Trading Treasuries (nominal and TIPS)

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

Post by jeffyscott »

jeffyscott wrote: Wed Jun 22, 2022 3:48 pm
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)
So at exactly 3 PM yesterday, I downloaded all the TIPS quotes from Schwab. This morning I copied the data for Thursday from the WSJ site into the same spreadsheet (conveniently this worked by just copy/paste, though I did have to, tediously, convert the 32nds to cents). Anyway, the results are that there was very little difference. The average ratio of the Schwab price to the WSJ price was 1.00036 (a 0.036% difference) the range was from 0.99926 to 1.00113 (-0.074% to +0.113%).

Note that not all the Schwab quotes were for min quantity of 1, but both the best and worst (relative to WSJ) did have minimum of 1.

Also, except for the shortest terms, the YTM differences were ~0.02% or less. For maturities of about 2 years or more, i.e. 7/15/24 or later, the worst difference in YTM was 0.023% (for 1/15/25).
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Re: Buying T-Bills at Auction on Fidelity - Confounding Figures?

Post by #Cruncher »

jeffyscott wrote: Fri Jun 24, 2022 7:02 amThis morning I copied the data for Thursday from the WSJ site into the same spreadsheet (conveniently this worked by just copy/paste, though I did have to, tediously, convert the 32nds to cents). (underline added)
I hope you didn't actually do this manually since it can be easily computed using the INT and MOD functions. For example, here is how to convert the "101.17" ask price for the July 2022 listed first on yesterday's WSJ TIPS Quotes:
100.53125 = INT(100.17)+(100*MOD(100.17,1))/32

A bigger problem for me is converting the WSJ's "Maturity" to an actual date value in Excel. I use a hairy looking formula illustrated here for the WSJ's "2022 Jul 15":

Code: Select all

7/15/2022 = DATE(VALUE(LEFT(TRIM("2022 Jul 15"),4)),INT((SEARCH(TRIM(MID(TRIM("2022 Jul 15"),5,4)),"JanFebMarAprMayJunJulAugSepOctNovDec")-1)/3)+1,VALUE(RIGHT(TRIM("2022 Jul 15"),2)))
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Re: Buying T-Bills at Auction on Fidelity - Confounding Figures?

Post by Kevin M »

jeffyscott wrote: Fri Jun 24, 2022 7:02 am
jeffyscott wrote: Wed Jun 22, 2022 3:48 pm
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)
So at exactly 3 PM yesterday, I downloaded all the TIPS quotes from Schwab. This morning I copied the data for Thursday from the WSJ site into the same spreadsheet (conveniently this worked by just copy/paste, though I did have to, tediously, convert the 32nds to cents). Anyway, the results are that there was very little difference. The average ratio of the Schwab price to the WSJ price was 1.00036 (a 0.036% difference) the range was from 0.99926 to 1.00113 (-0.074% to +0.113%).

Note that not all the Schwab quotes were for min quantity of 1, but both the best and worst (relative to WSJ) did have minimum of 1.

Also, except for the shortest terms, the YTM differences were ~0.02% or less. For maturities of about 2 years or more, i.e. 7/15/24 or later, the worst difference in YTM was 0.023% (for 1/15/25).
Cool experiment. Thanks for sharing.
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 »

Added a bit more TIPS exposure this morning.
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Re: Buying T-Bills at Auction on Fidelity - Confounding Figures?

Post by jeffyscott »

#Cruncher wrote: Fri Jun 24, 2022 11:28 am
jeffyscott wrote: Fri Jun 24, 2022 7:02 amThis morning I copied the data for Thursday from the WSJ site into the same spreadsheet (conveniently this worked by just copy/paste, though I did have to, tediously, convert the 32nds to cents). (underline added)
I hope you didn't actually do this manually since it can be easily computed using the INT and MOD functions. For example, here is how to convert the "101.17" ask price for the July 2022 listed first on yesterday's WSJ TIPS Quotes:
100.53125 = INT(100.17)+(100*MOD(100.17,1))/32
Yes, manually, as in look in the column with price 100.17 and then type: +100+17/32 in another column. It didn't actually take long to do that 49 times, but I did have to go back and correct all the ones with one digit after the decimal point, for example when I saw 102.1, I typed 1/32 instead of 10/32.

I did just now use those functions to verify that there were no remaining errors. Thanks for the tip, if I ever do that again it will save some time.
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Re: Buying T-Bills at Auction on Fidelity - Confounding Figures?

Post by jeffyscott »

Kevin M wrote: Fri Jun 24, 2022 12:28 pm
jeffyscott wrote: Fri Jun 24, 2022 7:02 am
jeffyscott wrote: Wed Jun 22, 2022 3:48 pm
squirrel1963 wrote: Wed Jun 22, 2022 3:24 pm
Kevin M wrote: Wed Jun 22, 2022 1:52 pm
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)
So at exactly 3 PM yesterday, I downloaded all the TIPS quotes from Schwab. This morning I copied the data for Thursday from the WSJ site into the same spreadsheet (conveniently this worked by just copy/paste, though I did have to, tediously, convert the 32nds to cents). Anyway, the results are that there was very little difference. The average ratio of the Schwab price to the WSJ price was 1.00036 (a 0.036% difference) the range was from 0.99926 to 1.00113 (-0.074% to +0.113%).

Note that not all the Schwab quotes were for min quantity of 1, but both the best and worst (relative to WSJ) did have minimum of 1.

Also, except for the shortest terms, the YTM differences were ~0.02% or less. For maturities of about 2 years or more, i.e. 7/15/24 or later, the worst difference in YTM was 0.023% (for 1/15/25).
Cool experiment. Thanks for sharing.
One more bit of data, for TIPS with less than 2 years to maturity, the price differences ranged from about 0.03% to 0.07% and the yield differences were about 0.03% to 0.09% (aside from the 7/15/22, which had a yield difference of 1.2%).
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Re: Trading Treasuries (nominal and TIPS)

Post by vaylie »

I have a question about yields on buying a treasury notes with a coupon rate on the secondary market.

Ex: 912828N30, Offer Price 99.824, Yield to Worst 2.477, Coupon: 2.125%, Matures on 12/31/2022.

From my understanding, I buy $1000 worth for $998.24, then on maturity date 12/31/2022, I get $1000 back. If it's just this yield without the coupon, then I'm obviously getting a much worse rate. But the coupon only pays out every 6 months according to my google results. So if I on say July 1st, is it possible that I miss out on the coupon payment altogether and only get the maturity value?
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Re: Trading Treasuries (nominal and TIPS)

Post by jeffyscott »

vaylie wrote: Mon Jun 27, 2022 2:43 pm I have a question about yields on buying a treasury notes with a coupon rate on the secondary market.

Ex: 912828N30, Offer Price 99.824, Yield to Worst 2.477, Coupon: 2.125%, Matures on 12/31/2022.

From my understanding, I buy $1000 worth for $998.24, then on maturity date 12/31/2022, I get $1000 back. If it's just this yield without the coupon, then I'm obviously getting a much worse rate. But the coupon only pays out every 6 months according to my google results. So if I on say July 1st, is it possible that I miss out on the coupon payment altogether and only get the maturity value?
There would be a final coupon payment at maturity, so you would get $1000 and the coupon payment of $10.62.

If you buy now you're not going to get much from the next coupon, you will pay the seller the accrued interest from Jan. 1 to the settlement date.
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Re: Trading Treasuries (nominal and TIPS)

Post by vaylie »

jeffyscott wrote: Mon Jun 27, 2022 2:49 pm
vaylie wrote: Mon Jun 27, 2022 2:43 pm I have a question about yields on buying a treasury notes with a coupon rate on the secondary market.

Ex: 912828N30, Offer Price 99.824, Yield to Worst 2.477, Coupon: 2.125%, Matures on 12/31/2022.

From my understanding, I buy $1000 worth for $998.24, then on maturity date 12/31/2022, I get $1000 back. If it's just this yield without the coupon, then I'm obviously getting a much worse rate. But the coupon only pays out every 6 months according to my google results. So if I on say July 1st, is it possible that I miss out on the coupon payment altogether and only get the maturity value?
There would be a final coupon payment at maturity, so you would get $1000 and the coupon payment of $10.62.

If you buy now you're not going to get much from the next coupon, you will pay the seller the accrued interest from Jan. 1 to the settlement date.
So is $1010.62 the final amount I get? How do I calculate the accrued interest I'll need to subtract?

This is a little complicated. I'd just like to compare this against a checkings account that pays 1.49% - 2.15% APY interest from July to December vs buying & holding this T-Note...
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Re: Trading Treasuries (nominal and TIPS)

Post by Kevin M »

vaylie wrote: Mon Jun 27, 2022 3:30 pm So is $1010.62 the final amount I get? How do I calculate the accrued interest I'll need to subtract?

This is a little complicated. I'd just like to compare this against a checkings account that pays 1.49% - 2.15% APY interest from July to December vs buying & holding this T-Note...
The simplest way is to just compare the yield of the Treasury to the APY of the bank. There is a slight tweak to make them more comparable, but this gets you close enough.

Now, one thing you don't know is how quickly the bank interest rate will increase, if at all. If it were to increase fast enough, you could end up earning more from the bank account (or money market fund if the rate is higher than the bank, in which case you could move the cash to a money market fund paying more).

When you go through the Treasury buy screens, one will tell you the accrued interest that is included in the total amount you are paying. It doesn't matter, other than making sure you have enough in the account, since you will get this back with the next coupon payment, plus any additional interest earned since settlement.

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 jeffyscott »

vaylie wrote: Mon Jun 27, 2022 3:30 pm
jeffyscott wrote: Mon Jun 27, 2022 2:49 pm
vaylie wrote: Mon Jun 27, 2022 2:43 pm I have a question about yields on buying a treasury notes with a coupon rate on the secondary market.

Ex: 912828N30, Offer Price 99.824, Yield to Worst 2.477, Coupon: 2.125%, Matures on 12/31/2022.

From my understanding, I buy $1000 worth for $998.24, then on maturity date 12/31/2022, I get $1000 back. If it's just this yield without the coupon, then I'm obviously getting a much worse rate. But the coupon only pays out every 6 months according to my google results. So if I on say July 1st, is it possible that I miss out on the coupon payment altogether and only get the maturity value?
There would be a final coupon payment at maturity, so you would get $1000 and the coupon payment of $10.62.

If you buy now you're not going to get much from the next coupon, you will pay the seller the accrued interest from Jan. 1 to the settlement date.
So is $1010.62 the final amount I get? How do I calculate the accrued interest I'll need to subtract?

This is a little complicated. I'd just like to compare this against a checkings account that pays 1.49% - 2.15% APY interest from July to December vs buying & holding this T-Note...
Some of this is repeating Kevin's post, but too bad :!: I already typed it... :mrgreen:

The YTM (listed as YTW by Fidelity) tells you basically the same thing that the 1.49% is telling you. That is the yield you will get.

The accrued interest will be shown on one of the confirmation screens, if not shown in the table on Fidelity (I'm guessing it's Fidelity, since they list YTW for everything, IIRC). You will pay it and then get it back when you collect the first coupon payment.

I happened to be on Schwab entering a trade, so looked up the cusip, since they show everything right in the search. The best quote now for buying min. 1 is 2.479%, the accrued interest is $10.57 per bond and price is $99.824, basically exactly what you saw earlier. So if bought, you would pay $998.24+$10.57 and then on June 30 you would get a coupon payment of $10.62 and on 12/31, you would get $1000+$10.62. The yield for those cash flows is 2.479%, according to Schwab.

Not sure why the YTM changed, but it's a negligible difference. Perhaps with the market closed it's based on one less day invested?
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Re: Trading Treasuries (nominal and TIPS)

Post by vaylie »

Thanks, Kevin and jeffyscott! I'm actually trying to buy it in my Merrill Edge account, where I'm parking some short-term cash that I'll DCA every month once the treasury I buy reaches maturity, and their search results/order confirmation pages are not too helpful. I think I'll do research on Schwab/Fidelity in the future.

Thanks again!
Last edited by vaylie on Sun Jan 21, 2024 4:57 am, edited 1 time in total.
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Re: Trading Treasuries (nominal and TIPS)

Post by Kevin M »

Hanging out with one of my adult children today, and discovered she had about $500K in five Ally 1-year CDs earning 0.6%. I estimated that she would make more buy breaking these CDs, paying the 60 day interest early withdrawal penalty (EWP), and reinvesting in Treasuries.

Even her shortest maturity, maturing on 9/8/2022 made sense, since she was able to buy a Treasury of same maturity earning 1.47%. Using the When to break a CD Calculator at depositaccounts.com, it shows by breaking and reinvesting in the Treasury, she earns about $71 more in the Treasury.

After initiating the transfer at Vanguard for $500K, we were able to use some of this immediately to buy four Treasury lots at $100K face value each, maturing in Sep, Oct, Nov, and Dec.

I walked her through both interfaces at Vanguard, and showed her how I liked the advanced one better because we could look at notes and bonds as well as bills. She ended up buying all bills anyway, and after the first couple, she seemed to get the hang of doing it.

Kevin
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Re: Trading Treasuries (nominal and TIPS)

Post by jeffyscott »

jeffyscott wrote: Thu Jun 23, 2022 12:58 pm
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?
So this has worked as hoped. No messages or calls from Schwab, except today I noticed on the obscure balances page a prominent message saying "The account ending in XXXX has money due...". I am not sure if that was there before, since that's not a page that I normally go to. It's not a violation or anything, just a warning, I guess.

I have entered a mutual fund trade to cover the amount due and that will happen after close tomorrow. So it looks like the cash to cover an auction purchase at Schwab need only be available by the settlement date, though some trickery is required to make it happen via online trades.
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Re: Trading Treasuries (nominal and TIPS)

Post by protagonist »

Kevin M wrote: Mon Jun 27, 2022 4:30 pm Hanging out with one of my adult children today, and discovered she had about $500K in five Ally 1-year CDs earning 0.6%. I estimated that she would make more buy breaking these CDs, paying the 60 day interest early withdrawal penalty (EWP), and reinvesting in Treasuries.

Even her shortest maturity, maturing on 9/8/2022 made sense, since she was able to buy a Treasury of same maturity earning 1.47%. Using the When to break a CD Calculator at depositaccounts.com, it shows by breaking and reinvesting in the Treasury, she earns about $71 more in the Treasury.

After initiating the transfer at Vanguard for $500K, we were able to use some of this immediately to buy four Treasury lots at $100K face value each, maturing in Sep, Oct, Nov, and Dec.

I walked her through both interfaces at Vanguard, and showed her how I liked the advanced one better because we could look at notes and bonds as well as bills. She ended up buying all bills anyway, and after the first couple, she seemed to get the hang of doing it.

Kevin
Good job!
I've been wondering whether my CDs maturing in the last half of 2023 would do better as TIPS if I broke them now and paid the EWPs ....they tend to yield 3-4%. I probably won't do it or bother figuring out whether it's a good gamble, purely out of laziness. I'll probably let them mature and then buy TiPS if they are still a good buy.
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Re: Trading Treasuries (nominal and TIPS)

Post by #Cruncher »

vaylie wrote: Mon Jun 27, 2022 3:30 pmHow do I calculate the accrued interest I'll need to subtract?
Accrued interest for a Treasury note or bond equals the semi-annual interest payment times the ratio of the number of days from the last interest payment to the settlement date to the number of days in that interest period. In this case, from the 12/31/2021 previous interest payment it is 179 days to the 6/28/2022 settlement date and 181 days to 6/30/2022. So, for a $1,000 bond the accrued interest would be:
$10.51 = 1000 * (2.125% / 2) * (179 / 181)

You can see this on row 11 below for a $10,000 purchase. The $105.08 accrued interest is included with the purchase price in the total cost shown on row 13. [*] Row 14 shows you getting it back two days later with the $106.25 interest payment.

Code: Select all

Row               Col A        Col B   Formula in Column B
  1          Face value       10,000
  2          Settlement    6/28/2022
  3              Mature   12/31/2022
  4              Coupon       2.125%
  5               Price       99.824
  6               Yield       2.477%  =YIELD(B2,B3,B4,B5,100,2,1)
  7    Prev coupon date   12/31/2021
  8    Next coupon date    6/30/2022
  9  Days before settle          179  =B2-B7
 10      Days in period          181  =B8-B7
 11    Accrued interest       105.08  =B1*(B4/2)*(B9/B10)

Code: Select all

 12                Date    Cash Flow
 13           6/28/2022   -10,087.48  =-B1*(B5/100)-B11 [*]
 14           6/30/2022       106.25  =B$1*(B$4/2)+IF(A14=B$3,B$1,0)
 15          12/31/2022    10,106.25  =B$1*(B$4/2)+IF(A15=B$3,B$1,0)
 16                XIRR       2.473%  =XIRR(B13:B15,A13:A15)
Kevin M wrote: Mon Jun 27, 2022 4:12 pm
vaylie wrote: Mon Jun 27, 2022 3:30 pmI'd just like to compare this against a checkings account that pays 1.49% - 2.15% APY interest from July to December ...
The simplest way is to just compare the yield of the Treasury to the APY of the bank. There is a slight tweak to make them more comparable, but this gets you close enough.
The conventional yield for a Treasury note or bond is computed by the Excel YIELD function on row 6 above. Row 16 shows it computed a different way using the Excel XIRR function. This is actually conceptually comparable to the Annual Percentage Yield (APY) convention used for bank account interest since XIRR shows the daily yield compounded over 365 days.
10,087.48 = 106.25 / (1 + 2.47257%) ^ (2 / 365) + 10106.25 / (1 + 2.47257%) ^ (186 / 365)
jeffyscott wrote: Mon Jun 27, 2022 4:14 pmThe best quote now for buying min. 1 is 2.479%, the accrued interest is $10.57 per bond and price is $99.824, basically exactly what you saw earlier. ... Not sure why the YTM changed, but it's a negligible difference. Perhaps with the market closed it's based on one less day invested?
Yes, Schwab is using a 6/29 settlement date.

Code: Select all

Row               Col A        Col B   Formula in Column B
  1          Face value        1,000
  2          Settlement    6/29/2022
  3              Mature   12/31/2022
  4              Coupon       2.125%
  5               Price       99.824
  6               Yield       2.479%  =YIELD(B2,B3,B4,B5,100,2,1)
  7    Prev coupon date   12/31/2021
  8    Next coupon date    6/30/2022
  9  Days before settle          180  =B2-B7
 10      Days in period          181  =B8-B7
 11    Accrued interest        10.57  =B1*(B4/2)*(B9/B10)
* The $10,087.48 sum of purchase price and accrued interest is shown as a negative number on row 13 so the XIRR function will work properly.
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Re: Trading Treasuries (nominal and TIPS)

Post by FactualFran »

vaylie wrote: Mon Jun 27, 2022 3:30 pm So is $1010.62 the final amount I get? How do I calculate the accrued interest I'll need to subtract?
Other replies have described how to calculate the accrued interest. However, because the brokerage will likely report it to you, there is likely no need for you to calculate it.

I bought debt securities with accrued interest during 2021. The 2021 Tax Reporting Statement from the brokerage lists the accrued interest of each buy. The accrued interest amount of each purchase is likely also on the order in the transaction history for the account and on the trade confirmation.

Because the first interest payment of those securities was not made in 2021, the tax reporting statement for 2021 does not include any interest payments from those securities or any adjustments to be on the income tax return for 2021.
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Re: Trading Treasuries (nominal and TIPS)

Post by Drew31 »

A bit of a sidebar, but I think related.... how do you track your individual bonds within your portfolio, or do you? Please bear in mind I'm a bit OCD with tracking things...

For example, I have a spreadsheet where I have all my accounts broken out with all my positions. I input the number of shares I own and use the Excel price lookup to then use value. I categorize each position according to my AA and then use this to create tables and pivots to understand any differences and can use it to determine where to invest new money. All works well with funds and ETFs but once I started adding individual bonds, it gets messy. My current approach is to just bucket them together and type in the total current value, but I just yearn for a better way - so curious if anyone has tips on what has worked for them.
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Re: Trading Treasuries (nominal and TIPS)

Post by squirrel1963 »

Drew31 wrote: Tue Jun 28, 2022 9:10 pm A bit of a sidebar, but I think related.... how do you track your individual bonds within your portfolio, or do you? Please bear in mind I'm a bit OCD with tracking things...

For example, I have a spreadsheet where I have all my accounts broken out with all my positions. I input the number of shares I own and use the Excel price lookup to then use value. I categorize each position according to my AA and then use this to create tables and pivots to understand any differences and can use it to determine where to invest new money. All works well with funds and ETFs but once I started adding individual bonds, it gets messy. My current approach is to just bucket them together and type in the total current value, but I just yearn for a better way - so curious if anyone has tips on what has worked for them.
I use quicken to keep track of investments. I set up custom asset classes (TIPS, TREASURIES, US_STOCK, INTL_STOCK, ....) and I use the report generator to show me investments broken down by asset class.
Regrettably there is no good way to automatically generate rebalancing information, but what can be done is to export the asset class report and then have a python script read the report and asset class allocation file.
To be honest I am not super happy about it because no matter what I need to do my own manual work, but that's ok for now.
I'll be interested too how others do it.
LMP | Liability Matching Portfolio | safe portfolio: TIPS ladder + I-bonds + Treasuries | risky portfolio: US stocks / US REIT / International stocks
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Re: Trading Treasuries (nominal and TIPS)

Post by Kevin M »

Drew31 wrote: Tue Jun 28, 2022 9:10 pm A bit of a sidebar, but I think related.... how do you track your individual bonds within your portfolio, or do you? Please bear in mind I'm a bit OCD with tracking things...

For example, I have a spreadsheet where I have all my accounts broken out with all my positions. I input the number of shares I own and use the Excel price lookup to then use value. I categorize each position according to my AA and then use this to create tables and pivots to understand any differences and can use it to determine where to invest new money. All works well with funds and ETFs but once I started adding individual bonds, it gets messy. My current approach is to just bucket them together and type in the total current value, but I just yearn for a better way - so curious if anyone has tips on what has worked for them.
I use spreadsheets to monitor the portfolios I manage, and they all are designed basically the same.

Rather than type things in, you can download your holdings and import them into a sheet.

You can then use formulas in the portfolio sheet to extract the information you need from the download sheet. For funds, ETFs and stocks you can use your price lookup, but I don't think that works for individual bonds (if you find a way, please let us know). If my price lookup fails, I grab the price or value from the download sheet, which is the case for bonds. Obviously these values will be a bit stale until the next download.

Fidelity provides CUSIP in its download, but unfortunately Vanguard does not. My lookup falls back on description and account number if the symbol lookup fails.

For asset class, I have a SecurityLookup sheet, in which each symbol (ticker or CUSIP) and description are linked to an asset class. I then do a lookup in the Portfolio sheet to get the asset class for each holding. If you don't want to add each bond holding to the security lookup sheet, you can use some logic around the description to identify Treasuries; e.g., all of Vanguards Treasury bond descriptions start with "U S".

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 Doc »

squirrel1963 wrote: Tue Jun 28, 2022 10:37 pm I use quicken to keep track of investments. I set up custom asset classes (TIPS, TREASURIES, US_STOCK, INTL_STOCK, ....) and I use the report generator to show me investments broken down by asset class.
Regrettably there is no good way to automatically generate rebalancing information ...
Quicken Premier has a tab that produces a report showing the allocations etc.

Asset class, Actual %, Target %, Difference %
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Re: Trading Treasuries (nominal and TIPS)

Post by protagonist »

Drew31 wrote: Tue Jun 28, 2022 9:10 pm A bit of a sidebar, but I think related.... how do you track your individual bonds within your portfolio, or do you? Please bear in mind I'm a bit OCD with tracking things...

For example, I have a spreadsheet where I have all my accounts broken out with all my positions. I input the number of shares I own and use the Excel price lookup to then use value. I categorize each position according to my AA and then use this to create tables and pivots to understand any differences and can use it to determine where to invest new money. All works well with funds and ETFs but once I started adding individual bonds, it gets messy. My current approach is to just bucket them together and type in the total current value, but I just yearn for a better way - so curious if anyone has tips on what has worked for them.
I buy mine through Fidelity. If you click on "positions" on your Fidelity page, it tracks each issue for you, with maturity date, gains/losses, current value, % of account, cost basis, quantity, and more. I don't know if that is what you are looking for. On my own financial spreadsheet I just periodically enter their maturity date and value (once or twice a year) , mainly just to track my net worth and percentage in each category. I find once a year to be sufficient for that level of information.
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Re: Trading Treasuries (nominal and TIPS)

Post by Drew31 »

Kevin M wrote: Wed Jun 29, 2022 11:10 am
Drew31 wrote: Tue Jun 28, 2022 9:10 pm A bit of a sidebar, but I think related.... how do you track your individual bonds within your portfolio, or do you? Please bear in mind I'm a bit OCD with tracking things...

For example, I have a spreadsheet where I have all my accounts broken out with all my positions. I input the number of shares I own and use the Excel price lookup to then use value. I categorize each position according to my AA and then use this to create tables and pivots to understand any differences and can use it to determine where to invest new money. All works well with funds and ETFs but once I started adding individual bonds, it gets messy. My current approach is to just bucket them together and type in the total current value, but I just yearn for a better way - so curious if anyone has tips on what has worked for them.
I use spreadsheets to monitor the portfolios I manage, and they all are designed basically the same.

Rather than type things in, you can download your holdings and import them into a sheet.

You can then use formulas in the portfolio sheet to extract the information you need from the download sheet. For funds, ETFs and stocks you can use your price lookup, but I don't think that works for individual bonds (if you find a way, please let us know). If my price lookup fails, I grab the price or value from the download sheet, which is the case for bonds. Obviously these values will be a bit stale until the next download.

Fidelity provides CUSIP in its download, but unfortunately Vanguard does not. My lookup falls back on description and account number if the symbol lookup fails.

For asset class, I have a SecurityLookup sheet, in which each symbol (ticker or CUSIP) and description are linked to an asset class. I then do a lookup in the Portfolio sheet to get the asset class for each holding. If you don't want to add each bond holding to the security lookup sheet, you can use some logic around the description to identify Treasuries; e.g., all of Vanguards Treasury bond descriptions start with "U S".

Kevin
Thanks. I think what I want is what I can't have...which is a price lookup for individual bonds. Other than that, sounds like my spreadsheet works in a similar vein to what you have besides the download piece where I will just manually update as my changes generally aren't too frequent.
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Re: Trading Treasuries (nominal and TIPS)

Post by Drew31 »

protagonist wrote: Wed Jun 29, 2022 11:24 am
Drew31 wrote: Tue Jun 28, 2022 9:10 pm A bit of a sidebar, but I think related.... how do you track your individual bonds within your portfolio, or do you? Please bear in mind I'm a bit OCD with tracking things...

For example, I have a spreadsheet where I have all my accounts broken out with all my positions. I input the number of shares I own and use the Excel price lookup to then use value. I categorize each position according to my AA and then use this to create tables and pivots to understand any differences and can use it to determine where to invest new money. All works well with funds and ETFs but once I started adding individual bonds, it gets messy. My current approach is to just bucket them together and type in the total current value, but I just yearn for a better way - so curious if anyone has tips on what has worked for them.
I buy mine through Fidelity. If you click on "positions" on your Fidelity page, it tracks each issue for you, with maturity date, gains/losses, current value, % of account, cost basis, quantity, and more. I don't know if that is what you are looking for. On my own financial spreadsheet I just periodically enter their maturity date and value (once or twice a year) , mainly just to track my net worth and percentage in each category. I find once a year to be sufficient for that level of information.
I'll use the position tab in fidelity to find the info. I was just hoping I think for a way in Excel to tell me how much my bonds are worth via some kind of lookup so it's all just updated within Excel. But looks like some type of manual update on my bonds prices or values is the way I'm going to have to go.
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Re: Trading Treasuries (nominal and TIPS)

Post by Kevin M »

Today I bought 10 more each of the 7/15/2023 TIPS in my wife and my IRAs at Fidelity. Yield we got today is about -1.63%, which is 33 basis points higher than my wife's last purchase on 06/23/2022 at -1.96%, and 43 bps higher than my last purchase on 6/22/2022 at -2.06%.

Yesterday we bought 10 more each of the 4/15/2024 TIPS at -0.53%, which was 45 - 50 bps higher than each of our previous purchases.

Three of the four executions were basically immediate, and one yesterday took a few minutes to fill.

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 Kevin M »

There was some discussion earlier about how auto roll works at Fidelity. There was some confusion about whether the roll was into secondary or auction Treasuries, and my understanding was auction. So even though I had no real interest, I bought 10 4-week bills at auction with auto roll enabled.

Today I got an email from Fidelity that stated this:
You are enrolled in Fidelity's Auto Roll Service. A position will be maturing soon. We will shortly reinvest the maturing principal into a new, Reinvestment position:

Maturing Position CUSIP: 912796W88

Reinvestment Position CUSIP: 912796X46

When the Reinvestment Position matures, Fidelity will follow your instructions to continue to automatically reinvest the principal proceeds as described in the Auto Roll Service Agreement.

If you wish to cancel your new order in the Reinvestment Position, click here. By cancelling this order that contained the Auto Roll feature, no future orders will be generated.
912796W88 matures on 7/5/2022.

The auction for 912796X46 is on 06/30/2022, with settlement (issue) on 07/05/2022. Note that the settlement date of the "new" issue is the same as the maturity date of the existing issue.

I put "new" in quotes because 912796W88 is a reopening of the 8-week bill that was auctioned on 06/02/2022 and issued on 6/7/2022. So we can see this trading before the auction, and could buy it before the auction if we wanted.

However, if I simply enter CUSIP 912796X46 into the CUSIP search at Fidelity, it takes me to the auction screen, showing an expected yield of 0.825 (%). So to see it on the secondary I have to get to it a different way, e.g., search for Treasuries that mature in August 2022.

I see the ask yield for this is 0.964% for min qty 100, and there is no book, so I couldn't buy less than $100K of this. However, there are other issues that mature about then that are available at smaller quantities, for example, there is a bill maturing 8/4/2022 at a yield of 1.022 for min qty 1,000, and 0.997 for min qty 1. So if you're happy with about 1% for a 1-month Treasury, you could buy this one tomorrow and it would close on Friday 7/1 instead of waiting for the auction issue on 7/5/2022.

However, FZDXX (Fidelity premium money market) SEC yield is 1.38%, and I have that in my Fidelity accounts, so I would not buy a 4-week bill except for doing this auto-roll experiment.

Incidentally, the auction order for 912796X46 shows as an open order with today as the order date. I could cancel the order if I wanted to discontinue the auto-roll, but I'll let it roll one time to complete the experiment.

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 Drew31 »

Kevin M wrote: Wed Jun 29, 2022 2:45 pm Today I bought 10 more each of the 7/15/2023 TIPS in my wife and my IRAs at Fidelity. Yield we got today is about -1.63%, which is 33 basis points higher than my wife's last purchase on 06/23/2022 at -1.96%, and 43 bps higher than my last purchase on 6/22/2022 at -2.06%.

Yesterday we bought 10 more each of the 4/15/2024 TIPS at -0.53%, which was 45 - 50 bps higher than each of our previous purchases.

Three of the four executions were basically immediate, and one yesterday took a few minutes to fill.

Kevin
Is the quick way to determine BE inflation rate on the shorter dated just to compare what a nominal treasury maturing 7/15/23 is yielding?

So - for example looking at Fidelity now (Mkt closed) yield for treasury maturing on that dated is yielding 2.921 for quantity of 1. If you were looking to get 10, yield would be 2.834.

So BE Inflation rate I calculate is 4.464?
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Breakeven inflation (BEI)

Post by Kevin M »

Drew31 wrote: Wed Jun 29, 2022 4:57 pm
Kevin M wrote: Wed Jun 29, 2022 2:45 pm Today I bought 10 more each of the 7/15/2023 TIPS in my wife and my IRAs at Fidelity. Yield we got today is about -1.63%, which is 33 basis points higher than my wife's last purchase on 06/23/2022 at -1.96%, and 43 bps higher than my last purchase on 6/22/2022 at -2.06%.

Yesterday we bought 10 more each of the 4/15/2024 TIPS at -0.53%, which was 45 - 50 bps higher than each of our previous purchases.

Three of the four executions were basically immediate, and one yesterday took a few minutes to fill.

Kevin
Is the quick way to determine BE inflation rate on the shorter dated just to compare what a nominal treasury maturing 7/15/23 is yielding?

So - for example looking at Fidelity now (Mkt closed) yield for treasury maturing on that dated is yielding 2.921 for quantity of 1. If you were looking to get 10, yield would be 2.834.

So BE Inflation rate I calculate is 4.464?
Yes. The conventional way to calculate BEI is to subtract the real yield from the nominal yield for the same (or similar) maturity. The quotes I pulled today at 3:40 pm ET from Fidelity show 7/15/2023 nominal at 2.93% and 7/15/2023 TIPS at -1.60%, so conventional BEI is 4.53%.

A more sophisticated method shows seasonally-adjusted BEI at 3.94% (vs. a conventional seasonally adjusted 4.51%). So in reality it's quite a bit lower than using the conventional method. So if inflation runs at about 4% or more until 7/15/2023, the TIPS will earn more.

(I'm using the quoted yield rather than my purchase yield, since I update my TIPS seasonal adjustment spreadsheet daily, and it does the calculations for all 49 outstanding TIPS.)

Kevin
If I make a calculation error, #Cruncher probably will let me know.
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Re: Breakeven inflation (BEI)

Post by Drew31 »

Kevin M wrote: Wed Jun 29, 2022 5:08 pm
Drew31 wrote: Wed Jun 29, 2022 4:57 pm
Kevin M wrote: Wed Jun 29, 2022 2:45 pm Today I bought 10 more each of the 7/15/2023 TIPS in my wife and my IRAs at Fidelity. Yield we got today is about -1.63%, which is 33 basis points higher than my wife's last purchase on 06/23/2022 at -1.96%, and 43 bps higher than my last purchase on 6/22/2022 at -2.06%.

Yesterday we bought 10 more each of the 4/15/2024 TIPS at -0.53%, which was 45 - 50 bps higher than each of our previous purchases.

Three of the four executions were basically immediate, and one yesterday took a few minutes to fill.

Kevin
Is the quick way to determine BE inflation rate on the shorter dated just to compare what a nominal treasury maturing 7/15/23 is yielding?

So - for example looking at Fidelity now (Mkt closed) yield for treasury maturing on that dated is yielding 2.921 for quantity of 1. If you were looking to get 10, yield would be 2.834.

So BE Inflation rate I calculate is 4.464?
Yes. The conventional way to calculate BEI is to subtract the real yield from the nominal yield for the same (or similar) maturity. The quotes I pulled today at 3:40 pm ET from Fidelity show 7/15/2023 nominal at 2.93% and 7/15/2023 TIPS at -1.60%, so conventional BEI is 4.53%.

A more sophisticated method shows seasonally-adjusted BEI at 3.94% (vs. a conventional seasonally adjusted 4.51%). So in reality it's quite a bit lower than using the conventional method. So if inflation runs at about 4% or more until 7/15/2023, the TIPS will earn more.

(I'm using the quoted yield rather than my purchase yield, since I update my TIPS seasonal adjustment spreadsheet daily, and it does the calculations for all 49 outstanding TIPS.)

Kevin
Thanks for the additional info and since TIPS are adjusted based on seasonally-adjusted CPI (correct?) that's a better estimate. And the way you know that is based on the spreadsheet you've compiled?
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Re: Trading Treasuries (nominal and TIPS)

Post by Steve6622 »

Drew31 wrote: Wed Jun 29, 2022 12:59 pm
Kevin M wrote: Wed Jun 29, 2022 11:10 am
Drew31 wrote: Tue Jun 28, 2022 9:10 pm A bit of a sidebar, but I think related.... how do you track your individual bonds within your portfolio, or do you? Please bear in mind I'm a bit OCD with tracking things...

For example, I have a spreadsheet where I have all my accounts broken out with all my positions. I input the number of shares I own and use the Excel price lookup to then use value. I categorize each position according to my AA and then use this to create tables and pivots to understand any differences and can use it to determine where to invest new money. All works well with funds and ETFs but once I started adding individual bonds, it gets messy. My current approach is to just bucket them together and type in the total current value, but I just yearn for a better way - so curious if anyone has tips on what has worked for them.
I use spreadsheets to monitor the portfolios I manage, and they all are designed basically the same.

Rather than type things in, you can download your holdings and import them into a sheet.

You can then use formulas in the portfolio sheet to extract the information you need from the download sheet. For funds, ETFs and stocks you can use your price lookup, but I don't think that works for individual bonds (if you find a way, please let us know). If my price lookup fails, I grab the price or value from the download sheet, which is the case for bonds. Obviously these values will be a bit stale until the next download.

Fidelity provides CUSIP in its download, but unfortunately Vanguard does not. My lookup falls back on description and account number if the symbol lookup fails.

For asset class, I have a SecurityLookup sheet, in which each symbol (ticker or CUSIP) and description are linked to an asset class. I then do a lookup in the Portfolio sheet to get the asset class for each holding. If you don't want to add each bond holding to the security lookup sheet, you can use some logic around the description to identify Treasuries; e.g., all of Vanguards Treasury bond descriptions start with "U S".

Kevin
Thanks. I think what I want is what I can't have...which is a price lookup for individual bonds. Other than that, sounds like my spreadsheet works in a similar vein to what you have besides the download piece where I will just manually update as my changes generally aren't too frequent.
For TIPS, I wrote a script to download the WSJ price page once a day, and grab the data from that page and insert it into my spreadhseet. Unfortunately, there's no CUSIPs on that page, so it became even more painful than necessary... I don't recommend this approach unless you have some kind of coding experience. CUSIP lookup/download would be a great feature to add to the various spreadsheet offerings - but the size of the user base that wants this would be pretty small.
Last edited by Steve6622 on Thu Jun 30, 2022 10:07 am, edited 2 times in total.
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Re: Trading Treasuries (nominal and TIPS)

Post by ceejay185 »

Kevin M wrote: Wed Jun 29, 2022 3:33 pm
However, FZDXX (Fidelity premium money market) SEC yield is 1.38%, and I have that in my Fidelity accounts, so I would not buy a 4-week bill except for doing this auto-roll experiment.

Kevin
Kevin - Thanks for all the great information posted. Very insightful and actionable.

One comment on the treasuries - FZDXX portfolio has 27% Financial Company Commercial Paper, and 27% Repos so the 1.38% yield is a little more risky than pure treasuries, hence the higher yield. FSIXX is their pure treasuries fund and shows a .59% yield, but that is at the end of May and would have increased since their average maturities show 40 days and most will have rolled over to higher rates. However, the exp ratio of .21% is a pretty hefty percentage of the overall yield, so your own ladder will probably outperform depending on bid/ask and quantity.
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Re: Breakeven inflation (BEI)

Post by Kevin M »

Drew31 wrote: Wed Jun 29, 2022 5:27 pm
Kevin M wrote: Wed Jun 29, 2022 5:08 pm
Drew31 wrote: Wed Jun 29, 2022 4:57 pm
Kevin M wrote: Wed Jun 29, 2022 2:45 pm Today I bought 10 more each of the 7/15/2023 TIPS in my wife and my IRAs at Fidelity. Yield we got today is about -1.63%, which is 33 basis points higher than my wife's last purchase on 06/23/2022 at -1.96%, and 43 bps higher than my last purchase on 6/22/2022 at -2.06%.

Yesterday we bought 10 more each of the 4/15/2024 TIPS at -0.53%, which was 45 - 50 bps higher than each of our previous purchases.

Three of the four executions were basically immediate, and one yesterday took a few minutes to fill.

Kevin
Is the quick way to determine BE inflation rate on the shorter dated just to compare what a nominal treasury maturing 7/15/23 is yielding?

So - for example looking at Fidelity now (Mkt closed) yield for treasury maturing on that dated is yielding 2.921 for quantity of 1. If you were looking to get 10, yield would be 2.834.

So BE Inflation rate I calculate is 4.464?
Yes. The conventional way to calculate BEI is to subtract the real yield from the nominal yield for the same (or similar) maturity. The quotes I pulled today at 3:40 pm ET from Fidelity show 7/15/2023 nominal at 2.93% and 7/15/2023 TIPS at -1.60%, so conventional BEI is 4.53%.

A more sophisticated method shows seasonally-adjusted BEI at 3.94% (vs. a conventional seasonally adjusted 4.51%). So in reality it's quite a bit lower than using the conventional method. So if inflation runs at about 4% or more until 7/15/2023, the TIPS will earn more.

(I'm using the quoted yield rather than my purchase yield, since I update my TIPS seasonal adjustment spreadsheet daily, and it does the calculations for all 49 outstanding TIPS.)

Kevin
Thanks for the additional info and since TIPS are adjusted based on seasonally-adjusted CPI (correct?) that's a better estimate. And the way you know that is based on the spreadsheet you've compiled?
The TIPS inflation adjustment uses non-seasonally adjusted CPI, but bond traders know about the seasonality, so drive the prices toward the seasonally adjusted (SA) values. So you must do some calculations to get the SA values.

I have posted two parts of how to do the calculation in this thread, with the last one or two parts coming soon.

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 Artsdoctor »

Kevin M wrote: Wed Jun 29, 2022 3:33 pm There was some discussion earlier about how auto roll works at Fidelity. There was some confusion about whether the roll was into secondary or auction Treasuries, and my understanding was auction. So even though I had no real interest, I bought 10 4-week bills at auction with auto roll enabled.

Today I got an email from Fidelity that stated this:
You are enrolled in Fidelity's Auto Roll Service. A position will be maturing soon. We will shortly reinvest the maturing principal into a new, Reinvestment position:

Maturing Position CUSIP: 912796W88

Reinvestment Position CUSIP: 912796X46

When the Reinvestment Position matures, Fidelity will follow your instructions to continue to automatically reinvest the principal proceeds as described in the Auto Roll Service Agreement.

If you wish to cancel your new order in the Reinvestment Position, click here. By cancelling this order that contained the Auto Roll feature, no future orders will be generated.
912796W88 matures on 7/5/2022.

The auction for 912796X46 is on 06/30/2022, with settlement (issue) on 07/05/2022. Note that the settlement date of the "new" issue is the same as the maturity date of the existing issue.

I put "new" in quotes because 912796W88 is a reopening of the 8-week bill that was auctioned on 06/02/2022 and issued on 6/7/2022. So we can see this trading before the auction, and could buy it before the auction if we wanted.

However, if I simply enter CUSIP 912796X46 into the CUSIP search at Fidelity, it takes me to the auction screen, showing an expected yield of 0.825 (%). So to see it on the secondary I have to get to it a different way, e.g., search for Treasuries that mature in August 2022.

I see the ask yield for this is 0.964% for min qty 100, and there is no book, so I couldn't buy less than $100K of this. However, there are other issues that mature about then that are available at smaller quantities, for example, there is a bill maturing 8/4/2022 at a yield of 1.022 for min qty 1,000, and 0.997 for min qty 1. So if you're happy with about 1% for a 1-month Treasury, you could buy this one tomorrow and it would close on Friday 7/1 instead of waiting for the auction issue on 7/5/2022.

However, FZDXX (Fidelity premium money market) SEC yield is 1.38%, and I have that in my Fidelity accounts, so I would not buy a 4-week bill except for doing this auto-roll experiment.

Incidentally, the auction order for 912796X46 shows as an open order with today as the order date. I could cancel the order if I wanted to discontinue the auto-roll, but I'll let it roll one time to complete the experiment.

Kevin
Nice job. Thanks for the follow-up and the learning experience.
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Re: Breakeven inflation (BEI)

Post by Drew31 »

Kevin M wrote: Wed Jun 29, 2022 5:55 pm
Drew31 wrote: Wed Jun 29, 2022 5:27 pm
Kevin M wrote: Wed Jun 29, 2022 5:08 pm
Drew31 wrote: Wed Jun 29, 2022 4:57 pm
Kevin M wrote: Wed Jun 29, 2022 2:45 pm Today I bought 10 more each of the 7/15/2023 TIPS in my wife and my IRAs at Fidelity. Yield we got today is about -1.63%, which is 33 basis points higher than my wife's last purchase on 06/23/2022 at -1.96%, and 43 bps higher than my last purchase on 6/22/2022 at -2.06%.

Yesterday we bought 10 more each of the 4/15/2024 TIPS at -0.53%, which was 45 - 50 bps higher than each of our previous purchases.

Three of the four executions were basically immediate, and one yesterday took a few minutes to fill.

Kevin
Is the quick way to determine BE inflation rate on the shorter dated just to compare what a nominal treasury maturing 7/15/23 is yielding?

So - for example looking at Fidelity now (Mkt closed) yield for treasury maturing on that dated is yielding 2.921 for quantity of 1. If you were looking to get 10, yield would be 2.834.

So BE Inflation rate I calculate is 4.464?
Yes. The conventional way to calculate BEI is to subtract the real yield from the nominal yield for the same (or similar) maturity. The quotes I pulled today at 3:40 pm ET from Fidelity show 7/15/2023 nominal at 2.93% and 7/15/2023 TIPS at -1.60%, so conventional BEI is 4.53%.

A more sophisticated method shows seasonally-adjusted BEI at 3.94% (vs. a conventional seasonally adjusted 4.51%). So in reality it's quite a bit lower than using the conventional method. So if inflation runs at about 4% or more until 7/15/2023, the TIPS will earn more.

(I'm using the quoted yield rather than my purchase yield, since I update my TIPS seasonal adjustment spreadsheet daily, and it does the calculations for all 49 outstanding TIPS.)

Kevin
Thanks for the additional info and since TIPS are adjusted based on seasonally-adjusted CPI (correct?) that's a better estimate. And the way you know that is based on the spreadsheet you've compiled?
The TIPS inflation adjustment uses non-seasonally adjusted CPI, but bond traders know about the seasonality, so drive the prices toward the seasonally adjusted (SA) values. So you must do some calculations to get the SA values.

I have posted two parts of how to do the calculation in this thread, with the last one or two parts coming soon.

Kevin
Thanks - I got myself confused and got it backwards. I've seen that other thread and glanced through but haven't had a chance to really sit down and read through it. Appreciate the contributions!
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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
A secondary purchase for settlement today would have been made yesterday. I don't know what the range of prices were during the day, but Schwab is showing 98.156 as the current value for the one I purchased at auction, presumably based on the price near the end of the day yesterday. This is a loss of about 0.7% from the auction purchase price of $98.875. Schwab also shows me with a loss of $7.36 on this TIPS, confirming the -0.7%.
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Re: Trading Treasuries (nominal and TIPS)

Post by jeffyscott »

jeffyscott wrote: Mon Jun 27, 2022 4:35 pm
jeffyscott wrote: Thu Jun 23, 2022 12:58 pm
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?
So this has worked as hoped. No messages or calls from Schwab, except today I noticed on the obscure balances page a prominent message saying "The account ending in XXXX has money due...". I am not sure if that was there before, since that's not a page that I normally go to. It's not a violation or anything, just a warning, I guess.

I have entered a mutual fund trade to cover the amount due and that will happen after close tomorrow. So it looks like the cash to cover an auction purchase at Schwab need only be available by the settlement date, though some trickery is required to make it happen via online trades.
I spoke too soon. I just got an email informing me of a trading violation. It says, in part:

Our records show that the trade(s) placed on 06/23/2022 were not settled in accordance with securities industry regulations.
...
When you place orders for accounts without sufficient settled funds or securities on deposit, we are required to monitor the account to make sure it complies with these conditions:
1. You promptly make a full cash payment with settled funds, or deliver previously owned securities into the account within the payment period; and
2. You do not sell the securities purchased until full payment with settled funds has been made; and
3. You do not make payment with the proceeds from the sale of other securities made after the trade date.

So I guess it's #3 that I violated. I needed to have placed the trade to cover the purchase on (or before) 6/23.

Based I this, I'll probably buy my TIPS on the secondary market in future as I had done in the past. I do not like Treasury's slow procedure for delivering these securities. I suppose if I kept a balance in a money market fund that would work, since a footnote says: Settled funds include cash deposits, money market funds...
So that would appear to include purchased money market funds such as SWVXX and SNOXX.
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Re: Trading Treasuries (nominal and TIPS)

Post by Doc »

jeffyscott wrote: Thu Jun 30, 2022 8:51 am I spoke too soon. I just got an email informing me of a trading violation. It says, in part:

Our records show that the trade(s) placed on 06/23/2022 were not settled in accordance with securities industry regulations.
...
When you place orders for accounts without sufficient settled funds or securities on deposit, we are required to monitor the account to make sure it complies with these conditions:
1. You promptly make a full cash payment with settled funds, or deliver previously owned securities into the account within the payment period; and
2. You do not sell the securities purchased until full payment with settled funds has been made; and
3. You do not make payment with the proceeds from the sale of other securities made after the trade date.

So I guess it's #3 that I violated. I needed to have placed the trade to cover the purchase on (or before) 6/23.
My interpretation is the sell trade has to be made on or before the auction date and that the settlement of that sell trade needs to be on or before the settlement date of the new buy.

If I am correct we can continue to use auctions to buy new Treasuries and do not need to buy on the secondary market.

My interpretation seems consistent with the auto roll provisions of T-bills up to 26 weeks.

Thought's?
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Re: Trading Treasuries (nominal and TIPS)

Post by indexfundfan »

jeffyscott wrote: Thu Jun 30, 2022 8:51 am I spoke too soon. I just got an email informing me of a trading violation. It says, in part:
To clarify the sequence of events

6/23 TIPS auction
6/27 Sale of mutual fund (to pay for TIPS)
6/28 Mutual fund sale settled
6/30 TIPS settlement

So Schwab is saying you have a trading violation for the TIPS transaction. To avoid the violation, you need to sell the mutual fund on 6/23 or earlier?
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Re: Trading Treasuries (nominal and TIPS)

Post by vaylie »

I invested proceeds from a matured CD today into a mini-ladder by buying secondary treasuries, yields from 1.4% to 2.48%, with 5k maturing each month until December for me to DCA into equities. Thanks to everyone here who helped me understand how things worked, especially on bills/notes with coupons!
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Fidelity Treasury auto roll

Post by Kevin M »

Kevin M wrote: Wed Jun 29, 2022 3:33 pm There was some discussion earlier about how auto roll works at Fidelity. There was some confusion about whether the roll was into secondary or auction Treasuries, and my understanding was auction. So even though I had no real interest, I bought 10 4-week bills at auction with auto roll enabled.

Today I got an email from Fidelity that stated this:
You are enrolled in Fidelity's Auto Roll Service. A position will be maturing soon. We will shortly reinvest the maturing principal into a new, Reinvestment position:

Maturing Position CUSIP: 912796W88

Reinvestment Position CUSIP: 912796X46

When the Reinvestment Position matures, Fidelity will follow your instructions to continue to automatically reinvest the principal proceeds as described in the Auto Roll Service Agreement.

If you wish to cancel your new order in the Reinvestment Position, click here. By cancelling this order that contained the Auto Roll feature, no future orders will be generated.
912796W88 matures on 7/5/2022.

The auction for 912796X46 is on 06/30/2022, with settlement (issue) on 07/05/2022. Note that the settlement date of the "new" issue is the same as the maturity date of the existing issue.

I put "new" in quotes because 912796W88 is a reopening of the 8-week bill that was auctioned on 06/02/2022 and issued on 6/7/2022. So we can see this trading before the auction, and could buy it before the auction if we wanted.

However, if I simply enter CUSIP 912796X46 into the CUSIP search at Fidelity, it takes me to the auction screen, showing an expected yield of 0.825 (%). So to see it on the secondary I have to get to it a different way, e.g., search for Treasuries that mature in August 2022.

I see the ask yield for this is 0.964% for min qty 100, and there is no book, so I couldn't buy less than $100K of this. However, there are other issues that mature about then that are available at smaller quantities, for example, there is a bill maturing 8/4/2022 at a yield of 1.022 for min qty 1,000, and 0.997 for min qty 1. So if you're happy with about 1% for a 1-month Treasury, you could buy this one tomorrow and it would close on Friday 7/1 instead of waiting for the auction issue on 7/5/2022.

However, FZDXX (Fidelity premium money market) SEC yield is 1.38%, and I have that in my Fidelity accounts, so I would not buy a 4-week bill except for doing this auto-roll experiment.

Incidentally, the auction order for 912796X46 shows as an open order with today as the order date. I could cancel the order if I wanted to discontinue the auto-roll, but I'll let it roll one time to complete the experiment.

Kevin
And today the experiment concludes. I received another "Auto roll - Welcome Alert" email from Fidelity. Checked my account and saw that the open auto roll order had filled at 99.9036, which is the auction price rounded to four decimals:

Image

Image

I hadn't mentioned that another clue that this is an auction purchase is that the order type is good till cancelled, while all secondary market orders are fill or kill (at least I haven't been able to change this lately).

The yield (investment rate) is 1.258%, which seems surprisingly high, based on secondary market, but see the last paragraph below about this.

Now, when I enter the CUSIP into the search screen, I'm taken to the issue on the secondary market (lass time it went to the auction screen). The best bid and ask prices are 99.904 and 99.914 respectively, and yields are shown as 1.088% and 0.976% respectively.

Note that the secondary bid price is the same as the auction price when rounded. The yields are different because of the different settlement dates, with the secondary based on 7/1 settlement, and the auction based on 7/5 settlement.

Conclusion: the auto roll purchase was at auction, not on the secondary market.

Kevin
Last edited by Kevin M on Thu Jun 30, 2022 11:50 am, edited 1 time in total.
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Re: Trading Treasuries (nominal and TIPS)

Post by Doc »

Kevin M wrote: Thu Jun 30, 2022 11:41 am And today the experiment concludes.
Today's experiment at Schwab allows me to buy a 13 wk. bill but not a 26 wk. bill.

"Solution" (from bond rep) try again over the weekend.
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Re: Trading Treasuries (nominal and TIPS)

Post by jeffyscott »

indexfundfan wrote: Thu Jun 30, 2022 10:39 am
jeffyscott wrote: Thu Jun 30, 2022 8:51 am I spoke too soon. I just got an email informing me of a trading violation. It says, in part:
To clarify the sequence of events

6/23 TIPS auction
6/27 Sale of mutual fund (to pay for TIPS)
6/28 Mutual fund sale settled
6/30 TIPS settlement

So Schwab is saying you have a trading violation for the TIPS transaction. To avoid the violation, you need to sell the mutual fund on 6/23 or earlier?
Except that the MF sale was on the 28th so settled on 29th (I put the order in on the 27th but after close), that was the sequence of events.

And that's my interpretation of what the actual violation was and what they would allow. So were I to buy at auction again, I'd first submit a sell order sometime after market close the day before and then submit my auction order.

If you carry a money market balance or have a margin account, the rules may differ.
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Re: Trading Treasuries (nominal and TIPS)

Post by jeffyscott »

Doc wrote: Thu Jun 30, 2022 11:47 am
Kevin M wrote: Thu Jun 30, 2022 11:41 am And today the experiment concludes.
Today's experiment at Schwab allows me to buy a 13 wk. bill but not a 26 wk. bill.

"Solution" (from bond rep) try again over the weekend.
Is there possibly a different amount needed for accrued interest? (That's if either one is a reopening.)
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Re: Trading Treasuries (nominal and TIPS)

Post by jeffyscott »

Doc wrote: Thu Jun 30, 2022 10:13 am
jeffyscott wrote: Thu Jun 30, 2022 8:51 am I spoke too soon. I just got an email informing me of a trading violation. It says, in part:

Our records show that the trade(s) placed on 06/23/2022 were not settled in accordance with securities industry regulations.
...
When you place orders for accounts without sufficient settled funds or securities on deposit, we are required to monitor the account to make sure it complies with these conditions:
1. You promptly make a full cash payment with settled funds, or deliver previously owned securities into the account within the payment period; and
2. You do not sell the securities purchased until full payment with settled funds has been made; and
3. You do not make payment with the proceeds from the sale of other securities made after the trade date.

So I guess it's #3 that I violated. I needed to have placed the trade to cover the purchase on (or before) 6/23.
My interpretation is the sell trade has to be made on or before the auction date and that the settlement of that sell trade needs to be on or before the settlement date of the new buy.

If I am correct we can continue to use auctions to buy new Treasuries and do not need to buy on the secondary market.

My interpretation seems consistent with the auto roll provisions of T-bills up to 26 weeks.

Thought's?
I agree with that interpretation.

I'm disinclined to buy TIPS at auction because I don't like that I would have to be out of the market for a week. But that's just me.

I also did not like the particular auction results here, but that part could be addressed by deciding whether or not to participate on the morning of the auction, based on what is happening on the secondary market.
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Added 6-month rung to TIPS ladder

Post by Kevin M »

Today I decided to start a 6-month rung for our TIPS ladders by buying 10 each of the 01/15/2023 TIPS for my wife and my accounts at Fidelity, and 12 for my son's account at Vanguard. We all got the same price at 101.906 for a real yield of -3.352%. The seasonally adjusted yield is -3.77%, which is a pretty large adjustment of -42 basis points.

Seasonally adjusted breakeven inflation using the #Cruncher method is 5.53%, based on a nominal yield of 2.50%. I also bought 15 of the nominal 1/15/2023 Treasuries for my son's account.

This is the shortest maturity outstanding TIPS except for the one that matures in about two weeks on 7/15/2022.

Kevin
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Re: Trading Treasuries (nominal and TIPS)

Post by LadyGeek »

The wiki has some background info: Laddering bonds or CDs (Treasury bond ladders)

If there's anything in need of an update or correction, please post here. If it's not related to bond ladders, feel free to post in Suggestions for the Wiki.
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Re: Trading Treasuries (nominal and TIPS)

Post by indexfundfan »

jeffyscott wrote: Thu Jun 30, 2022 12:35 pm
indexfundfan wrote: Thu Jun 30, 2022 10:39 am
jeffyscott wrote: Thu Jun 30, 2022 8:51 am I spoke too soon. I just got an email informing me of a trading violation. It says, in part:
To clarify the sequence of events

6/23 TIPS auction
6/27 Sale of mutual fund (to pay for TIPS)
6/28 Mutual fund sale settled
6/30 TIPS settlement

So Schwab is saying you have a trading violation for the TIPS transaction. To avoid the violation, you need to sell the mutual fund on 6/23 or earlier?
Except that the MF sale was on the 28th so settled on 29th (I put the order in on the 27th but after close), that was the sequence of events.

And that's my interpretation of what the actual violation was and what they would allow. So were I to buy at auction again, I'd first submit a sell order sometime after market close the day before and then submit my auction order.

If you carry a money market balance or have a margin account, the rules may differ.
OK, so 6/28 and 6/29 will make no difference to the scenario.

I would have thought what you did should be fine since your money is available by the TIPS settlement date. Or is this just Schwab trying to make you give free float of your cash to them?

By the way, is this an IRA or non-margin taxable account?
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Re: Trading Treasuries (nominal and TIPS)

Post by investorjon »

Thank you Kevin for this topic!

My questions concerns purchasing I bonds when you and spouse have a Revocable living Trust: We are both grantors and trustees of the trust and the title of the trust uses both our names. Can we each purchase an I bond under the name of the trust?

Thanks,
Jon
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Re: Trading Treasuries (nominal and TIPS)

Post by jeffyscott »

indexfundfan wrote: Thu Jun 30, 2022 1:19 pm
jeffyscott wrote: Thu Jun 30, 2022 12:35 pm
indexfundfan wrote: Thu Jun 30, 2022 10:39 am
jeffyscott wrote: Thu Jun 30, 2022 8:51 am I spoke too soon. I just got an email informing me of a trading violation. It says, in part:
To clarify the sequence of events

6/23 TIPS auction
6/27 Sale of mutual fund (to pay for TIPS)
6/28 Mutual fund sale settled
6/30 TIPS settlement

So Schwab is saying you have a trading violation for the TIPS transaction. To avoid the violation, you need to sell the mutual fund on 6/23 or earlier?
Except that the MF sale was on the 28th so settled on 29th (I put the order in on the 27th but after close), that was the sequence of events.

And that's my interpretation of what the actual violation was and what they would allow. So were I to buy at auction again, I'd first submit a sell order sometime after market close the day before and then submit my auction order.

If you carry a money market balance or have a margin account, the rules may differ.
OK, so 6/28 and 6/29 will make no difference to the scenario.

I would have thought what you did should be fine since your money is available by the TIPS settlement date. Or is this just Schwab trying to make you give free float of your cash to them?

By the way, is this an IRA or non-margin taxable account?
IRA

At a link they included in the email, they say:
Liquidation violations are based on trade dates rather than settlement dates.
and
A cash liquidation violation occurs when you sell a security and use the proceeds to cover the purchase of a different security you bought on a prior trade date.
But then the only example they give is where it's a violation due to the settlement date.
https://www.schwab.com/learn/story/stoc ... 2-timeline

If they really mean that the trade dates need to match, independently of whether or not the settlement dates do, they should give an example like: Buy stock ABC on Monday, sell a treasury bond on Tuesday to cover the trade. This is a violation due to the different trade dates, even though both trades will settle on Wednesday.
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Re: Trading Treasuries (nominal and TIPS)

Post by Kevin M »

investorjon wrote: Thu Jun 30, 2022 2:18 pm Thank you Kevin for this topic!

My questions concerns purchasing I bonds when you and spouse have a Revocable living Trust: We are both grantors and trustees of the trust and the title of the trust uses both our names. Can we each purchase an I bond under the name of the trust?

Thanks,
Jon
Hi Jon,

I bonds are not marketable securities, and thus you can't "trade" them on any secondary market. So they aren't really appropriate for discussion in this thread. Try this one: I Bonds Mega Thread (I Bond Heads Rejoice!).

Edit: But the quick answer is yes, you can create an entity account for a joint living trust, and use whichever SS # you typically use for trust accounts.

Thanks,

Kevin
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