Trading Treasuries (nominal and TIPS)

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Re: Trading Treasuries (nominal and TIPS)

Post by Kevin M »

GetSmarter wrote: Sun Jun 19, 2022 9:06 pm Do I understand correctly:

1) There is a coupon paid out twice a year based on a small rate that doesn't change for the duration of bond.

The coupon fixed rate doesn't change, but it is multiplied by the index ratio (inflation factor) for the coupon payment dates. So the semi-annual coupon amount is face value * coupon rate / 2 * index ratio.
GetSmarter wrote: Sun Jun 19, 2022 9:06 pm 2) In addition, the principal amount at maturity will reflect a greater number than the original par purchase value IF inflation was greater than ? for a period of time within the 4 years 10 months (of upcoming auction TIP).
If inflation is greater than 0% for the holding period, the inflation-adjusted principal amount will be greater than the principal paid at purchase, because the index ratio (IR) will be greater than 0. Remember, the IR is the reference CPI for the date of interest divided by the dated date reference CPI. The former will be greater than the latter if inflation is greater than 0%.
GetSmarter wrote: Sun Jun 19, 2022 9:06 pm Can you explain what kind of inflation rate will make TIPS a valuable investment.

It is a valuable investment at any inflation rate if your goal is to earn about the real yield at purchase, and you plan to hold to maturity. If inflation is greater than 0% for the holding period, your annualized return will be about the original real yield, with the uncertainty depending on what rates the coupons are reinvested (if at all). If there is net deflation over the holding period, your real return will be higher than the initial real yield, because the adjusted price cannot fall below 100 at maturity.
GetSmarter wrote: Sun Jun 19, 2022 9:06 pm For example, inflation just went higher and fed rate went higher too in order to try and bring down inflation. If inflation numbers start coming down from where we bought at, are TIPS potentially still paying higher than principal because inflation didn't hit a certain floor. What would that floor be?
I think this already is answered above.
GetSmarter wrote: Sun Jun 19, 2022 9:06 pm If I believe inflation will come down within a few years but still believe it will be greater than 2 or 3 %, will I be compensated for holding my money in long-term TIPS?

You will earn about the original yield if held until maturity, regardless of what happens to inflation, unless there is deflation, as explained above.

Since the seasonally adjusted breakeven inflation rate (SA BEI) is less than 3% for terms beyond the 10/15/2025 TIPS, you will earn a higher nominal return on these TIPS than on nominal Treasuries of same maturities if average inflation is greater 3%.

Conversely, the SA BEI on the longest term TIPS is about 2.4%, so your longest-term nominal Treasury would earn more than this TIPS if inflation averages less than 2.4% over the next 30 years.
GetSmarter wrote: Sun Jun 19, 2022 9:06 pm I hope I asked my questions well. The language is very new for me. I'm trying to figure out my odds for keeping up with inflation if I buy TIPS vs Nominal Treasuries. I could do both, like you mentioned you do. I just hoped to understand TIPS and the risks I may be taking in our volatile environment. My goal is preservation of capital with income.
If your goal is to keep up with inflation, then TIPS with positive real yields are the way to go. With nominal Treasuries, your real return depends on inflation, which is unknown.

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Re: Trading Treasuries (nominal and TIPS)

Post by GetSmarter »

Thank you, Kevin. I appreciate your TIPS explanation. I'll plan to build a TIPS ladder up to the 4 years 10 months rung.
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Re: Trading Treasuries (nominal and TIPS)

Post by squirrel1963 »

In regard to buying TIPS on the secondary market:

I am currently building my TIPS ladder as part of LMP portfolio (see Grok's tip #8).
Thus far I bought years 2052 down to 2032. I'll be buying year 2027 at auction and the rest on the secondary market as well.

I did my purchases via Schwab I was able to compare the price I paid per bond vs WSJ prices, here are the highest cost, lowest cost, and average.
Average purchase fee so far seems to be around 0.3%.
So considering this cost, I'll also be replacing the long TIPS fund (LTPZ) with my own replica (LTPZ charges 0.2% per year)

========================

Buy Date for all these purchases: 6/17/2022
Purchase quantity 10-50 bonds for each TIP.

Symbol: UST INFL IDX 0.125%02/52INFL INDEX DUE 02/15/52
Unit Price: $81.2231
WSJ price on 6/17/2022: $80.78125
Purchase fee: ~0.5% (HIGHEST COST)

Symbol: UST INFL IDX 1%02/49INFL INDEX DUE 02/15/49
Unit Price: $100.412
WSJ price on 6/17/2022: $100.09375
Purchase fee: ~0.3% (AVERAGE)

Symbol: UST INFL IDX 0.125%01/32INFL INDEX DUE 01/15/32
Unit Price: $95.328
WSJ price on 6/17/2022: $ 95.15625
Purchase fee: ~0.15% (LOWEST COST)
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Buying T-Bills at Auction on Fidelity - Confounding Figures?

Post by Elmo »

[Thread merged into here --admin LadyGeek]

Hello Bogleheads,
I have read a fair amount on buying Treasuries. I found the pdf online of the Treasury Auction schedule and I have looked at auction result pdfs and understand them. Still, I have questions that even reading on the BH site has not answered.

When I looked last week at the 4 and 8 week auction offerings on Fidelity it showed they were auctioning "RI" Reopened Issues bills and the Treasury Auction schedule did not say these auctions last week were reopened issues. There is a legend on their schedule and some are marked "R" which denotes reopening. I am wondering if what I can buy on Fidelity is the same bond with the same yield as buying at Treasury Direct.

I would like to buy at Fidelity for convenience in taxable as well as in IRAs. However, I am wondering what I don't understand about the prospective bonds. One thing that caught my eye was on the landing page of New Treasury Issues on Fidelity there is a column marked "Expected Yield" and I understand this is an estimate as no one knows what the auction price will end up being. However, when you go more deeply and click on that bond offering it states that same "estimate" number as something called "Ask Yield to Worst". Many terms are underlined and you can click and look them up in the glossary they helpfully provide. However, "Ask Yield to Worst" is missing. I find "Yield to Worst" and adding the word "ask" makes me uncertain I understand the offering.

A) Why would they put a number in the "Ask Yield to Worst" if this is a new auction when they already put an "Expected Yield", an estimate. What don't I understand?

B) I looked at the CUSIPs listed for the 13 & 26 week auctions tomorrow from Treasury Direct and they match what is on the Fidelity site so I am thinking they are describing the same auction. Is that so?

C) Today I looked at Fidelity again to investigate further and found the 13 week auction listed as "RI", reopened issue, on Fidelity and ostensibly the same auction not listed as such "R" on the Treasury Direct schedule. Can you explain?

D) Do I get the same auction "High Rate" at Fidelity as listed on the Treasury Direct site under Auction Results when you look at the Competetive Bids pdf to find out what the rate ended up being? (I know I would place a non-competitive bid but the auction results, as far as I can tell, are only on the Competitive Bid pdf for that auction date and duration.)

E) Is the "Third Party Price" shown on Fidelity's "Price and Performance" tab simply as estimate from a vendor Fidelity uses for price estimates and does not have to do with this being a purchase on the secondary market since it is listed under "New Issues", Treasury?

F) On the 26 week bond maturing 12/22/2022 why is a "Current Rate Effective Date" listed if this is a new issue? Fidelity does not show this one as "RI", nor does the TD schedule, so why does it have a date in the past, 6/16/2022, listed as current rate effective date, which according to the glossary is "for variable or step-rate securities, specifies the date on which the next coupon rate change will become effective for interest calculations "? To me it doesn't seem like it should have a rate date posted before the auction. I understand how the 13 week bond listed at Fidelity as a reopened issue would have a "current rate effective date" listed but not why the 26 week one would.

I have included screen shots of the dashboard from today of the 13 and 26 week new issues so you can see what I am talking about. Also, I included the "Overview" and "Price and Performance" tabs for each bond offering.

https://www.dropbox.com/s/4s5svvvxrxf3m ... s.pdf?dl=0

I had a friend, who has bought many times over the years from TD, look at the screens on Fidelity and he was confused and unable to answer my questions.

Bogleheads, I am counting on you, please enlighten me.

Thank you for reading,
Elmo
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Fidelity bond pricing

Post by Kevin M »

The comparison of Schwab price to WSJ quoted price got me looking into this. In doing so, I found this Fidelity transcript that goes into a lot of detail on bond pricing at Fidelity: What you need to know about bond pricing.

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

Post by FactualFran »

Elmo wrote: Mon Jun 20, 2022 2:34 pm
A "Yield to Worst" is meaningful only for securities that are callable (can be called before maturity). The securities you are interested in are not callable. I don't know why a Yield to Worst would be listed.

The auctions for 13-week and 26-week T-bills are separate auctions.

The 13-week T-bill being auction is the same security that was auctioned 13 weeks ago as a 26-week T-bill. This is standard practice with 13-week and 26-week T-bills, and some may choose to not label it as re-opening.

Non-competitive bidders at an auction get the same "High Rate" (and price) as the winning competitive bidders.

Any price shown for an auction to be held is an estimate, regardless of the source.

I have no idea why Fidelity lists a "Current Rate Effective Date" for T-bills to be auctioned. It likely makes sense only for re-openings of floating-rate notes.

[Edit: added skeletal quote to post being replied to. That post was orginally the opening post in a separate topic. The lack of explicit context in the reply made sense in the separate topic but not after posts of different topics were merged.]
Last edited by FactualFran on Mon Jun 20, 2022 9:16 pm, edited 1 time in total.
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Re: Fidelity bond pricing

Post by squirrel1963 »

Kevin M wrote: Mon Jun 20, 2022 3:28 pm The comparison of Schwab price to WSJ quoted price got me looking into this. In doing so, I found this Fidelity transcript that goes into a lot of detail on bond pricing at Fidelity: What you need to know about bond pricing.

Kevin
That's a very interesting transcript thanks. It makes sense that corporate bonds can have high markups compared to heavily traded treasuries. I still need to buy more individual TIPS and I'll be doing them on Fidelity (I have multiple IRAs - don't ask), so I'll post Fidelity prices when I'm done. It will be for different days, but I think that comparison to WSJ quotes would make it a reasonable comparison.
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Re: Trading Treasuries (nominal and TIPS)

Post by LadyGeek »

I merged Elmo's question into the ongoing discussion.
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Re: Buying T-Bills at Auction on Fidelity - Confounding Figures?

Post by Kevin M »

Elmo wrote: Mon Jun 20, 2022 2:34 pm [Thread merged into here --admin LadyGeek]

Hello Bogleheads,
I have read a fair amount on buying Treasuries. I found the pdf online of the Treasury Auction schedule and I have looked at auction result pdfs and understand them. Still, I have questions that even reading on the BH site has not answered.

When I looked last week at the 4 and 8 week auction offerings on Fidelity it showed they were auctioning "RI" Reopened Issues bills and the Treasury Auction schedule did not say these auctions last week were reopened issues. There is a legend on their schedule and some are marked "R" which denotes reopening. I am wondering if what I can buy on Fidelity is the same bond with the same yield as buying at Treasury Direct.
Yes. Everyone gets the same price and yield at auction.
Elmo wrote: Mon Jun 20, 2022 2:34 pm I would like to buy at Fidelity for convenience in taxable as well as in IRAs. However, I am wondering what I don't understand about the prospective bonds. One thing that caught my eye was on the landing page of New Treasury Issues on Fidelity there is a column marked "Expected Yield" and I understand this is an estimate as no one knows what the auction price will end up being. However, when you go more deeply and click on that bond offering it states that same "estimate" number as something called "Ask Yield to Worst". Many terms are underlined and you can click and look them up in the glossary they helpfully provide. However, "Ask Yield to Worst" is missing. I find "Yield to Worst" and adding the word "ask" makes me uncertain I understand the offering.
Yield to worst is the same as yield to maturity for Treasuries, because they are not callable. "Ask" is what you get when you buy, and "Bid" is what you get when you sell.
Elmo wrote: Mon Jun 20, 2022 2:34 pm A) Why would they put a number in the "Ask Yield to Worst" if this is a new auction when they already put an "Expected Yield", an estimate. What don't I understand?
I'm not sure what you're looking at, but for reopenings, the issue trades on the secondary market, so you can buy it there at the current ask price/yield for the minimum quantity that is applicable to you.
Elmo wrote: Mon Jun 20, 2022 2:34 pm B) I looked at the CUSIPs listed for the 13 & 26 week auctions tomorrow from Treasury Direct and they match what is on the Fidelity site so I am thinking they are describing the same auction. Is that so?
Yes.
Elmo wrote: Mon Jun 20, 2022 2:34 pm C) Today I looked at Fidelity again to investigate further and found the 13 week auction listed as "RI", reopened issue, on Fidelity and ostensibly the same auction not listed as such "R" on the Treasury Direct schedule. Can you explain?
I don't know why the don't show the R on the tentative auction schedule. I believe all T bills except the 52-week and 26-week are reopenings of previous bills.
Elmo wrote: Mon Jun 20, 2022 2:34 pm D) Do I get the same auction "High Rate" at Fidelity as listed on the Treasury Direct site under Auction Results when you look at the Competetive Bids pdf to find out what the rate ended up being? (I know I would place a non-competitive bid but the auction results, as far as I can tell, are only on the Competitive Bid pdf for that auction date and duration.)
Yes. Everyone gets the same rate, price, yield, etc.
Elmo wrote: Mon Jun 20, 2022 2:34 pm E) Is the "Third Party Price" shown on Fidelity's "Price and Performance" tab simply as estimate from a vendor Fidelity uses for price estimates and does not have to do with this being a purchase on the secondary market since it is listed under "New Issues", Treasury?
Third party price is a price obtained from a service they use, and is the based on recent trades.
Elmo wrote: Mon Jun 20, 2022 2:34 pm F) On the 26 week bond maturing 12/22/2022 why is a "Current Rate Effective Date" listed if this is a new issue? Fidelity does not show this one as "RI", nor does the TD schedule, so why does it have a date in the past, 6/16/2022, listed as current rate effective date, which according to the glossary is "for variable or step-rate securities, specifies the date on which the next coupon rate change will become effective for interest calculations "? To me it doesn't seem like it should have a rate date posted before the auction. I understand how the 13 week bond listed at Fidelity as a reopened issue would have a "current rate effective date" listed but not why the 26 week one would.
Because the 26-week is a reopening of the 52-week.
Elmo wrote: Mon Jun 20, 2022 2:34 pm I have included screen shots of the dashboard from today of the 13 and 26 week new issues so you can see what I am talking about. Also, I included the "Overview" and "Price and Performance" tabs for each bond offering.

https://www.dropbox.com/s/4s5svvvxrxf3m ... s.pdf?dl=0
Sorry, I didn't see this link before answering questions. If you have any follow up questions, I'll look at your screenshots when answering.

Kevin
Last edited by Kevin M on Mon Jun 20, 2022 9:12 pm, edited 1 time in total.
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Re: Trading Treasuries (nominal and TIPS)

Post by Kevin M »

I may be wrong about the 26-week. When I search on the CUSIP for the 26-week auction, I don't see it other than for the new 26-week. By contrast, when I search on the 13-week CUSIP, I find it was auctioned previously as a 26-week.

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Re: Trading Treasuries (nominal and TIPS)

Post by Kevin M »

Did a web search on "Current rate effective date", and found this Fidelity glossary page.
Current Rate Effective Date
For variable or step-rate securities, specifies the date on which the next coupon rate change will become effective for interest calculations.
Treasuries are not step-rate securities, so this seems irrelevant for Treasuries. I've never even noticed this before. Most of the info on the bond overview page is not of much interest to me.

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Re: Trading Treasuries (nominal and TIPS)

Post by protagonist »

GetSmarter wrote: Mon Jun 20, 2022 12:01 am Thank you, Kevin. I appreciate your TIPS explanation. I'll plan to build a TIPS ladder up to the 4 years 10 months rung.
Like you, I like the April issues (x years, 10 months). Two reasons:
1. Probably just co-inky-dink, but the few I have bought so far seem to have slightly better yields than the adjacent January and July issues, and,
2. I didn't think of this beforehand, but receiving payout around tax day is probably a good idea. We can all use more money on April 15.
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Re: Trading Treasuries (nominal and TIPS)

Post by Kevin M »

protagonist wrote: Mon Jun 20, 2022 9:31 pm
GetSmarter wrote: Mon Jun 20, 2022 12:01 am Thank you, Kevin. I appreciate your TIPS explanation. I'll plan to build a TIPS ladder up to the 4 years 10 months rung.
Like you, I like the April issues (x years, 10 months). Two reasons:
1. Probably just co-inky-dink, but the few I have bought so far seem to have slightly better yields than the adjacent January and July issues, and,
April yield generally should be higher than January, assuming a generally positively sloped real yield curve.

If April yield is higher than July, it's probably a seasonal thing. For example, from Friday Fidelity quotes, 4/15/2027 ask yield was 0.49% and 7/15/2027 ask yield was 0.48%, which appears to support your view. However, the seasonally adjusted yields are 0.44% and 0.49% respectively, which is more what we'd expect.

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Re: Trading Treasuries (nominal and TIPS)

Post by protagonist »

Kevin M wrote: Mon Jun 20, 2022 9:47 pm
protagonist wrote: Mon Jun 20, 2022 9:31 pm
GetSmarter wrote: Mon Jun 20, 2022 12:01 am Thank you, Kevin. I appreciate your TIPS explanation. I'll plan to build a TIPS ladder up to the 4 years 10 months rung.
Like you, I like the April issues (x years, 10 months). Two reasons:
1. Probably just co-inky-dink, but the few I have bought so far seem to have slightly better yields than the adjacent January and July issues, and,
April yield generally should be higher than January, assuming a generally positively sloped real yield curve.

If April yield is higher than July, it's probably a seasonal thing. For example, from Friday Fidelity quotes, 4/15/2027 ask yield was 0.49% and 7/15/2027 ask yield was 0.48%, which appears to support your view. However, the seasonally adjusted yields are 0.44% and 0.49% respectively, which is more what we'd expect.

Kevin
Yes, I get that January should be lower, but I don't understand "seasonal adjusted yields". Can you please explain that concept, Kevin?
I just checked Fido out of curiosity, yields:
4/24: -.745
7/24: -.764

4/25: -.085
7/25: -.133

4/26: .317
7/26: .264

4/27: .496
7/27: .469

4/28: .633
7/28: .587

4/29: .665
7/29: .600 (lower even than 4/28!)

I didn't check past 2029 but the pattern seems consistent over at least 6 years and if more than coincidence I'd like to know why.
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Re: Trading Treasuries (nominal and TIPS)

Post by Steve6622 »

Came across an interesting discrepancy between Fidelity and Treasury Direct...

The Daily Reference CPI value is the straight line extrapolation between one month's CPI-U and then next and is used to calculate the Inflation Factor/Index Ratio on any given day. For today (6/21), Fidelity lists 288.62750 https://fixedincome.fidelity.com/ftgw/f ... =91282CCA7) which is the value that Treasury Direct lists for tomorrow (6/22). (e.g. https://www.treasurydirect.gov/instit/a ... =91282CCA7).

Obviously very small difference day to day...but annoying that there isn't agreement between these two very large organizations.
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Re: Trading Treasuries (nominal and TIPS)

Post by jeffyscott »

protagonist wrote: Mon Jun 20, 2022 10:08 pm
Yes, I get that January should be lower, but I don't understand "seasonal adjusted yields". Can you please explain that concept, Kevin?
Here's one of many disussions:
viewtopic.php?t=312932

An excerpt from that:
Kevin M wrote: Thu Apr 23, 2020 3:32 pmHere we can see kind of a saw-tooth pattern in the yields, although it's not as exaggerated as at some times in the past.

What has been determined in previous forum discussions about this saw-tooth pattern is that much of it can be explained by seasonality in the CPI. TIPS traders are very aware of this seasonality, and adjust their ask and bid prices accordingly based on seasonally adjusted CPI (TIPS inflation adjustments are based on non-seasonally adjusted CPI).

IIRC, when I once looked at 10 years of monthly changes to non-seasonally adjusted CPI, there was, on average, essentially 0 inflation in the second half of the year with nearly all annual inflation occurring in the first half.
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Re: Trading Treasuries (nominal and TIPS)

Post by JayB »

I'm looking at two TIPS with similar 2032 maturities at Fidelity brokerage:

1/15/2032, coupon 0.125, ask price 95.047, infl. factor 1.041, adjusted price 98.964, YTM 0.660
and
4/15/2032, coupon 3.375, ask price 125.418, infl. factor 1.626, adjusted price 203.938, YTM 0.692

Now ignoring the slight difference in maturity dates and YTMs, what should an investor think about in deciding which one of these to purchase?

Among other things, it would seem that with annual accretions toward par of either bond (positive in the first bond, negative in the second), it may not make any real difference after taxes. Also, it would seem to me that the first bond provides better deflation protection because it is priced below par. Am I thinking correctly about these?
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Re: Trading Treasuries (nominal and TIPS)

Post by jeffyscott »

For myself, I would give ~0 weight to the greater deflation protection as I would put the chances of having 10 years of net deflation at ~0. I am also already somewhat protected from deflation by the structure of my pension. Our future SS benefits also have deflation protection, the nominal value will not be decreased should CPI decline.

I actually chose the higher coupon one recently, as my guess was that the reinvestment rate would be higher than the YTM at the time of purchase of 0.2% real. The lower coupon one has less risk, since the coupon payments are so tiny most of the money will stay invested until final maturity and so you know that part will earn the YTM for the full ~9.5 years.

Mine's in tax-deferred, so I didn't have to (and don't) understand any tax implications.
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Re: Trading Treasuries (nominal and TIPS)

Post by protagonist »

jeffyscott wrote: Tue Jun 21, 2022 7:02 am
protagonist wrote: Mon Jun 20, 2022 10:08 pm
Yes, I get that January should be lower, but I don't understand "seasonal adjusted yields". Can you please explain that concept, Kevin?
Here's one of many disussions:
viewtopic.php?t=312932

An excerpt from that:
Kevin M wrote: Thu Apr 23, 2020 3:32 pmHere we can see kind of a saw-tooth pattern in the yields, although it's not as exaggerated as at some times in the past.

What has been determined in previous forum discussions about this saw-tooth pattern is that much of it can be explained by seasonality in the CPI. TIPS traders are very aware of this seasonality, and adjust their ask and bid prices accordingly based on seasonally adjusted CPI (TIPS inflation adjustments are based on non-seasonally adjusted CPI).

IIRC, when I once looked at 10 years of monthly changes to non-seasonally adjusted CPI, there was, on average, essentially 0 inflation in the second half of the year with nearly all annual inflation occurring in the first half.
I sort of get that in explaining why the result would be that the incremental yield INCREASE would be less for maturities later in the year. I don't understand why the absolute yield would actually be LOWER for July than for April maturities, since both would enjoy the same benefits from higher inflation from Jan-Apr of the maturity year.
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Re: Trading Treasuries (nominal and TIPS)

Post by jeffyscott »

protagonist wrote: Tue Jun 21, 2022 9:37 am
jeffyscott wrote: Tue Jun 21, 2022 7:02 am
protagonist wrote: Mon Jun 20, 2022 10:08 pm
Yes, I get that January should be lower, but I don't understand "seasonal adjusted yields". Can you please explain that concept, Kevin?
Here's one of many disussions:
viewtopic.php?t=312932

An excerpt from that:
Kevin M wrote: Thu Apr 23, 2020 3:32 pmHere we can see kind of a saw-tooth pattern in the yields, although it's not as exaggerated as at some times in the past.

What has been determined in previous forum discussions about this saw-tooth pattern is that much of it can be explained by seasonality in the CPI. TIPS traders are very aware of this seasonality, and adjust their ask and bid prices accordingly based on seasonally adjusted CPI (TIPS inflation adjustments are based on non-seasonally adjusted CPI).

IIRC, when I once looked at 10 years of monthly changes to non-seasonally adjusted CPI, there was, on average, essentially 0 inflation in the second half of the year with nearly all annual inflation occurring in the first half.
I sort of get that in explaining why the result would be that the incremental yield INCREASE would be less for maturities later in the year. I don't understand why the absolute yield would actually be LOWER for July than for April maturities, since both would enjoy the same benefits from higher inflation from Jan-Apr of the maturity year.
Don't forget that there is a lag, so April get CPI though Feb 15 while July gets CPI through May 15.

edit: This might be of interest: viewtopic.php?t=295816

Also note that I see from that discussion that it's actually Jan 15 and April 15 CPI for the April and July TIPS.
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Re: Trading Treasuries (nominal and TIPS)

Post by Itster »

Sorry for interrupting the train of thought here -- I have a question about purchasing Treasuries on Vanguard and I didn't know if I should create a new thread or just post here, considering at times threads are merged for the same topic.

So on the order page for CDs/Treasuries, there's a quick search where I can click on the yield that gives me a list of TBills. Are these all at auction?

If I click on the Treasuries tab and fill in the search form, I can't select "auction" before I make a selection of the Treasury Type (let's say TIPS) because clicking "auction" automatically gives me a list of everything. But if I try to "edit search criteria" then my previous criteria (for auction) is wiped. I wish there was at least a header at the top that indicated auction vs secondary since I'm not accustomed to the presentation yet.
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Re: Trading Treasuries (nominal and TIPS)

Post by jeffyscott »

Itster wrote: Tue Jun 21, 2022 10:30 amIf I click on the Treasuries tab and fill in the search form, I can't select "auction" before I make a selection of the Treasury Type (let's say TIPS) because clicking "auction" automatically gives me a list of everything. But if I try to "edit search criteria" then my previous criteria (for auction) is wiped.
I'm not very familiar with how Vanguard's site works, but no sure why you feel you would need more than the list of all upcoming auctions? Perhaps your expectations were for there to be a lot more auctions than there actually are?

There are only 6 auctions that are open for orders, as Vanguard shows when you select "auction". Vanguard shows several more that are expected to come up in the future, which you can not yet place orders on, but the whole list is still just 15 items.
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Re: Trading Treasuries (nominal and TIPS)

Post by Itster »

jeffyscott wrote: Tue Jun 21, 2022 11:01 am
Itster wrote: Tue Jun 21, 2022 10:30 amIf I click on the Treasuries tab and fill in the search form, I can't select "auction" before I make a selection of the Treasury Type (let's say TIPS) because clicking "auction" automatically gives me a list of everything. But if I try to "edit search criteria" then my previous criteria (for auction) is wiped.
I'm not very familiar with how Vanguard's site works, but no sure why you feel you would need more than the list of all upcoming auctions? Perhaps your expectations were for there to be a lot more auctions than there actually are?

There are only 6 auctions that are open for orders, as Vanguard shows when you select "auction". Vanguard shows several more that are expected to come up in the future, which you can not yet place orders on, but the whole list is still just 15 items.
It's not that I want more auctions than there are -- I'm confused by the 3 presentations of the lists (quick search vs search with auction and secondary listings). The quick search gives me Tbills -- are these all Tbills at auction, or both auction and secondary?

Then in the Treasury search, the search form list doesn't let me fill in any of the form info once I click "auction" -- it just presents a list immediately upon clicking it (or I can click on auction last, I guess, after filling out the rest of the criteria). But once I'm presented with that listing, the search form defaults back to "secondary" as if I never selected auction. So I'm confused about whether I'm just in the auctions list vs the secondary list or both, especially since there are no list headers to indicate which is which. I'm sure those who are familiar with the listings know just from viewing the list itself.

It would be nice to have report headers that confirm what I'm looking at for a newbie, "T-Bills (Auction)" "Treasuries (Auction)" or "Treasuries (Secondary Market)" etc. Or if the search form would retain my search criteria I would have more confidence that the options I chose is what I'm actually viewing. Maybe of lesser value for an experienced buyer but would be very helpful for someone navigating for the first time.

Edited explanation for clarity.
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Re: Trading Treasuries (nominal and TIPS)

Post by squirrel1963 »

JayB wrote: Tue Jun 21, 2022 8:19 am I'm looking at two TIPS with similar 2032 maturities at Fidelity brokerage:

1/15/2032, coupon 0.125, ask price 95.047, infl. factor 1.041, adjusted price 98.964, YTM 0.660
and
4/15/2032, coupon 3.375, ask price 125.418, infl. factor 1.626, adjusted price 203.938, YTM 0.692

Now ignoring the slight difference in maturity dates and YTMs, what should an investor think about in deciding which one of these to purchase?

Among other things, it would seem that with annual accretions toward par of either bond (positive in the first bond, negative in the second), it may not make any real difference after taxes. Also, it would seem to me that the first bond provides better deflation protection because it is priced below par. Am I thinking correctly about these?
When yields are roughly identical (as in this case) I pick the one which has the lowest inflation factor. Keep in mind though in my case I keep TIPS in IRA, so taxation does not factor in my decision.

Edit: the ask price is unrelated to inflation as it is quoted in real dollars, although of course adjusted price is definitely related, and if below par you will get full deflation protection.
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 MtnBiker »

squirrel1963 wrote: Tue Jun 21, 2022 11:43 am
JayB wrote: Tue Jun 21, 2022 8:19 am I'm looking at two TIPS with similar 2032 maturities at Fidelity brokerage:

1/15/2032, coupon 0.125, ask price 95.047, infl. factor 1.041, adjusted price 98.964, YTM 0.660
and
4/15/2032, coupon 3.375, ask price 125.418, infl. factor 1.626, adjusted price 203.938, YTM 0.692

Now ignoring the slight difference in maturity dates and YTMs, what should an investor think about in deciding which one of these to purchase?

Among other things, it would seem that with annual accretions toward par of either bond (positive in the first bond, negative in the second), it may not make any real difference after taxes. Also, it would seem to me that the first bond provides better deflation protection because it is priced below par. Am I thinking correctly about these?
When yields are roughly identical (as in this case) I pick the one which has the lowest inflation factor. Keep in mind though in my case I keep TIPS in IRA, so taxation does not factor in my decision.

Edit: the ask price is unrelated to inflation as it is quoted in real dollars, although of course adjusted price is definitely related, and if below par you will get full deflation protection.
I don't know if I'm thinking about this correctly, but given those choices I would lean toward the high coupon bond for a LMP. As JeffyScott said, greater deflation protection is a non-factor since 10 years of net deflation is quite unlikely.

The possible advantage I see in the high-coupon case is that the coupons spun off over the ten-year run of the bond fill part of the first nine rungs of a ladder. So I don't have to buy quite as many lower-yielding shorter-term bonds. This seems like it would slightly enhance the overall yield of the LMP. I haven't put any numbers to this, but I imagine any difference is small, so either way would be fine.
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Re: Trading Treasuries (nominal and TIPS)

Post by FactualFran »

Steve6622 wrote: Tue Jun 21, 2022 5:38 am Came across an interesting discrepancy between Fidelity and Treasury Direct...

The Daily Reference CPI value is the straight line extrapolation between one month's CPI-U and then next and is used to calculate the Inflation Factor/Index Ratio on any given day. For today (6/21), Fidelity lists 288.62750 https://fixedincome.fidelity.com/ftgw/f ... =91282CCA7) which is the value that Treasury Direct lists for tomorrow (6/22). (e.g. https://www.treasurydirect.gov/instit/a ... =91282CCA7).

Obviously very small difference day to day...but annoying that there isn't agreement between these two very large organizations.
The quote at Fidelity has the reference CPI for the settlement date (6/22) not the trade date (6/21). The reference CPI for the settlement date, not the trade date, is used to calculate the dollar amount of the transaction.
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Re: Trading Treasuries (nominal and TIPS)

Post by Kevin M »

jeffyscott wrote: Tue Jun 21, 2022 7:02 am
protagonist wrote: Mon Jun 20, 2022 10:08 pm
Yes, I get that January should be lower, but I don't understand "seasonal adjusted yields". Can you please explain that concept, Kevin?
Here's one of many disussions:
viewtopic.php?t=312932

An excerpt from that:
Kevin M wrote: Thu Apr 23, 2020 3:32 pmHere we can see kind of a saw-tooth pattern in the yields, although it's not as exaggerated as at some times in the past.

What has been determined in previous forum discussions about this saw-tooth pattern is that much of it can be explained by seasonality in the CPI. TIPS traders are very aware of this seasonality, and adjust their ask and bid prices accordingly based on seasonally adjusted CPI (TIPS inflation adjustments are based on non-seasonally adjusted CPI).
IIRC, when I once looked at 10 years of monthly changes to non-seasonally adjusted CPI, there was, on average, essentially 0 inflation in the second half of the year with nearly all annual inflation occurring in the first half.
The seasonal adjustment has nothing to do with first half vs. second half of the year. There is a repeating cyclical pattern in the non-seasonally adjusted CPI. Applying the adjustment removes this cyclical oddity. It is related to where we are in the cycle on settlement date compared to where we will be on the maturity date. Institutional bond traders know about this, and adjust their bids accordingly. It is mostly a factor at shorter maturities (less than five years), and can pretty much be ignored for longer maturities.

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Re: Trading Treasuries (nominal and TIPS)

Post by Kevin M »

Itster wrote: Tue Jun 21, 2022 11:09 am
jeffyscott wrote: Tue Jun 21, 2022 11:01 am
Itster wrote: Tue Jun 21, 2022 10:30 amIf I click on the Treasuries tab and fill in the search form, I can't select "auction" before I make a selection of the Treasury Type (let's say TIPS) because clicking "auction" automatically gives me a list of everything. But if I try to "edit search criteria" then my previous criteria (for auction) is wiped.
I'm not very familiar with how Vanguard's site works, but no sure why you feel you would need more than the list of all upcoming auctions? Perhaps your expectations were for there to be a lot more auctions than there actually are?

There are only 6 auctions that are open for orders, as Vanguard shows when you select "auction". Vanguard shows several more that are expected to come up in the future, which you can not yet place orders on, but the whole list is still just 15 items.
It's not that I want more auctions than there are -- I'm confused by the 3 presentations of the lists (quick search vs search with auction and secondary listings). The quick search gives me Tbills -- are these all Tbills at auction, or both auction and secondary?

Then in the Treasury search, the search form list doesn't let me fill in any of the form info once I click "auction" -- it just presents a list immediately upon clicking it (or I can click on auction last, I guess, after filling out the rest of the criteria). But once I'm presented with that listing, the search form defaults back to "secondary" as if I never selected auction. So I'm confused about whether I'm just in the auctions list vs the secondary list or both, especially since there are no list headers to indicate which is which. I'm sure those who are familiar with the listings know just from viewing the list itself.

It would be nice to have report headers that confirm what I'm looking at for a newbie, "T-Bills (Auction)" "Treasuries (Auction)" or "Treasuries (Secondary Market)" etc. Or if the search form would retain my search criteria I would have more confidence that the options I chose is what I'm actually viewing. Maybe of lesser value for an experienced buyer but would be very helpful for someone navigating for the first time.

Edited explanation for clarity.
Did you look through my detailed post of how to buy Treasuries at Vanguard? There is a link to it in the OP.

For some reason, clicking a Treasury maturity of 10-12 months or less in quick search shows only bills, despite what the header in the search results says. If you edit the search and enter 10m to 12m as the search criteria (leave everything else at the default), you will see bills, notes, bonds STIPS, and TIPS in that date range (if there are any).

You know whether you are in secondary or auction by what you select in the search criteria. If you select auction, you see the current and upcoming auctions. If you edit the search criteria, you are indeed back to secondary. There are no criteria for auctions.

Once you get used to it, you won't even think about it anymore.

Kevin
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Re: Trading Treasuries (nominal and TIPS)

Post by Itster »

Kevin M wrote: Tue Jun 21, 2022 2:05 pm
Itster wrote: Tue Jun 21, 2022 11:09 am
jeffyscott wrote: Tue Jun 21, 2022 11:01 am
Itster wrote: Tue Jun 21, 2022 10:30 amIf I click on the Treasuries tab and fill in the search form, I can't select "auction" before I make a selection of the Treasury Type (let's say TIPS) because clicking "auction" automatically gives me a list of everything. But if I try to "edit search criteria" then my previous criteria (for auction) is wiped.
I'm not very familiar with how Vanguard's site works, but no sure why you feel you would need more than the list of all upcoming auctions? Perhaps your expectations were for there to be a lot more auctions than there actually are?

There are only 6 auctions that are open for orders, as Vanguard shows when you select "auction". Vanguard shows several more that are expected to come up in the future, which you can not yet place orders on, but the whole list is still just 15 items.
It's not that I want more auctions than there are -- I'm confused by the 3 presentations of the lists (quick search vs search with auction and secondary listings). The quick search gives me Tbills -- are these all Tbills at auction, or both auction and secondary?

Then in the Treasury search, the search form list doesn't let me fill in any of the form info once I click "auction" -- it just presents a list immediately upon clicking it (or I can click on auction last, I guess, after filling out the rest of the criteria). But once I'm presented with that listing, the search form defaults back to "secondary" as if I never selected auction. So I'm confused about whether I'm just in the auctions list vs the secondary list or both, especially since there are no list headers to indicate which is which. I'm sure those who are familiar with the listings know just from viewing the list itself.

It would be nice to have report headers that confirm what I'm looking at for a newbie, "T-Bills (Auction)" "Treasuries (Auction)" or "Treasuries (Secondary Market)" etc. Or if the search form would retain my search criteria I would have more confidence that the options I chose is what I'm actually viewing. Maybe of lesser value for an experienced buyer but would be very helpful for someone navigating for the first time.

Edited explanation for clarity.
Did you look through my detailed post of how to buy Treasuries at Vanguard? There is a link to it in the OP.

For some reason, clicking a Treasury maturity of 10-12 months or less in quick search shows only bills, despite what the header in the search results says. If you edit the search and enter 10m to 12m as the search criteria (leave everything else at the default), you will see bills, notes, bonds STIPS, and TIPS in that date range (if there are any).

You know whether you are in secondary or auction by what you select in the search criteria. If you select auction, you see the current and upcoming auctions. If you edit the search criteria, you are indeed back to secondary. There are no criteria for auctions.

Once you get used to it, you won't even think about it anymore.

Kevin
Thank you -- that is helpful. I believe I understand how the navigation works a little better from your reply and from tinkering around a bit. I'm sure the quick search and the auto-launch Auction button are designed to get you where you want to be more quickly. But being presented with lists that didn't specifically indicate auction vs secondary threw me off a bit. Once you're familiar with how each is displayed it's not as much of an issue.
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Re: Trading Treasuries (nominal and TIPS)

Post by Kevin M »

Today I got an immediate fill on 10 of the 7/15/2023 TIPS, with order entered at 2:15 PM ET.

I entered an order three times for 10 of the 4/15/2025 TIPS and it was never filled. Initial order placed at 3:35 PM ET, so maybe too late in the day. It's frustrating when you want to buy something and are happy with the quoted price, but it doesn't get filled. :oops: I really like this one; the yield is just barely negative.

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Re: Trading Treasuries (nominal and TIPS)

Post by Kevin M »

protagonist wrote: Tue Jun 21, 2022 9:37 am
jeffyscott wrote: Tue Jun 21, 2022 7:02 am
protagonist wrote: Mon Jun 20, 2022 10:08 pm Yes, I get that January should be lower, but I don't understand "seasonal adjusted yields". Can you please explain that concept, Kevin?
Here's one of many disussions:
viewtopic.php?t=312932

An excerpt from that:
Kevin M wrote: Thu Apr 23, 2020 3:32 pmHere we can see kind of a saw-tooth pattern in the yields, although it's not as exaggerated as at some times in the past.

What has been determined in previous forum discussions about this saw-tooth pattern is that much of it can be explained by seasonality in the CPI. TIPS traders are very aware of this seasonality, and adjust their ask and bid prices accordingly based on seasonally adjusted CPI (TIPS inflation adjustments are based on non-seasonally adjusted CPI).
IIRC, when I once looked at 10 years of monthly changes to non-seasonally adjusted CPI, there was, on average, essentially 0 inflation in the second half of the year with nearly all annual inflation occurring in the first half.
I sort of get that in explaining why the result would be that the incremental yield INCREASE would be less for maturities later in the year. I don't understand why the absolute yield would actually be LOWER for July than for April maturities, since both would enjoy the same benefits from higher inflation from Jan-Apr of the maturity year.
Did you look through the thread linked above? It would be better to discuss seasonal adjustment details in that thread.

Here are the ask yield and seasonally adjusted (SA) ask yield for maturities from 4/15/2023 to 7/15/2027.

Image

For July 15 settlement, the seasonal adjustment factor used to adjust the price is 1, quoted yield and SA yield are the same. So TIPS maturing on 7/15/20nn currently have a small adjustment. By contrast, the SA factor for April is larger, so the adjustment is larger.

SA factor for July minus 1 = -0.00080

SA factor for April minus 1 = +0.00272

One way I'm thinking about it now is that Bond traders know that the unadjusted CPI (used for TIPS inflation adjustment) for July 15 and April 15 will experience different impacts from the cyclical seasonal effects, and this will result in different nominal returns for these issues maturing only 3 months apart, so the institutional bond traders adjust their bid and ask to reflect this; otherwise there would be an arbitrage opportunity.

The key to this insight is that the price seasonal adjustment factor is calculated by dividing the SA factor for the settlement date by the SA factor for the maturity date. This is multiplied by the quoted price, and then the yield is calculated based on the adjusted price.

The seasonal adjustment factors are simply the non seasonally adjusted CPI for the Ref CPI date divided by the seasonally adjusted CPI for the same date. So for June 22 (settlement tomorrow), the SA factor is 288.62750 / 288.37650 = 1.00087 (Treasury multiplies this by 100 in their published SA factors, so it is 100.087, but for calculation purposes, I skip this.

Kevin
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Re: Trading Treasuries (nominal and TIPS)

Post by Steve6622 »

FactualFran wrote: Tue Jun 21, 2022 12:15 pm
Steve6622 wrote: Tue Jun 21, 2022 5:38 am Came across an interesting discrepancy between Fidelity and Treasury Direct...

The Daily Reference CPI value is the straight line extrapolation between one month's CPI-U and then next and is used to calculate the Inflation Factor/Index Ratio on any given day. For today (6/21), Fidelity lists 288.62750 https://fixedincome.fidelity.com/ftgw/f ... =91282CCA7) which is the value that Treasury Direct lists for tomorrow (6/22). (e.g. https://www.treasurydirect.gov/instit/a ... =91282CCA7).

Obviously very small difference day to day...but annoying that there isn't agreement between these two very large organizations.
The quote at Fidelity has the reference CPI for the settlement date (6/22) not the trade date (6/21). The reference CPI for the settlement date, not the trade date, is used to calculate the dollar amount of the transaction.
Ahh - that makes perfect sense. Thanks!
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Re: Trading Treasuries (nominal and TIPS)

Post by GetSmarter »

After studying and learning from this thread, I plan to start my first Treasury bond ladder very soon. I'd appreciate feedback on my pending plan before I lock in. I have two big lump sums to invest. One my "real estate" money that I probably won't need too soon. Two, my "new" bond portfolio for steady income.

Money earmarked for eventual real estate: 8 Treasury bonds at 100k each in 1-4 month maturity dates. Reinvest until I know I'm ready to buy a property. Buy bonds of different durations all at once.

Money earmarked for my continual fixed bond portfolio: Buy ten bonds between 3 month - 5 year maturities, tilting to shorter term bonds. If rates go much higher later this year, perhaps, reinvest up to 10 year maturity. Or maybe I should leave 10-20% cash in money market if rates go higher sooner.

Do you have thoughts on durations and what degree I'd benefit from dividing my purchases between nominal and TIPs? I will buy into the new 4 year 10 month auction tomorrow. These bonds will mostly be in my taxable account, as I don't have a lot of room in IRAs.

I've never invested this much money at once, so I appreciate your thoughts. Glad to get off the money market sidelines.

Thank you for your thoughts and everyone who contributed to this thread.
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Re: Trading Treasuries (nominal and TIPS)

Post by Dyloot »

I bought my first T-Bills today on today's New Issue on Fidelity. Fun!

Question: Why did the 4-week, 8-week, and 13-week appear, but not the 26-week?

I see on the auction schedule that the 4-week and 8-week had a 6/21 announcement date (today), and that the 13-week and the 26-week has a 6/21 auction date and a 6/23 Announcement Date. I'm not 100% sure how this works, and even more confused why I'd see the 13-week and not the 26-week.

Thanks!
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Re: Trading Treasuries (nominal and TIPS)

Post by Kevin M »

Dyloot wrote: Tue Jun 21, 2022 5:22 pm I bought my first T-Bills today on today's New Issue on Fidelity. Fun!

Question: Why did the 4-week, 8-week, and 13-week appear, but not the 26-week?

I see on the auction schedule that the 4-week and 8-week had a 6/21 announcement date (today), and that the 13-week and the 26-week has a 6/21 auction date and a 6/23 Announcement Date. I'm not 100% sure how this works, and even more confused why I'd see the 13-week and not the 26-week.

Thanks!
The 13-week and 26-week auctions already happened today. If you have a Vanguard account, they show not only open auctions but recently auctioned and some future auctions too.

The one maturing on 10/25/2022, 912796YF0, is a 119-day bill, not a 13-week bill.

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 Dyloot »

Kevin M wrote: Tue Jun 21, 2022 5:45 pm
Dyloot wrote: Tue Jun 21, 2022 5:22 pm I bought my first T-Bills today on today's New Issue on Fidelity. Fun!

Question: Why did the 4-week, 8-week, and 13-week appear, but not the 26-week?

I see on the auction schedule that the 4-week and 8-week had a 6/21 announcement date (today), and that the 13-week and the 26-week has a 6/21 auction date and a 6/23 Announcement Date. I'm not 100% sure how this works, and even more confused why I'd see the 13-week and not the 26-week.

Thanks!
The 13-week and 26-week auctions already happened today. If you have a Vanguard account, they show not only open auctions but recently auctioned and some future auctions too.

The one maturing on 10/25/2022, 912796YF0, is a 119-day bill, not a 13-week bill.

Kevin
Thank you! I did not see the 119-day bill on the schedule so I assumed it was the 13-week.

Thanks for doing this thread. It’s been great.
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Re: Trading Treasuries (nominal and TIPS)

Post by Kevin M »

GetSmarter wrote: Tue Jun 21, 2022 5:08 pm After studying and learning from this thread, I plan to start my first Treasury bond ladder very soon. I'd appreciate feedback on my pending plan before I lock in. I have two big lump sums to invest. One my "real estate" money that I probably won't need too soon. Two, my "new" bond portfolio for steady income.

Money earmarked for eventual real estate: 8 Treasury bonds at 100k each in 1-4 month maturity dates. Reinvest until I know I'm ready to buy a property. Buy bonds of different durations all at once.

Money earmarked for my continual fixed bond portfolio: Buy ten bonds between 3 month - 5 year maturities, tilting to shorter term bonds. If rates go much higher later this year, perhaps, reinvest up to 10 year maturity. Or maybe I should leave 10-20% cash in money market if rates go higher sooner.

Do you have thoughts on durations and what degree I'd benefit from dividing my purchases between nominal and TIPs? I will buy into the new 4 year 10 month auction tomorrow. These bonds will mostly be in my taxable account, as I don't have a lot of room in IRAs.

I've never invested this much money at once, so I appreciate your thoughts. Glad to get off the money market sidelines.

Thank you for your thoughts and everyone who contributed to this thread.
The split between nominal and TIPS depends on your sensitivity to inflation. If you want this to be risk free, then it should match whatever your liabilities or consumption will be measured in at maturity. If in real dollars, then TIPS are risk free, and if in nominal dollars, nominal Treasuries are risk free.

If you are willing to take some risk, then it depends on your view of inflation and the term premium. The most common view here seems to be that the breakeven inflation rate (BEI) is understating expected inflation, in which case these folks should favor TIPS. I am more agnostic, so my goal has been to go about 50/50 for terms longer than one year. The pricing of TIPS with maturities of less than one year is a bit crazy.

That having been my goal, I've gone a bit heavy into buying box spreads instead of nominal Treasuries, so as of yesterday I had about:

54% box spreads with maturities out to 9 months.
24% nominal Treasuries with maturities out to about 2 years.
22% TIPS out to about 5 years (but I bought 10 more today, so this is higher now).

I plan to continue building up the TIPS holdings. As I mentioned, I tried to buy 10 today that were not filled.

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Re: Trading Treasuries (nominal and TIPS)

Post by Kevin M »

Dyloot wrote: Tue Jun 21, 2022 5:54 pm Thank you! I did not see the 119-day bill on the schedule so I assumed it was the 13-week.

Thanks for doing this thread. It’s been great.
You're welcome!

I see no 119-day issues on the tentative auction schedule, but I see a number of them having been auctioned (53 in the last year).

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

Post by GetSmarter »

Kevin M wrote: Tue Jun 21, 2022 5:57 pm
GetSmarter wrote: Tue Jun 21, 2022 5:08 pm After studying and learning from this thread, I plan to start my first Treasury bond ladder very soon. I'd appreciate feedback on my pending plan before I lock in. I have two big lump sums to invest. One my "real estate" money that I probably won't need too soon. Two, my "new" bond portfolio for steady income.

Money earmarked for eventual real estate: 8 Treasury bonds at 100k each in 1-4 month maturity dates. Reinvest until I know I'm ready to buy a property. Buy bonds of different durations all at once.

Money earmarked for my continual fixed bond portfolio: Buy ten bonds between 3 month - 5 year maturities, tilting to shorter term bonds. If rates go much higher later this year, perhaps, reinvest up to 10 year maturity. Or maybe I should leave 10-20% cash in money market if rates go higher sooner.

Do you have thoughts on durations and what degree I'd benefit from dividing my purchases between nominal and TIPs? I will buy into the new 4 year 10 month auction tomorrow. These bonds will mostly be in my taxable account, as I don't have a lot of room in IRAs.

I've never invested this much money at once, so I appreciate your thoughts. Glad to get off the money market sidelines.

Thank you for your thoughts and everyone who contributed to this thread.
The split between nominal and TIPS depends on your sensitivity to inflation. If you want this to be risk free, then it should match whatever your liabilities or consumption will be measured in at maturity. If in real dollars, then TIPS are risk free, and if in nominal dollars, nominal Treasuries are risk free.

If you are willing to take some risk, then it depends on your view of inflation and the term premium. The most common view here seems to be that the breakeven inflation rate (BEI) is understating expected inflation, in which case these folks should favor TIPS. I am more agnostic, so my goal has been to go about 50/50 for terms longer than one year. The pricing of TIPS with maturities of less than one year is a bit crazy.

That having been my goal, I've gone a bit heavy into buying box spreads instead of nominal Treasuries, so as of yesterday I had about:

54% box spreads with maturities out to 9 months.
24% nominal Treasuries with maturities out to about 2 years.
22% TIPS out to about 5 years (but I bought 10 more today, so this is higher now).

I plan to continue building up the TIPS holdings. As I mentioned, I tried to buy 10 today that were not filled.

Kevin
Thanks, I want to fully understand so please tell me, what's a box spread? And do you recommend keeping a certain amount of cash on sidelines to take advantage of new rates over time, or wait as one of your ladder rungs rolls over?
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Re: Trading Treasuries (nominal and TIPS)

Post by Kevin M »

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

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

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

Post by GetSmarter »

Thank you, Kevin! I'll read link, appreciate your sharing.
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Re: Trading Treasuries (nominal and TIPS)

Post by Elmo »

LadyGeek wrote: Mon Jun 20, 2022 7:51 pm I merged Elmo's question into the ongoing discussion.
Thank you LadyGeek - I thought of putting it in this thread but didn't know the protocol. Here more people will see, learn, and respond.
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Re: Trading Treasuries (nominal and TIPS)

Post by jeffyscott »

Doc wrote: Sun Jun 19, 2022 2:19 pm
jeffyscott wrote: Sun Jun 19, 2022 1:46 pm But if it is a cash account, you can only put in the order if you already have the cash on hand or by putting in a trade to sell something first (which the rep didn't think would work, but did).
With COH OK. With a trade entered but open I think my rep said they would assume that your wouldn't cancel it.

RE cancel and then replace with another trade:
jeffyscott wrote: Sun Jun 19, 2022 1:46 pm I'll have to think about if I want to do that, just as a test.
Yeh, please try it for me. :D
So I went ahead with the first step. After market close yesterday, I entered a mutual fund trade to sell $1500 of something, then I entered a buy order for 1 TIPS at the auction. I then cancelled the mutual fund order. So far, no calls, emails, or notices from Schwab.

Unless, they contact me and say that I need to do something sooner, I plan to enter a mutual fund trade to cover the TIPS auction purchase on Monday, after market close. That trade will occur after close on Tuesday and the cash will be settled in the account on Wednesday (6/29), one day before the settlement date of the TIPS (6/30).

I think as long as the settled cash is there before the June 30 settlement date, there is no trade violation? But If anyone knows otherwise, please let me know.

Based on the chat that I had previously, I believe that all I am doing is something that Schwab would allow, if I had called a broker.
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Re: Trading Treasuries (nominal and TIPS)

Post by Doc »

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

Post by Elmo »

FactualFran wrote: Mon Jun 20, 2022 3:30 pm
Elmo wrote: Mon Jun 20, 2022 2:34 pm
A "Yield to Worst" is meaningful only for securities that are callable (can be called before maturity). The securities you are interested in are not callable. I don't know why a Yield to Worst would be listed.

The auctions for 13-week and 26-week T-bills are separate auctions.

The 13-week T-bill being auction is the same security that was auctioned 13 weeks ago as a 26-week T-bill. This is standard practice with 13-week and 26-week T-bills, and some may choose to not label it as re-opening.

[Edit: added skeletal quote to post being replied to. That post was orginally the opening post in a separate topic. The lack of explicit context in the reply made sense in the separate topic but not after posts of different topics were merged.]
I understanding you and Kevin M. are saying the 13 week is actually a reopening of the same Bill that was previously 26 week, makes sense.

How can they use the same CUSIP if all the people buying at the new auction (when it is a 13 week new Bill issue) are getting the NEW auction price and still be using the same CUSIP for someone who bought it, say 13 weeks ago when it was a 26 week Bill, and has/d a different price. Something seems odd to me and I want to understand before I make a purchase.

Please let me know if you don't understand the question. I may not be explaining it correctly. I am assuming that when a given CUSIP appears on a person's dashboard showing what securities are in their account the same CUSIP is shown at the same price.

Elmo
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Re: Trading Treasuries (nominal and TIPS)

Post by Elmo »

Kevin M wrote: Mon Jun 20, 2022 9:07 pm I may be wrong about the 26-week. When I search on the CUSIP for the 26-week auction, I don't see it other than for the new 26-week. By contrast, when I search on the 13-week CUSIP, I find it was auctioned previously as a 26-week.

Kevin
Kind of general but I couldn't figure how to edit the "post with quote" feature to just respond to the part I wanted.

So, what I want to make sure is that I will get the new auction price on a Bill bc at this point I cannot even think of doing a secondary market purchase as it seems past my desire to figure out and my ability perhaps.

If I purchase a "RI" reopened issue on the New Treasury Auction page at Fidelity will I get the new auction price? Seems like a simple yes, but you were saying in the previous response, I believe, that it will be a secondary auction if it was RI.

Do you buy, have you bought, RI new auction bills at Fidelity and get the new auction price?
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Re: Buying T-Bills at Auction on Fidelity - Confounding Figures?

Post by jeffyscott »

Elmo wrote: Wed Jun 22, 2022 9:48 am
FactualFran wrote: Mon Jun 20, 2022 3:30 pm
Elmo wrote: Mon Jun 20, 2022 2:34 pm
A "Yield to Worst" is meaningful only for securities that are callable (can be called before maturity). The securities you are interested in are not callable. I don't know why a Yield to Worst would be listed.

The auctions for 13-week and 26-week T-bills are separate auctions.

The 13-week T-bill being auction is the same security that was auctioned 13 weeks ago as a 26-week T-bill. This is standard practice with 13-week and 26-week T-bills, and some may choose to not label it as re-opening.

[Edit: added skeletal quote to post being replied to. That post was orginally the opening post in a separate topic. The lack of explicit context in the reply made sense in the separate topic but not after posts of different topics were merged.]
I understanding you and Kevin M. are saying the 13 week is actually a reopening of the same Bill that was previously 26 week, makes sense.

How can they use the same CUSIP if all the people buying at the new auction (when it is a 13 week new Bill issue) are getting the NEW auction price and still be using the same CUSIP for someone who bought it, say 13 weeks ago when it was a 26 week Bill, and has/d a different price. Something seems odd to me and I want to understand before I make a purchase.

Please let me know if you don't understand the question. I may not be explaining it correctly. I am assuming that when a given CUSIP appears on a person's dashboard showing what securities are in their account the same CUSIP is shown at the same price.

Elmo
It's essentially no different than if you bought on the secondary market, where your price has nothing to do with anyone else's price for the CUSIP. It is just that treasury is the seller rather than some other entity/person. Everyone who holds that CUSIP at maturity will get the same amount per bond from the Treasury, regardless of the price paid or when they bought it.
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Re: Buying T-Bills at Auction on Fidelity - Confounding Figures?

Post by Elmo »

jeffyscott wrote: Wed Jun 22, 2022 9:59 am
Elmo wrote: Wed Jun 22, 2022 9:48 am
FactualFran wrote: Mon Jun 20, 2022 3:30 pm
Elmo wrote: Mon Jun 20, 2022 2:34 pm
A "Yield to Worst" is meaningful only for securities that are callable (can be called before maturity). The securities you are interested in are not callable. I don't know why a Yield to Worst would be listed.

The auctions for 13-week and 26-week T-bills are separate auctions.

The 13-week T-bill being auction is the same security that was auctioned 13 weeks ago as a 26-week T-bill. This is standard practice with 13-week and 26-week T-bills, and some may choose to not label it as re-opening.

[Edit: added skeletal quote to post being replied to. That post was orginally the opening post in a separate topic. The lack of explicit context in the reply made sense in the separate topic but not after posts of different topics were merged.]
I understanding you and Kevin M. are saying the 13 week is actually a reopening of the same Bill that was previously 26 week, makes sense.

How can they use the same CUSIP if all the people buying at the new auction (when it is a 13 week new Bill issue) are getting the NEW auction price and still be using the same CUSIP for someone who bought it, say 13 weeks ago when it was a 26 week Bill, and has/d a different price. Something seems odd to me and I want to understand before I make a purchase.

Please let me know if you don't understand the question. I may not be explaining it correctly. I am assuming that when a given CUSIP appears on a person's dashboard showing what securities are in their account the same CUSIP is shown at the same price.

Elmo
It's essentially no different than if you bought on the secondary market, where your price has nothing to do with anyone else's price for the CUSIP. It is just that treasury is the seller rather than some other entity/person. Everyone who holds that CUSIP at maturity will get the same amount per bond from the Treasury, regardless of the price paid or when they bought it.
I think I understand that at auction Treasury will set the price and I will purchase it from Treasury. Then 2 minutes or hours later when the bill reprices on the secondary market it will continue to fluctuate and then at maturity be paid the par. Gotcha, new light dawning I think. So simple once you understand. Ha Ha
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Re: Trading Treasuries (nominal and TIPS)

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

Post by Kevin M »

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

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

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

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