their brokered CDs, I don't know if there always is, though.

For direct CDs there's usually an inconvenience premium, somewhere. Even now I see one with 5.5% for 2-3 year, so that's better than what I got for brokered.
I have a small fire walled bank account I used for trading a forbidden topic here which had a little cash in a 0% checking account. I have been noticing they are offering approximately 1 year CDs at 5% so I transferred my money into those. The breakage penalty is pretty steep.
IMHO, Investing should be about living the life you want, not avoiding the life you fear. | Run, You Clever Boy! [9085]
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Re: Trading Treasuries (nominal and TIPS)

Post by CraigTester »

jeffyscott wrote: Thu Mar 23, 2023 10:55 am
TheTimeLord wrote: Thu Mar 23, 2023 10:42 am
jeffyscott wrote: Thu Mar 23, 2023 10:39 am
CraigTester wrote: Thu Mar 23, 2023 10:13 am Good analysis jeffyscott --

Is the CD you bought Brokered or Retail...?

I like the EWP feature of Retail, but Brokered appear to have higher yields at the moment...,

Is liquidity an issue with brokered CD's....? (I'm still a brokered-virgin)

Do you (or anyone else), have any experience trying to sell brokered CD's in a bad market like 2008....?
Brokered CD and yes, they are not very liquid. I have never sold one and don't plan to. Having now sold a couple treasuries, I can see that one kind of hidden advantage to consider, if buying when spreads vs. CDs are small, is that they are easy to sell if the spread vs. CDs later widens. It's pretty cheap and easy to move from a treasury to a CD, but not the reverse.

EWP feature is nice, but shipping IRA money around to random banks is a pain. I endured that to get 2%, when alternatives were near 0, but hope to never need to do so again.
(I did retain a small balance at one bank, because I am grandfathered in to a renewable variable rate add-on CD with a 2% minimum interest rate. I figure I will keep renewing that as long as they let me keep that minimum rate on it, since it can provide a somewhat easier escape hatch vs. creating a new account somewhere.)
My suspicion is that the nice rates being offered on Brokered CDs right now are a way of banks locking in deposits since they can't normally be broken but must be sold as opposed to traditional CDs sold at banks.
For a given bank there should always be an illiquidity premium on their brokered CDs, I don't know if there always is, though.

For direct CDs there's usually an inconvenience premium, somewhere. Even now I see one with 5.5% for 2-3 year, so that's better than what I got for brokered.
For me the yield vs inconvenience is a no-brainer because I'd rather type on my computer than cut my own grass.... :happy

But the illiquidity is a real concern...I've gotten hung up with this issue on TIPS as well...

Thanks for insight...
protagonist
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Re: Trading Treasuries (nominal and TIPS)

Post by protagonist »

jeffyscott wrote: Thu Mar 23, 2023 9:43 am
protagonist wrote: Thu Mar 23, 2023 8:53 am
jeffyscott wrote: Wed Mar 22, 2023 10:23 pm ^ Well, I was only commenting on what I think is something like 3-3.5% inflation required to break-even with TIPS vs. CDs (in an IRA account), given that the market appears to be forecasting something close to 2%, based on treasuries/TIPS. TIPS over treasuries would be an easy choice for me, but not so much vs. CDs
Well, if the Fed got inflation down to 3% within a year, and assuming it was a steady, linear decline, that would still mean an average inflation of approx. 3.9% over the course of the year on your investment. 3.9% plus 1.6% YTM= 5.5%, correct? And the inflation protection has to be worth something to you. Even if the market gets it right (which is a big "if") and they do get inflation down to 2% (or lower), you would still be getting a guaranteed 1.6% real, which isn't bad for fixed income.
Yesterday, I bought a CD at 5.35% (18 mo., but same rate was available at 1 year). If I had bought the closest TIPS, maybe I'd have gotten about 1.5% for April 15, 2024 or 1.3% for Oct. 2024. So BEI vs. the CD was around 3.9 or 4%. But the nominal Treasury rate was about 4.5% at 1 year and maybe 4.3% at 18 mo., so market expected inflation would appear to be around 3% (how and why that is, I don't know).

Today I just sold a treasury with 2 years remaining and bought a 2.5 year CD with a YTM about 1.1% higher than the Treasury (same CD rate was available at 2 years, but I chose to extend maturity a bit). A 2 year TIPS has a YTM of about 1.5% real, my BEI with the CD is about 3.5% but market expectation is around 2.4% inflation based on nominal treasury rate.

As noted, I am not selling any TIPS, only some nominal treasuries to take advantage what seem to be unusually large spreads vs. CDs.

I didn't buy any but I see a 5 year non-callable CDs at 4.75%, 5 year TIPS are about 1.2% real, and nominal treasury is about 3.5%. So again about 3.5% BEI vs. the CD but only 2.3% vs. the treasury. Of course, some of the difference would be offset by taxes in a taxable account.

That all makes sense. I suppose it depends on your goals, and the amount of risk you want to take.
As a retiree, I place a lot of value on inflation protection within the fixed income portion of my portfolio. Inflation, and especially stagflation, is my worst enemy. This was driven home last year when inflation surged to around 9%, the stock market was in bear territory, and most of my retirement account was in CDs getting 3-4% interest.

Illiquidity, or to be more accurate having to sell at a loss prior to maturity, does not bother me much with TIPS. I have a TIPS ladder with maturities at least annually, which is about as much liquidity as I think I will need.
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Re: Trading Treasuries (nominal and TIPS)

Post by jeffyscott »

For a treasury that has been sold, am I correct in assuming that the YTM shown on the confirmation is based on the price (and accrued interest) that I got? Meaning that had I kept the treasury, the YTM shown is the yield I would have earned for the remaining term, assuming the current value was what it sold for.
hudson
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Re: Trading Treasuries (nominal and TIPS)

Post by hudson »

hudson wrote: Wed Mar 22, 2023 8:11 am
Kevin M wrote: Thu Feb 09, 2023 12:03 pm
exodusing wrote: Thu Feb 09, 2023 8:18 am There was an earlier discussion of the mechanics of rolling tbills at Vanguard, including whether the proceeds from maturing bills could be used to settle the next auction, but I'm not seeing the conclusion. viewtopic.php?p=6721037#p6721037 Apologies since I'm probably missing something.

There's a 13 week tbill auction every Monday (other than holidays) which settles on Thursday.

Does that mean if I participate in the Monday Feb 13 auction by ordering through a Vanguard brokerage account I'd need available funds on Thursday the 16th and would receive funds at maturity on Thursday May 18 that could be used to settle the 13 week tbill auction on Monday May 15 that settles on Thursday May 18?

If so, does this mean I'd be fully invested at all times, other than that tbills normally trade at a discount, so there would be some rounding error?

I realize that there are alternatives, such as Fidelity autoroll, the secondary market, treasury money market funds, etc.
I'm pretty sure we've seen posts that indicate that you can use the proceeds of a Treasury that matures on the settlement date of a Treasury purchase to settle the purchase at Vanguard. I personally have not tried it yet (per the post you linked, I meant to, but forgot and sold before maturity).
Test of the above bolded text in process

My settlement account did not have enough funds to cover the purchase.

CUSIP 912796U31 matures tomorrow...the 23D
CUSIP I912797FX0 (Settles tomorrow on the 23D) just purchased at Vanguard ("order executed on 03/22/2023 at 8:53 AM, Eastern time") (4.806%)

The email and text I got after the order executed did not warn me about a shortage of funds.

I think that this was a secondary market purchase; the bond market must open before 9:30.
Update on the above test (Early purchase of a treasury bill to replace a maturing bill with an empty settlement fund.)

Vanguard showed nothing concerning the maturing bill on my account until the day after the transaction.
This morning on the 24th, it showed:
"Corp Action (Redemption) $989.16"
"Interest $10.84"
(The purchase of the new bill showed up on the 23D with no error messages.)

Bottom Line:
Buying a new bill to replace a maturing bill before the maturity date worked...at Vanguard. Again nothing showed up until the day after the maturity date.

I tested the same deal with Fidelity. I couldn't make it work. Fidelity wouldn't budge until the funds were in my settlement account.
Last edited by hudson on Fri Mar 24, 2023 7:44 am, edited 1 time in total.
exodusing
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Re: Trading Treasuries (nominal and TIPS)

Post by exodusing »

The bond market opens at 8:00, at least the NYSE bond market - https://www.nyse.com/markets/bonds/market-info
hudson
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Re: Trading Treasuries (nominal and TIPS)

Post by hudson »

Thanks exodusing! Useful info...bookmarked.
Arby
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Re: Trading Treasuries (nominal and TIPS)

Post by Arby »

hudson wrote: Fri Mar 24, 2023 7:31 am
hudson wrote: Wed Mar 22, 2023 8:11 am
Kevin M wrote: Thu Feb 09, 2023 12:03 pm
exodusing wrote: Thu Feb 09, 2023 8:18 am There was an earlier discussion of the mechanics of rolling tbills at Vanguard, including whether the proceeds from maturing bills could be used to settle the next auction, but I'm not seeing the conclusion. viewtopic.php?p=6721037#p6721037 Apologies since I'm probably missing something.

There's a 13 week tbill auction every Monday (other than holidays) which settles on Thursday.

Does that mean if I participate in the Monday Feb 13 auction by ordering through a Vanguard brokerage account I'd need available funds on Thursday the 16th and would receive funds at maturity on Thursday May 18 that could be used to settle the 13 week tbill auction on Monday May 15 that settles on Thursday May 18?

If so, does this mean I'd be fully invested at all times, other than that tbills normally trade at a discount, so there would be some rounding error?

I realize that there are alternatives, such as Fidelity autoroll, the secondary market, treasury money market funds, etc.
I'm pretty sure we've seen posts that indicate that you can use the proceeds of a Treasury that matures on the settlement date of a Treasury purchase to settle the purchase at Vanguard. I personally have not tried it yet (per the post you linked, I meant to, but forgot and sold before maturity).
Test of the above bolded text in process

My settlement account did not have enough funds to cover the purchase.

CUSIP 912796U31 matures tomorrow...the 23D
CUSIP I912797FX0 (Settles tomorrow on the 23D) just purchased at Vanguard ("order executed on 03/22/2023 at 8:53 AM, Eastern time") (4.806%)

The email and text I got after the order executed did not warn me about a shortage of funds.

I think that this was a secondary market purchase; the bond market must open before 9:30.
Update on the above test (Early purchase of a treasury bill to replace a maturing bill with an empty settlement fund.)

Vanguard showed nothing concerning the maturing bill on my account until the day after the transaction.
This morning on the 24th, it showed:
"Corp Action (Redemption) $989.16"
"Interest $10.84"
(The purchase of the new bill showed up on the 23D with no error messages.)

Bottom Line:
Buying a new bill to replace a maturing bill before the maturity date worked...at Vanguard. Again nothing showed up until the day after the maturity date.

I tested the same deal with Fidelity. I couldn't make it work. Fidelity wouldn't budge until the funds were in my settlement account.
Fidelity does have an Auto Roll option but must be selected when purchasing the original Treasury. You can remove the auto roll after the original purchase but I don't use it as I am likely to forget to remove the auto roll.
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jeffyscott
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Re: Trading Treasuries (nominal and TIPS)

Post by jeffyscott »

hudson wrote: Fri Mar 24, 2023 7:31 am Bottom Line:
Buying a new bill to replace a maturing bill before the maturity date worked...at Vanguard. Again nothing showed up until the day after the maturity date.

I tested the same deal with Fidelity. I couldn't make it work. Fidelity wouldn't budge until the funds were in my settlement account.
It appears that works at Schwab also, based on #cruncher's post here:
viewtopic.php?p=6983276#p6983276
#Cruncher wrote: Mon Nov 28, 2022 3:35 pm
Joe Public wrote: Wed Sep 21, 2022 10:58 pm ...I haven't tested a manual rollover at Schwab with funds from a T-bill that hasn't matured by the auction date. I'll be interested to hear how it goes.
Manual rollover at Schwab worked for me with no days uninvested. I had an 8-week bill maturing 11/29/2022. I was able to buy a new 8-week at the 11/23/2022 auction to be issued 11/29. Without the proceeds of the old bill maturing, there weren't enough funds to cover the new purchase. (It's a cash, not margin, account.) But apparently Schwab's online system was smart enough to know that there would be sufficient funds on the settlement date; and the order went through.
...
MisterMister
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Re: Trading Treasuries (nominal and TIPS)

Post by MisterMister »

jeffyscott wrote: Fri Mar 24, 2023 8:04 am
hudson wrote: Fri Mar 24, 2023 7:31 am Bottom Line:
Buying a new bill to replace a maturing bill before the maturity date worked...at Vanguard. Again nothing showed up until the day after the maturity date.

I tested the same deal with Fidelity. I couldn't make it work. Fidelity wouldn't budge until the funds were in my settlement account.
It appears that works at Schwab also, based on #cruncher's post here:
viewtopic.php?p=6983276#p6983276
#Cruncher wrote: Mon Nov 28, 2022 3:35 pm
Joe Public wrote: Wed Sep 21, 2022 10:58 pm ...I haven't tested a manual rollover at Schwab with funds from a T-bill that hasn't matured by the auction date. I'll be interested to hear how it goes.
Manual rollover at Schwab worked for me with no days uninvested. I had an 8-week bill maturing 11/29/2022. I was able to buy a new 8-week at the 11/23/2022 auction to be issued 11/29. Without the proceeds of the old bill maturing, there weren't enough funds to cover the new purchase. (It's a cash, not margin, account.) But apparently Schwab's online system was smart enough to know that there would be sufficient funds on the settlement date; and the order went through.
...
This will work at Fidelity, but you must have a margin account. Converting to a margin account was very simple for me to do, though the margin account itself takes some getting used to. In retrospect I don't think I'd make the choice just for this capability; I'll just use auto-roll where I want it.
hudson
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Re: Trading Treasuries (nominal and TIPS)

Post by hudson »

MisterMister wrote: Fri Mar 24, 2023 8:21 am
jeffyscott wrote: Fri Mar 24, 2023 8:04 am
hudson wrote: Fri Mar 24, 2023 7:31 am Bottom Line:
Buying a new bill to replace a maturing bill before the maturity date worked...at Vanguard. Again nothing showed up until the day after the maturity date.

I tested the same deal with Fidelity. I couldn't make it work. Fidelity wouldn't budge until the funds were in my settlement account.
It appears that works at Schwab also, based on #cruncher's post here:
viewtopic.php?p=6983276#p6983276
#Cruncher wrote: Mon Nov 28, 2022 3:35 pm
Joe Public wrote: Wed Sep 21, 2022 10:58 pm ...I haven't tested a manual rollover at Schwab with funds from a T-bill that hasn't matured by the auction date. I'll be interested to hear how it goes.
Manual rollover at Schwab worked for me with no days uninvested. I had an 8-week bill maturing 11/29/2022. I was able to buy a new 8-week at the 11/23/2022 auction to be issued 11/29. Without the proceeds of the old bill maturing, there weren't enough funds to cover the new purchase. (It's a cash, not margin, account.) But apparently Schwab's online system was smart enough to know that there would be sufficient funds on the settlement date; and the order went through.
...
This will work at Fidelity, but you must have a margin account. Converting to a margin account was very simple for me to do, though the margin account itself takes some getting used to. In retrospect I don't think I'd make the choice just for this capability; I'll just use auto-roll where I want it.
Thanks MisterMister!
alex_686 worked a margin desk maybe at Fidelity. Probably required reading for anyone considering a margin account.
viewtopic.php?p=5886124#p5886124
Lyrrad
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Re: Trading Treasuries (nominal and TIPS)

Post by Lyrrad »

MisterMister wrote: Fri Mar 24, 2023 8:21 am
This will work at Fidelity, but you must have a margin account. Converting to a margin account was very simple for me to do, though the margin account itself takes some getting used to. In retrospect I don't think I'd make the choice just for this capability; I'll just use auto-roll where I want it.
I've done it at Fidelity without a margin account, but I need to have additional funds in a separate Fidelity account. I transfer in $1000 times the number of bonds I want to purchase, place the auction order, and then immediately transfer the money out. If I don't transfer the money out, I lose access to those funds between auction and settlement.
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Re: Trading Treasuries (nominal and TIPS)

Post by Kevin M »

jeffyscott wrote: Fri Mar 24, 2023 6:57 am For a treasury that has been sold, am I correct in assuming that the YTM shown on the confirmation is based on the price (and accrued interest) that I got? Meaning that had I kept the treasury, the YTM shown is the yield I would have earned for the remaining term, assuming the current value was what it sold for.
The YTM probably is simply calculated from the price. You received the bid price. Whether or not the indicated YTM is what you would have earned depends on what price you want to base you yield calculation on. If you want to use the bid price, then yes, but that's not what you'd pay if you bought the Treasury--you'd pay the ask price.

You might want to calculate the yield based on the midpoint between the ask and bid, assuming that's the "fair" price.

Kevin
If I make a calculation error, #Cruncher probably will let me know.
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Re: Trading Treasuries (nominal and TIPS)

Post by hoops777 »

jeffyscott wrote: Thu Mar 23, 2023 9:43 am
protagonist wrote: Thu Mar 23, 2023 8:53 am
jeffyscott wrote: Wed Mar 22, 2023 10:23 pm ^ Well, I was only commenting on what I think is something like 3-3.5% inflation required to break-even with TIPS vs. CDs (in an IRA account), given that the market appears to be forecasting something close to 2%, based on treasuries/TIPS. TIPS over treasuries would be an easy choice for me, but not so much vs. CDs
Well, if the Fed got inflation down to 3% within a year, and assuming it was a steady, linear decline, that would still mean an average inflation of approx. 3.9% over the course of the year on your investment. 3.9% plus 1.6% YTM= 5.5%, correct? And the inflation protection has to be worth something to you. Even if the market gets it right (which is a big "if") and they do get inflation down to 2% (or lower), you would still be getting a guaranteed 1.6% real, which isn't bad for fixed income.
Yesterday, I bought a CD at 5.35% (18 mo., but same rate was available at 1 year). If I had bought the closest TIPS, maybe I'd have gotten about 1.5% for April 15, 2024 or 1.3% for Oct. 2024. So BEI vs. the CD was around 3.9 or 4%. But the nominal Treasury rate was about 4.5% at 1 year and maybe 4.3% at 18 mo., so market expected inflation would appear to be around 3% (how and why that is, I don't know).

Today I just sold a treasury with 2 years remaining and bought a 2.5 year CD with a YTM about 1.1% higher than the Treasury (same CD rate was available at 2 years, but I chose to extend maturity a bit). A 2 year TIPS has a YTM of about 1.5% real, my BEI with the CD is about 3.5% but market expectation is around 2.4% inflation based on nominal treasury rate.

As noted, I am not selling any TIPS, only some nominal treasuries to take advantage what seem to be unusually large spreads vs. CDs.

I didn't buy any but I see a 5 year non-callable CDs at 4.75%, 5 year TIPS are about 1.2% real, and nominal treasury is about 3.5%. So again about 3.5% BEI vs. the CD but only 2.3% vs. the treasury. Of course, some of the difference would be offset by taxes in a taxable account.
Sold some more short term treasuries and bought another new 5 yr CD at 5%. It is very easy to sell treasuries on Schwab.Takes about 30 seconds.
I am happy with 5% for 5 years in my various IRA accounts.
There was quite a difference between CD and treasuries today.
Of course they are guaranteed to be at 6 % soon because I did this 😊
K.I.S.S........so easy to say so difficult to do.
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Re: Trading Treasuries (nominal and TIPS)

Post by Electron »

Attached is an update on my T-Bill Ladder Chart. Weekly Auction Data from Treasury Direct is used rather than daily yields from the Treasury Par Yield Curve. Investment rates are calculated from price data and use 365 day or 366 day years as appropriate.

The Average Investment Rates on the 4 week, 8 week, 13 week, and 26 week Treasury Bill ladders over the term of each ladder are compared with the 7 day SEC yield on VUSXX. All T-Bill ladders assume weekly purchase. Maturing T-Bills are replaced with T-Bills of the same maturity.

The issue dates are generally 2 days apart for the 4 and 8 week T-Bills and the 13 and 26 week T-Bills. The weekly date axis uses the date between the two issue dates. The 7 day SEC yield for VUSXX is provided on the same day.

The figures below are for the period 6-28-22 through 3-23-23. The ladder with 13 week T-Bills provided the highest return over this period followed by the ladder with 8 week T-Bills.

Ladder with 13 week T-Bills - Return averaged 15.9 basis points higher than VUSXX
Ladder with 8 week T-Bills - Return averaged 15.4 basis points higher than VUSXX
Ladder with 4 week T-Bills - Return averaged 10.2 basis points higher than VUSXX
Ladder with 26 week T-Bills - Return averaged 2.7 basis points lower than VUSXX

The return on the ladder with 26 week T-Bills was lower than VUSXX for 32 consecutive weeks. The return has been higher than VUSXX since 2-28-23. The 26 week T-Bill ladder should provide a better comparison as rates level off. The longer maturity ladders should also perform well when rates eventually decline.

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hudson
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Re: Trading Treasuries (nominal and TIPS)

Post by hudson »

Thanks Electron!
It looks like all choices are OK although I'd want the highest.
VUSXX...Vanguard Treasury Money Market Fund
SEC 4.61
ER .09
AVG Maturity 30 days
Paid out 4.47% annualized on March 1.
I speculate that the pay out will rise on April 1...maybe to almost 4.6?
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jeffyscott
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Re: Trading Treasuries (nominal and TIPS)

Post by jeffyscott »

Kevin M wrote: Fri Mar 24, 2023 1:13 pm
jeffyscott wrote: Fri Mar 24, 2023 6:57 am For a treasury that has been sold, am I correct in assuming that the YTM shown on the confirmation is based on the price (and accrued interest) that I got? Meaning that had I kept the treasury, the YTM shown is the yield I would have earned for the remaining term, assuming the current value was what it sold for.
The YTM probably is simply calculated from the price. You received the bid price. Whether or not the indicated YTM is what you would have earned depends on what price you want to base you yield calculation on. If you want to use the bid price, then yes, but that's not what you'd pay if you bought the Treasury--you'd pay the ask price.

You might want to calculate the yield based on the midpoint between the ask and bid, assuming that's the "fair" price.

Kevin
Thanks, the midpoint probably makes sense if I wanted to know "what's the yield of this bond?".

I would want use the yield based on what I actually got from the sale to tell me what the incremental increased yield was for making the exchange. Not that it really matters, I knew it was a significant increase of 1+%, using any of the figures, before making the transactions.
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Electron
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Re: Trading Treasuries (nominal and TIPS)

Post by Electron »

hudson wrote: Fri Mar 24, 2023 3:18 pm Thanks Electron!
It looks like all choices are OK although I'd want the highest.
It's probably difficult to select the ladder maturity that would have the highest return in any given period.

The yield curve seems to be changing all the time and the trend in yields is also changing. The market also discounts a number of different factors in advance.

The 26 week T-Bill has often had the highest yield in recent months. The 17 week T-Bill has also been showing a very attractive yield.

I intend to keep an eye on the 17 week yields when T-Bills in my ladder are approaching maturity.

https://home.treasury.gov/resource-cent ... nth=202303

The monthly payout from VUSXX has been rising every month as you mentioned. It looks like another good month for the fund. T-Bill ladders may still be the best choice for taxable accounts.
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Kevin M
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Re: Trading Treasuries (nominal and TIPS)

Post by Kevin M »

Electron wrote: Sat Mar 25, 2023 6:00 pm It's probably difficult to select the ladder maturity that would have the highest return in any given period.
More than difficult--pretty much impossible. If it were possible, whatever advantage said ladder might have would be arbitraged away quite quickly, bringing us back to equilibrium from the market's perspective.

The current yield curve reflects the views of all bond market participants, right or wrong in terms of the future.

Keep in mind that if you generalize, one of the ladders is to simply buy the maturity that matures at the end of "any given period). So what you're asking is will you do better to buy a single issue that matures at the end of your horizon, or do you roll some shorter term maturity or maturities for the period. No one knows the answer to this.
If I make a calculation error, #Cruncher probably will let me know.
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Re: Trading Treasuries (nominal and TIPS)

Post by TheTimeLord »

Kevin M wrote: Sat Mar 25, 2023 10:08 pm
Electron wrote: Sat Mar 25, 2023 6:00 pm It's probably difficult to select the ladder maturity that would have the highest return in any given period.
More than difficult--pretty much impossible. If it were possible, whatever advantage said ladder might have would be arbitraged away quite quickly, bringing us back to equilibrium from the market's perspective.

The current yield curve reflects the views of all bond market participants, right or wrong in terms of the future.

Keep in mind that if you generalize, one of the ladders is to simply buy the maturity that matures at the end of "any given period). So what you're asking is will you do better to buy a single issue that matures at the end of your horizon, or do you roll some shorter term maturity or maturities for the period. No one knows the answer to this.
How many people missed out on 5% 2 year and 4.635% 3 year treasuries recently because they were waiting to see if rates would go a bit higher?
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Re: Trading Treasuries (nominal and TIPS)

Post by Doc »

TheTimeLord wrote: Sun Mar 26, 2023 9:51 am How many people missed out on 5% 2 year and 4.635% 3 year treasuries recently because they were waiting to see if rates would go a bit higher?
I bought a "used" ~24 week bill Thursday that yields 4.638%. Did I miss out?
A scientist looks for THE answer to a problem, an engineer looks for AN answer and lawyers ONLY have opinions. Investing is not a science.
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TheTimeLord
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Re: Trading Treasuries (nominal and TIPS)

Post by TheTimeLord »

Doc wrote: Sun Mar 26, 2023 11:02 am
TheTimeLord wrote: Sun Mar 26, 2023 9:51 am How many people missed out on 5% 2 year and 4.635% 3 year treasuries recently because they were waiting to see if rates would go a bit higher?
I bought a "used" ~24 week bill Thursday that yields 4.638%. Did I miss out?
From my perspective, big time. But that is because if I was happy with a rate of 4.635% then I personally would have preferred to lock it in for 156 weeks vs. 24 weeks. I am sure other people have different approaches.
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Re: Trading Treasuries (nominal and TIPS)

Post by jeffyscott »

^But what about those who missed out because all their money was already invested. 🙋‍♂️

Where'd the money to buy the 3 year come from?
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TheTimeLord
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Re: Trading Treasuries (nominal and TIPS)

Post by TheTimeLord »

jeffyscott wrote: Sun Mar 26, 2023 11:51 am ^But what about those who missed out because all their money was already invested. 🙋‍♂️

Where'd the money to buy the 3 year come from?
In this specific instance, unutilized funds from a matured LMP ladder rung.
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