Trading Treasuries (nominal and TIPS)

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protagonist
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Re: Trading Treasuries (nominal and TIPS)

Post by protagonist »

dbr wrote: Fri Sep 16, 2022 9:33 am
billyt wrote: Fri Sep 16, 2022 9:28 am
I would only use a bond over a fund or ETF if you are intending to spend the money in the year of maturity.
It seems to me this captures the entire concept of holding individual TIPS and Treasuries. That does not mean T bills and the like are not helpful as cash equivalents, but for longer term bonds I would go with the idea.
I'm not sure why.
I understand the value of holding individual bonds if you want the OPTION of spending the money, or part of it, in the year of maturity. And why not allow yourself that flexibility, given that you don't know what the future holds?
For retirees at least, that flexibility , while knowing you will not lose money in real terms whatever you do, is quite valuable.
protagonist
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Re: Trading Treasuries (nominal and TIPS)

Post by protagonist »

You Know What I Mean wrote: Fri Sep 16, 2022 8:29 am
billyt wrote: Thu Sep 15, 2022 9:52 am Anyone considering the upcoming 10y reopening?
I am. The Indicative Yield is 1.032. Does it make sense to sell at least a portion of TIPS ETFs (TIP and/or SCHP) holdings in IRA's to buy the 10-Year TIP REOPEN (maturing 07/15/32)?

That would be to lock in a "high" real yield for a longer period. Is the major downside the possibility that real yields could go even higher during that term?
That isn't a "downside", though it seems like it. We need to escape the psychology that if, viewing through our retrospectoscopes, we could conceivably do better we failed. We could also conceivably do worse.
I bought a bunch of TIPS (maturing 2024-2028) a couple of months ago when yields were hovering around zero. They seemed like a great deal at the time, with close to 9% annual inflation, banks offering 1% interest and CD's topping around 2% annual. I wish I could have invested the money now instead , but I made the best investment available at the time. Maybe when my TIPS mature yields going forwards will be way better than they are even today.
"Reivnestment risk"??? If I waited, or if the TIPS I bought 2 months ago were maturing now, I would be able to invest at much better yields. You just never know about the future. The future is always risky...things can get better or worse. Whatever.
mongstradamus
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Re: Trading Treasuries (nominal and TIPS)

Post by mongstradamus »

Yesterdaysnews wrote: Fri Sep 16, 2022 12:40 pm I dipped my toe in buying a T-bill for the first time today.... 12/22/22 maturity, 3.24% yield to maturity. Not bad?
assuming on secondary market ? You can compare it with the 3 month tbill auction that should be finishing up on 19th at 930 am EST
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Kevin M
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Re: Trading Treasuries (nominal and TIPS)

Post by Kevin M »

mongstradamus wrote: Fri Sep 16, 2022 1:24 pm
Yesterdaysnews wrote: Fri Sep 16, 2022 12:40 pm I dipped my toe in buying a T-bill for the first time today.... 12/22/22 maturity, 3.24% yield to maturity. Not bad?
assuming on secondary market ? You can compare it with the 3 month tbill auction that should be finishing up on 19th at 930 am EST
It's a fine yield. Currently I see the high yield for this at 3.199% for min qty 100, and there is no depth of book, so you could not buy less than 100 at Fidelity.

The 13-week auction yield on Monday 9/19 is not a good comparison, since that won't happen till Monday, and we don't know what Treasury yields will be on Monday. Also, the auction purchase doesn't settle until next Thursday, while a purchase today settles on Monday.

I will note that the 4-week and 8-week auction yields were higher than best yields for those I see at Fidelity now, but here there is a 1-day delay in settlement relative to a secondary purchase today.

Kevin
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Kevin M
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Re: Trading Treasuries (nominal and TIPS)

Post by Kevin M »

protagonist wrote: Fri Sep 16, 2022 12:42 pm
dbr wrote: Fri Sep 16, 2022 9:33 am
billyt wrote: Fri Sep 16, 2022 9:28 am I would only use a bond over a fund or ETF if you are intending to spend the money in the year of maturity.
It seems to me this captures the entire concept of holding individual TIPS and Treasuries. That does not mean T bills and the like are not helpful as cash equivalents, but for longer term bonds I would go with the idea.
I'm not sure why.
I understand the value of holding individual bonds if you want the OPTION of spending the money, or part of it, in the year of maturity. And why not allow yourself that flexibility, given that you don't know what the future holds?
For retirees at least, that flexibility , while knowing you will not lose money in real terms whatever you do, is quite valuable.
Agreed. The other consideration is that opportunities change over time. For example, in recent weeks I have been getting a 40+ basis point yield premium over Treasuries with box spreads, but most recently I was not able to, so I bought Treasuries instead for that rung.

Another example is that sometimes CDs provide a significant yield premium over Treasuries, in which case I would replace a maturing Treasury rung with a CD rung. There was about an 8-10 year stretch where I averaged about 115 basis points over Treasuries with direct CDs, but that has not been the case in the last few years. As those CDs mature, I am buying TIPS, box spreads, or nominal Treasuries, but that may change in the future.

Kevin
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protagonist
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Re: Trading Treasuries (nominal and TIPS)

Post by protagonist »

Kevin M wrote: Fri Sep 16, 2022 1:47 pm

Another example is that sometimes CDs provide a significant yield premium over Treasuries, in which case I would replace a maturing Treasury rung with a CD rung. There was about an 8-10 year stretch where I averaged about 115 basis points over Treasuries with direct CDs, but that has not been the case in the last few years. As those CDs mature, I am buying TIPS, box spreads, or nominal Treasuries, but that may change in the future.

Kevin
Yes, me too, Kevin...and your insights were invaluable during that period as they are now.
And yes, as a 19 year old purple haired punk rocker girlfriend taught me back in the 80s, you have to stay flexible , or else, in her words, "you will start growing moss".
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Re: Trading Treasuries (nominal and TIPS)

Post by Kevin M »

Seasonally adjusted TIPS high yields are now 1.00% or higher for all TIPS as of 3:29 PM ET, based on Fidelity quotes.

Edit: the 7/15/26 was 0.99% as of the indicated time.
If I make a calculation error, #Cruncher probably will let me know.
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TheTimeLord
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Re: Trading Treasuries (nominal and TIPS)

Post by TheTimeLord »

Kevin M wrote: Fri Sep 16, 2022 2:39 pm Seasonally adjusted TIPS high yields are now 1.00% or higher for all TIPS as of 3:29 PM ET, based on Fidelity quotes.

Edit: the 7/15/26 was 0.99% as of the indicated time.
Stupid 7/15/26 issue.
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squirrel1963
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Re: Trading Treasuries (nominal and TIPS)

Post by squirrel1963 »

squirrel1963 wrote: Tue Sep 13, 2022 12:35 pm
phoroner wrote: Mon Sep 12, 2022 9:47 pm
squirrel1963 wrote: Mon Sep 12, 2022 2:04 pm I've been trying to buy the 2052 TIP cusip #912810TE8 at Vanguard, but for the past week it has been showing me a minimum quantity of 50 bonds. Whereas if I look at Fidelity the depth of book also allows for buying a minimum quantity of 1. I need 12.

Has anyone else experienced issues with minimum quantities in Vanguard?
I helped a relative buy this security recently; I had to call in, and a senior trader in the fixed income desk was able to place it through another exchange. execution price was good.
That's good to know, I'll try that.
Thanks also to all other replies.
Update : so I was able to get it today at Vanguard, as it is now available again with a min qty of 1.
LMP | Liability Matching Portfolio | safe portfolio: TIPS ladder + I-bonds + Treasuries | risky portfolio: US stocks / US REIT / International stocks
rebellovw
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Re: Trading Treasuries (nominal and TIPS)

Post by rebellovw »

Dumb question - as I just bought tips earlier today - I went to Fido - Fixed Income - TIPS (Auction) and saw - still see:
UNITED STATES TREAS NTS SER D-2032
0.62500% 07/15/2032

I bought 10 and now see:

UNITED STATES TREAS NTS SER D-2032 0.62500% 07/15/2032

In my account.

When I bought - I thought I was adding to the Auction - and that when the auction occurs - I'll then get them - but from the look of the account - looks like I bought them outright - and older ones from 7/15?

Auction info:
10-year TIPS Reopening Thursday, Sep. 15, 2022 Thursday, Sep. 22, 2022

So are these the tips that are to be auctioned on Sep 22 - or did I mess up?

ALso - if they are going to be part of the auction - can the order be canceled should I decide on a TIPs fund - or am I committed at this point. (I don't see any option in FIDO to do this.)

Sorry for the dumb questions - process felt weird.

Thanks,
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Re: Trading Treasuries (nominal and TIPS)

Post by MisterMister »

rebellovw wrote: Fri Sep 16, 2022 3:55 pm Dumb question - as I just bought tips earlier today - I went to Fido - Fixed Income - TIPS (Auction) and saw - still see:
UNITED STATES TREAS NTS SER D-2032
0.62500% 07/15/2032

I bought 10 and now see:

UNITED STATES TREAS NTS SER D-2032 0.62500% 07/15/2032

In my account.

When I bought - I thought I was adding to the Auction - and that when the auction occurs - I'll then get them - but from the look of the account - looks like I bought them outright - and older ones from 7/15?

Auction info:
10-year TIPS Reopening Thursday, Sep. 15, 2022 Thursday, Sep. 22, 2022

So are these the tips that are to be auctioned on Sep 22 - or did I mess up?

ALso - if they are going to be part of the auction - can the order be canceled should I decide on a TIPs fund - or am I committed at this point. (I don't see any option in FIDO to do this.)

Sorry for the dumb questions - process felt weird.

Thanks,
Seems as if you may have bought on the secondary market rather than the upcoming auction. Look in your order history to see if you had an order recently executed for this (rather than having an open order still pending). Once executed there's no way to reverse the trade. If you have an open order for the 9/22 auction you should be able to cancel it, but that does not appear to be the case here.
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Re: Trading Treasuries (nominal and TIPS)

Post by rebellovw »

MisterMister wrote: Fri Sep 16, 2022 4:56 pm
rebellovw wrote: Fri Sep 16, 2022 3:55 pm Dumb question - as I just bought tips earlier today - I went to Fido - Fixed Income - TIPS (Auction) and saw - still see:
UNITED STATES TREAS NTS SER D-2032
0.62500% 07/15/2032

I bought 10 and now see:

UNITED STATES TREAS NTS SER D-2032 0.62500% 07/15/2032

In my account.

When I bought - I thought I was adding to the Auction - and that when the auction occurs - I'll then get them - but from the look of the account - looks like I bought them outright - and older ones from 7/15?

Auction info:
10-year TIPS Reopening Thursday, Sep. 15, 2022 Thursday, Sep. 22, 2022

So are these the tips that are to be auctioned on Sep 22 - or did I mess up?

ALso - if they are going to be part of the auction - can the order be canceled should I decide on a TIPs fund - or am I committed at this point. (I don't see any option in FIDO to do this.)

Sorry for the dumb questions - process felt weird.

Thanks,
Seems as if you may have bought on the secondary market rather than the upcoming auction. Look in your order history to see if you had an order recently executed for this (rather than having an open order still pending). Once executed there's no way to reverse the trade. If you have an open order for the 9/22 auction you should be able to cancel it, but that does not appear to be the case here.
Thanks very much - order history shows:

Buy 10,000.00 of 91282CEZ0 Limit at $96.148 (Fill or Kill) -
and Filled for 96.148

It definitely seems like a secondary market order - I'm just not sure how this happened and why I see it under TIPS Auctions in Fido. A few days ago - there were no entries under TIPS auctions the entries were only under Secondary Market which I wasn't planning on buying from - and seeing it today and the date being within the early period - it seemed like an auction...

Here is a screenshot showing it as an auction:

Image
MisterMister
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Re: Trading Treasuries (nominal and TIPS)

Post by MisterMister »

rebellovw wrote: Fri Sep 16, 2022 5:06 pm
MisterMister wrote: Fri Sep 16, 2022 4:56 pm
rebellovw wrote: Fri Sep 16, 2022 3:55 pm Dumb question - as I just bought tips earlier today - I went to Fido - Fixed Income - TIPS (Auction) and saw - still see:
UNITED STATES TREAS NTS SER D-2032
0.62500% 07/15/2032

I bought 10 and now see:

UNITED STATES TREAS NTS SER D-2032 0.62500% 07/15/2032

In my account.

When I bought - I thought I was adding to the Auction - and that when the auction occurs - I'll then get them - but from the look of the account - looks like I bought them outright - and older ones from 7/15?

Auction info:
10-year TIPS Reopening Thursday, Sep. 15, 2022 Thursday, Sep. 22, 2022

So are these the tips that are to be auctioned on Sep 22 - or did I mess up?

ALso - if they are going to be part of the auction - can the order be canceled should I decide on a TIPs fund - or am I committed at this point. (I don't see any option in FIDO to do this.)

Sorry for the dumb questions - process felt weird.

Thanks,
Seems as if you may have bought on the secondary market rather than the upcoming auction. Look in your order history to see if you had an order recently executed for this (rather than having an open order still pending). Once executed there's no way to reverse the trade. If you have an open order for the 9/22 auction you should be able to cancel it, but that does not appear to be the case here.
Thanks very much - order history shows:

Buy 10,000.00 of 91282CEZ0 Limit at $96.148 (Fill or Kill) -
and Filled for 96.148

It definitely seems like a secondary market order - I'm just not sure how this happened and why I see it under TIPS Auctions in Fido. A few days ago - there were no entries under TIPS auctions the entries were only under Secondary Market which I wasn't planning on buying from - and seeing it today and the date being within the early period - it seemed like an auction...
It is being reissued. If you want to buy on auction, you must avoid the secondary market web path and only buy directly from the Auctions pages. That security was issued back in July, and apparently you bought from that pool.
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Re: Trading Treasuries (nominal and TIPS)

Post by Kevin M »

rebellovw wrote: Fri Sep 16, 2022 5:06 pm
MisterMister wrote: Fri Sep 16, 2022 4:56 pm
rebellovw wrote: Fri Sep 16, 2022 3:55 pm Dumb question - as I just bought tips earlier today - I went to Fido - Fixed Income - TIPS (Auction) and saw - still see:
UNITED STATES TREAS NTS SER D-2032
0.62500% 07/15/2032

I bought 10 and now see:

UNITED STATES TREAS NTS SER D-2032 0.62500% 07/15/2032

In my account.

When I bought - I thought I was adding to the Auction - and that when the auction occurs - I'll then get them - but from the look of the account - looks like I bought them outright - and older ones from 7/15?

Auction info:
10-year TIPS Reopening Thursday, Sep. 15, 2022 Thursday, Sep. 22, 2022

So are these the tips that are to be auctioned on Sep 22 - or did I mess up?

ALso - if they are going to be part of the auction - can the order be canceled should I decide on a TIPs fund - or am I committed at this point. (I don't see any option in FIDO to do this.)

Sorry for the dumb questions - process felt weird.

Thanks,
Seems as if you may have bought on the secondary market rather than the upcoming auction. Look in your order history to see if you had an order recently executed for this (rather than having an open order still pending). Once executed there's no way to reverse the trade. If you have an open order for the 9/22 auction you should be able to cancel it, but that does not appear to be the case here.
Thanks very much - order history shows:

Buy 10,000.00 of 91282CEZ0 Limit at $96.148 (Fill or Kill) -
and Filled for 96.148

It definitely seems like a secondary market order - I'm just not sure how this happened and why I see it under TIPS Auctions in Fido. A few days ago - there were no entries under TIPS auctions the entries were only under Secondary Market which I wasn't planning on buying from - and seeing it today and the date being within the early period - it seemed like an auction...
You bought on secondary. Otherwise it would not show filled at a certain price, since we don't know the auction price yet. Since it is a reopening, you can buy (and did buy) the exact same issue on secondary that will be auctioned on 9/22/2022.

In the OP there is a link to buying Treasuries at Fidelity on the secondary market, and there is also a link to a blog that shows how to buy at auction. The choice is very clear on the bond purchase screen, where you can select either secondary or auction:

Here is the screen with secondary selected:

Image

Note that there are 49 TIPS available, which is a clue that it's secondary.

After clicking on TIPS auction, it immediately goes to a different screen:

Image

Here it only shows the issue up for auction.

Kevin
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rebellovw
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Re: Trading Treasuries (nominal and TIPS)

Post by rebellovw »

MisterMister wrote: Fri Sep 16, 2022 5:14 pm It is being reissued. If you want to buy on auction, you must avoid the secondary market web path and only buy directly from the Auctions pages. That security was issued back in July, and apparently you bought from that pool.
Ok - I do see 'RI' - so in the future I'll make sure that "RI" isn't present and the date matches what TD provides.

I just don't understand why the auction 10 year TIPs are not showing up in Fido:

10-Year TIPS R T Thursday, September 15, 2022 Thursday, September 22, 2022 Friday, September 30, 2022

I should be able to submit to the auction between Sept 15th and the Sept 22 - I guess I should have waited.

I assume it wasn't a costly mistake in the grand scheme of things.

Thanks again.
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Re: Trading Treasuries (nominal and TIPS)

Post by MisterMister »

rebellovw wrote: Fri Sep 16, 2022 5:21 pm
MisterMister wrote: Fri Sep 16, 2022 5:14 pm It is being reissued. If you want to buy on auction, you must avoid the secondary market web path and only buy directly from the Auctions pages. That security was issued back in July, and apparently you bought from that pool.
Ok - I do see 'RI' - so in the future I'll make sure that "RI" isn't present and the date matches what TD provides.

I just don't understand why the auction 10 year TIPs are not showing up in Fido:

10-Year TIPS R T Thursday, September 15, 2022 Thursday, September 22, 2022 Friday, September 30, 2022

I should be able to submit to the auction between Sept 15th and the Sept 22 - I guess I should have waited.

I assume it wasn't a costly mistake in the grand scheme of things.

Thanks again.
Welcome. See Kevin's post for much more detail on this.
rebellovw
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Re: Trading Treasuries (nominal and TIPS)

Post by rebellovw »

Kevin M wrote: Fri Sep 16, 2022 5:20 pm
After clicking on TIPS auction, it immediately goes to a different screen:

Image

Here it only shows the issue up for auction.

Kevin
Thanks Kevin - I did review that - and I clearly know the difference between both screens - you can see from my screenshot above - I was in the Auctions screen and not the Secondary Auctions Screen - that is where I bought it (and it is still there to buy.) And the CUSIP matches.

I didn't go anywhere near the secondary auction screen - I blame FIDO for this - it shouldn't have happened. And the old TIPS is still there under TIPS Auctions.
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Re: Trading Treasuries (nominal and TIPS)

Post by ruud »

rebellovw wrote: Fri Sep 16, 2022 5:21 pm I should be able to submit to the auction between Sept 15th and the Sept 22 - I guess I should have waited.
What's your reason for wanting to buy this on the auction when the exact same security that is being auctioned can be bought on the secondary market?
.
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Re: Trading Treasuries (nominal and TIPS)

Post by Kevin M »

rebellovw wrote: Fri Sep 16, 2022 5:25 pm Thanks Kevin - I did review that - and I clearly know the difference between both screens - you can see from my screenshot above - I was in the Auctions screen and not the Secondary Auctions Screen - that is where I bought it (and it is still there to buy.) And the CUSIP matches.

I didn't go anywhere near the secondary auction screen - I blame FIDO for this - it shouldn't have happened. And the old TIPS is still there under TIPS Auctions.
The CUSIP is the same, 91282CEZ0, whether you buy on secondary or at auction (for a reopening). Treasury is re-auctioning the exact same TIPS, so same CUSIP. If you look at the Treasury announcement, it shows this as a 9-year 10-month term, whereas when it was auctioned on 7/21/22, it was shown as 10-year term.

I don't know what you mean by "old TIPS".

Do you remember seeing a preview screen like this, which is what it looks like for an auction purchase?

Image

Note that there is no price shown, above it says "Expected Yield", and the settlement date is 9/30/2022. If you bought on secondary (which you did), it would have shown price, yield (not expected), and the settlement date would have been 9/19/2022.

I can't show the preview screen for secondary now, because market is closed, but when I first click Buy from secondary search screen, I see this:

Image

Note that CUSIP is the same as for auction, but it shows price, yield, and nothing about "expected".

If what you say is true, I'm trying to figure out how you could possibly get from the auction purchase screen to a secondary market purchase. Since the market is closed, I'm not sure I can try all options.

At any rate, your experience and these replies, may help others avoid whatever it was that happened to you, so thanks for sharing.

Finally, there is nothing wrong with buying on secondary. Yes, there are some trading costs, but typically they are minimal, and you might even have gotten a higher yield than what people will get at auction. I bought the 4/15/27 (5-year) TIPS on secondary on 6/17/2022 (settlement) at 0.49%, and then at auction on 6/24/2022 (settlement) at 0.34%. Of course the yield is higher now, at 1.12% when I pulled quotes from Fidelity earlier today. If I were buying the 10-year, I probably would do the same--buy half now and half at auction, if for no other reason than to see what happens.

Kevin
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Re: Trading Treasuries (nominal and TIPS)

Post by rebellovw »

ruud wrote: Fri Sep 16, 2022 6:06 pm
rebellovw wrote: Fri Sep 16, 2022 5:21 pm I should be able to submit to the auction between Sept 15th and the Sept 22 - I guess I should have waited.
What's your reason for wanting to buy this on the auction when the exact same security that is being auctioned can be bought on the secondary market?
I was just prepared (I thought) for the auction and not a secondary market which I don't know the pros/cons of.
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Re: Trading Treasuries (nominal and TIPS)

Post by rebellovw »

Thanks very much Kevin - I'll live and learn.

One thing I didn't mention was during the buy process I initially hit an issue buying 10 as I only had 10K and I think it needed more (I assumed I only needed 10K for the auction) - in trying less quantities - I ended up where I am now with 10 from Secondary Market - so that explains it.

I bought from the secondary market in the TIPs auction screen via some allowable path.

I'll be more careful nexttime.
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Re: Trading Treasuries (nominal and TIPS)

Post by BlueEars »

I don't know much about QE or QT but thought this article interesting:
https://tipswatch.com/2022/08/07/is-the ... t-so-much/
Here is a look back at the Fed’s moves to “ease” and “tighten” over the last 11 years:
Image
It seems clear to me that if the Fed ever wants to institute quantitative easing again in the future (and you know it will) it has to first drastically reduce its balance sheet, probably down to at least the September 2019 level of $3.8 trillion. That will take a lot of quantitative tightening, over a period of two years, or more.

Unfortunately, that sort of sustained tightening is not likely. And so … inflation will continue to be a problem. And inflation protection continues to make sense as part of your asset allocation.
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Re: Trading Treasuries (nominal and TIPS)

Post by Yesterdaysnews »

Wow, that chart is insane.

Did QE ever exist prior to the financial crisis?
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Re: Trading Treasuries (nominal and TIPS)

Post by Yesterdaysnews »

Looks like would have gotten slightly better rate at the auction…..
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Re: Trading Treasuries (nominal and TIPS)

Post by Kevin M »

Yesterdaysnews wrote: Mon Sep 19, 2022 5:50 pm Looks like would have gotten slightly better rate at the auction…..
Not really. Your yield was 3.24%, and it settled today, 9/19/22. The auction yield is 3.343%, and it settles in three days, on 9/22/22. If I change the settlement date for the auction to 9/19/22, the yield at the price of 99.173417 is 3.236%, so same as what you got. And, you are earning that yield for 3 more days than if you bought at auction. Score one for the secondary market!

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squirrel1963
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Re: Trading Treasuries (nominal and TIPS)

Post by squirrel1963 »

I would love to hear an explanation of how SA (seasonally adjusted) inflation affects TIPS yields.
So far I have just been buying at any given year the highest available YTM while keeping at a reasonable inflation factor, but I still need to understand if I should keep SA yields into account for buying decisions.
Thanks much in advance :-)
LMP | Liability Matching Portfolio | safe portfolio: TIPS ladder + I-bonds + Treasuries | risky portfolio: US stocks / US REIT / International stocks
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BlueEars
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Re: Trading Treasuries (nominal and TIPS)

Post by BlueEars »

squirrel1963 wrote: Mon Sep 19, 2022 8:24 pm I would love to hear an explanation of how SA (seasonally adjusted) inflation affects TIPS yields.
So far I have just been buying at any given year the highest available YTM while keeping at a reasonable inflation factor, but I still need to understand if I should keep SA yields into account for buying decisions.
Thanks much in advance :-)
Does the table Kevin presented here on Sept 18 fit your request? It shows Ask yields and SA yields for some 2027 and 2028 TIPS.
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squirrel1963
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Re: Trading Treasuries (nominal and TIPS)

Post by squirrel1963 »

BlueEars wrote: Mon Sep 19, 2022 8:53 pm
squirrel1963 wrote: Mon Sep 19, 2022 8:24 pm I would love to hear an explanation of how SA (seasonally adjusted) inflation affects TIPS yields.
So far I have just been buying at any given year the highest available YTM while keeping at a reasonable inflation factor, but I still need to understand if I should keep SA yields into account for buying decisions.
Thanks much in advance :-)
Does the table Kevin presented here on Sept 18 fit your request? It shows Ask yields and SA yields for some 2027 and 2028 TIPS.
The table is super interesting, but my question is about actually understanding what SA yield is -- basically it's "SA yield for dummies" :-)

Edit: even a link to some other post or information would be great :-)
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Re: Trading Treasuries (nominal and TIPS)

Post by #Cruncher »

Kevin M wrote: Mon Sep 19, 2022 6:06 pmThe auction yield is 3.343%, and it settles in three days, on 9/22/22. If I change the settlement date for the auction to 9/19/22, the yield at the price of 99.173417 is 3.236%, ...
It's "begging the question" to assume the same price for a 94-day bill as for a 91-day bill then use that to compute the corresponding yield and conclude that it would be lower.

We don't know what the yield would be for a 94-day bill. But one way to guesstimate it would be to look at the yield difference of bills maturing a week apart of about the same maturity. Here are the rates for six bills maturing 7 days apart 12/1/2022 to 1/12/2023 from today's WSJ Treasury Bill Quotes:

Code: Select all

Row        Col A     Col B   Col C
  2      Matures  Inv Rate    Diff
  3   12/01/2022     2.988
  4   12/08/2022     3.077   0.089  =B4-B3
  5   12/15/2022     3.115   0.038  =B5-B4
  6   12/22/2022     3.272   0.157  =B6-B5
  7   12/29/2022     3.243  -0.029  =B7-B6
  8    1/05/2023     3.312   0.069  =B8-B7
  9    1/12/2023     3.335   0.023  =B9-B8
 10      Average             0.058  =AVERAGE(C4:C9)
 11   Per 3 days             0.025  =C10/7*3
 12  91-day bill             3.343  (investment rate from today's auction)
 13   Est 94-day             3.368  =C11+C12
On average the yield increases 0.025% points for every three days of longer maturity. This means that a 94-day bill should yield slightly more than a 91-day bill, not less as you conclude. When we add 0.025% to the 3.343% investment rate of the 91-day bill auctioned today, we get an estimate of 3.368% for a 94-day bill, not 3.236%.
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Re: Trading Treasuries (nominal and TIPS)

Post by AQ »

I am thinking to get bonds from secondary markets since auctions happen only on certain days.

Could someone help with this naive question: what is the operating hours for treasury market? I wonder if bond market works similarly to stock market: if I place an order during market hour, I'll get market prices (or yields); But if I place an order in evening hour, I'll get prices in tomorrow's 'opening hour'? Where can I find real time yield before I submit my order? (I'm using Fidelity)
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Re: Trading Treasuries (nominal and TIPS)

Post by mongstradamus »

AQ wrote: Mon Sep 19, 2022 9:53 pm I am thinking to get bonds from secondary markets since auctions happen only on certain days.

Could someone help with this naive question: what is the operating hours for treasury market? I wonder if bond market works similarly to stock market: if I place an order during market hour, I'll get market prices (or yields); But if I place an order in evening hour, I'll get prices in tomorrow's 'opening hour'? Where can I find real time yield before I submit my order? (I'm using Fidelity)
I believe its 8-5 on normal trading hours , at least thats what fidelity tells me when I look at 3 month tbill on secondary market.
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Re: Trading Treasuries (nominal and TIPS)

Post by BlueEars »

squirrel1963 wrote: Mon Sep 19, 2022 9:00 pm
BlueEars wrote: Mon Sep 19, 2022 8:53 pm
squirrel1963 wrote: Mon Sep 19, 2022 8:24 pm I would love to hear an explanation of how SA (seasonally adjusted) inflation affects TIPS yields.
So far I have just been buying at any given year the highest available YTM while keeping at a reasonable inflation factor, but I still need to understand if I should keep SA yields into account for buying decisions.
Thanks much in advance :-)
Does the table Kevin presented here on Sept 18 fit your request? It shows Ask yields and SA yields for some 2027 and 2028 TIPS.
The table is super interesting, but my question is about actually understanding what SA yield is -- basically it's "SA yield for dummies" :-)

Edit: even a link to some other post or information would be great :-)
Does this help: https://www.bls.gov/cpi/seasonal-adjust ... nswers.htm
What is seasonal adjustment?

Seasonal adjustment removes the effects of recurring seasonal influences from many economic series, including consumer prices. The adjustment process quantifies seasonal patterns and then factors them out of the series to permit analysis of non-seasonal price movements. Changing climatic conditions, production cycles, model changeovers, holidays, and sales can cause seasonal variation in prices. For example, oranges can be purchased year-round, but prices are significantly higher in the summer months when the major sources of supply are between harvests.

Who should use CPI seasonally adjusted indexes?

Data users who are interested in analyzing general price trends in the economy should use seasonally adjusted indexes. Seasonally adjusted data are usually preferred in the formulation of economic policy and for economic research, because they eliminate the effects of changes that normally occur at the same time and in about the same magnitude every year.

....
I personally don't know how much weight to give to seasonal adjustment numbers shown in this thread. Is this focus on (at most) 10 basis points of difference relevant to decisions for my choice of 5 year TIPS purchases?
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Re: Trading Treasuries (nominal and TIPS)

Post by vineviz »

BlueEars wrote: Tue Sep 20, 2022 9:59 am I personally don't know how much weight to give to seasonal adjustment numbers shown in this thread. Is this focus on (at most) 10 basis points of difference relevant to decisions for my choice of 5 year TIPS purchases?
Probably not. IMHO, the seasonal adjustment helps make sense of short-term TIPS yields but by the time you get out past 3 years to maturity it is relatively inconsequential.
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Re: Trading Treasuries (nominal and TIPS)

Post by billyt »

If you are buying TIPS to hold, I think the 'seasonal adjustment' is a total red herring. Yes, there are seasonal cycles in inflation. Traders know all about it, so there are wiggles in the real yield curve especially on the short end. This is the result of traders trying to game the system by guessing at the nominal yields of TIPS. Most bogleheads should be buy and hold; not trying to game the system, and trying to guess what the nominal yield of a TIPS might be. The real yield is the real yield is the real yield. Buying decisions should be based on:
1) When do I need this money?
2) Do I want a guaranteed real yield or a guaranteed nominal yield?
Answering these questions will tell you what maturity of either treasuries or TIPS to buy. Forget about trying to out trade the traders by guessing at the seasonal cycle of inflation!
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Re: Trading Treasuries (nominal and TIPS)

Post by Kevin M »

squirrel1963 wrote: Mon Sep 19, 2022 8:24 pm I would love to hear an explanation of how SA (seasonally adjusted) inflation affects TIPS yields.
So far I have just been buying at any given year the highest available YTM while keeping at a reasonable inflation factor, but I still need to understand if I should keep SA yields into account for buying decisions.
Thanks much in advance :-)
Here is a thread dedicated to discussing TIPS seasonal adjustments: TIPS yield curve and seasonal adjustment update.
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 »

Anyone looking to participate in the upcoming 2 yr auction?
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Re: Trading Treasuries (nominal and TIPS)

Post by billyt »

The bottom line is that the seasonal adjustment has no effect whatsoever on the real yields.
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Re: Trading Treasuries (nominal and TIPS)

Post by Kevin M »

AQ wrote: Mon Sep 19, 2022 9:53 pm I am thinking to get bonds from secondary markets since auctions happen only on certain days.

Could someone help with this naive question: what is the operating hours for treasury market? I wonder if bond market works similarly to stock market: if I place an order during market hour, I'll get market prices (or yields); But if I place an order in evening hour, I'll get prices in tomorrow's 'opening hour'? Where can I find real time yield before I submit my order? (I'm using Fidelity)
I don't believe Fidelity will allow you to place a secondary market Treasury order after hours.
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 »

BlueEars wrote: Tue Sep 20, 2022 9:59 am I personally don't know how much weight to give to seasonal adjustment numbers shown in this thread. Is this focus on (at most) 10 basis points of difference relevant to decisions for my choice of 5 year TIPS purchases?
Sure, it''s up to you whether or not to give any credence to the seasonal adjustments (SA). I have studied the topic quite a bit, and have become convinced that SA is a real thing, and I pay attention to it when making purchase decisions. It's true that it has less effect as maturity increases, as I have stated many times, and which we can clearly see in the charts I have posted. Here are the ask and SA ask yields for all TIPS based on quotes downloaded from Fidelity today:

Image

Here are the ask yields and SA ask yields for 2027 maturities and the Jan 2028, since it also is close to 5-year maturity:

Image

Seasonal adjustments for dummies: draw a trend line through the TIPS with mm/dd closest to mm/dd today; currently that would be the 7/15 TIPS. What SA does is separate out the trend component and the SA component of the yields. According to the Paul Canty paper on which I based my SA calculations:
INFLATION
is highly seasonal. Food and energy prices ensure
that inflation is also volatile from month to month.
One-off future inflationary events may be known about months
in advance. These three factors apply to the consumer price index
(CPI) measures used in the calculation of global inflation-linked
bond (ILB) markets. They make it difficult to extract meaningful
information from the prices of ILBs. In particular, they hide the
trend rate of inflation, which is, arguably, the most valuable piece
of information
.
(underline mine)

Currently the 7/15/27 ask yield seems to be weirdly lower than the other TIPS yields in this range. It's actually that the other TIPS yields are weirdly higher, since 7/15 is the closest maturity to a 9/21 settlement, and thus has the smallest seasonal adjustment; on 7/15 the adjustment would be 0.00% if using 2022 SA factors, and on 1/15/23 the SA yield will equal the ask yield if using the 2023 SA factor (it will be slightly different if using the 2022 factors, which gives us insight into the "error bands" for SA adjustments). The yield curve in this range is basically flat using either set of yields, except for the dip in the 7/15/27 ask yield (corrected by the SA).

If I were buying a 5-year today, which I might, I would be perfectly happy with the 7/15/27. People who base their decisions only on the ask yield would not buy it, unless for some reason they had a real liability in July 2027 that they wanted to match. People who want the lowest inflation factor would buy the 4/15/27, since it was the most recently auctioned--its IF/IR is 1.04938 for settlement tomorrow, so still subject to about 5% loss if there were to be net inflation over the entire holding period (held to maturity). The next lowest is 1.21122 for the 7/15/27.

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Re: Trading Treasuries (nominal and TIPS)

Post by billyt »

Problem is, the adjustment turns a real yield into a nominal yield. Why would one buy TIPS if you are concerned about the nominal yield. We have regular treasuries for that!
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Re: Trading Treasuries (nominal and TIPS)

Post by Kevin M »

#Cruncher wrote: Mon Sep 19, 2022 9:27 pm
Kevin M wrote: Mon Sep 19, 2022 6:06 pmThe auction yield is 3.343%, and it settles in three days, on 9/22/22. If I change the settlement date for the auction to 9/19/22, the yield at the price of 99.173417 is 3.236%, ...
It's "begging the question" to assume the same price for a 94-day bill as for a 91-day bill then use that to compute the corresponding yield and conclude that it would be lower.
<snip>
Thanks for the correction. Of course if I decrease both settlement and maturity dates by 3 days, the yield is the same as the auction yield. So it comes down to 3 extra days of the lower yield for the bill bought last Friday that would make the difference a bit smaller.

Perhaps more importantly, we should not be surprised by higher 3-month yields as the days go by, as it pretty much anticipates upcoming Fed funds rate hikes.

Image

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Re: Trading Treasuries (nominal and TIPS)

Post by Kevin M »

billyt wrote: Tue Sep 20, 2022 12:49 pm Problem is, the adjustment turns a real yield into a nominal yield. Why would one buy TIPS if you are concerned about the nominal yield. We have regular treasuries for that!
That is not correct. The nominal yield of the 4/15/27 is not 1.16%--the seasonal adjustment (SA) simply removes the estimated seasonal component from the quoted yield of 1.28% to provide a real trend rate, which allows for more accurate comparison of adjacent maturities, for example. Yes, the SA yield is an estimate, based on regular, periodic seasonal variations, that have been studied by BLS since the mid-1950's, but there tends to be little variation in the seasonal adjustments from year to year.

Sometimes there are big events that can contribute to seasonal adjustment errors if BLS doesn't do something to mitigate them, for example, as they did for the COVID pandemic:
PPI and CPI seasonal adjustment during the COVID-19 pandemic

In 2020, multiple PPI and CPI series measured extreme price movements as a result of the COVID-19 pandemic. For example, the unadjusted PPI and CPI for gasoline decreased 54.7 and 16.5 percent respectively in April 2020. Because the PPI and CPI use historical data to estimate seasonal patterns, extreme price movements in 2020 could have adversely affected seasonal adjustment. The PPI and CPI seasonal adjustment during the COVID-19 pandemic article explains the steps the BLS took to mitigate the effects of the COVID-19 pandemic on seasonally adjusted price indexes. In particular, it outlines how BLS greatly increased the scope of intervention modeling for both the PPI and CPI in 2021 and how this strategy was effective in mitigating the effects of the COVID-19 pandemic on seasonal adjustment. As a result of this increase in intervention work, revisions to the all items CPI and the PPI for final demand during the 2021 seasonal revision were similar in magnitude to pervious revisions.
There also could be inflation-related events that have occurred but are not yet reflected in the latest CPI release, and those would increase errors in the seasonal adjustments. This could be why the SA curve is not completely smooth, but there are other factors that cause variations in any yield curve, such as liquidity, coupon rate, etc. We see that big time in the nominal yield curve, with STRIPS and high-coupon bonds causing big downward spikes in the nominal yield curve.

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Re: Trading Treasuries (nominal and TIPS)

Post by squirrel1963 »

Thanks much for all the replies and comments wrt "seasonal adjustments" they are very helpful.
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Re: Trading Treasuries (nominal and TIPS)

Post by billyt »

Kevin:
The real yield is the real yield and has nothing to do with the inflation adjustment. One can adjust for inflation expectations, including the seasonal cycle, which results in an estimate of the nominal yield.
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Re: Trading Treasuries (nominal and TIPS)

Post by billyt »

Let's look at this another way. The market (traders) adjust the price/yield of TIPS according prices of nominal treasuries and inflation expectations, which includes a seasonal cycle. The published real yields are the actual real yields, and that is the real yield you will earn if you buy that bond. Now one can second guess the market if you think that all of the traders are wrong and the securities are not correctly priced for inflation expectations, including the seasonal cycle. In my humble opinion, it is wiser to base your investing decisions on your needs, and not trying to 'beat the market'.
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Re: Trading Treasuries (nominal and TIPS)

Post by LadyGeek »

As mentioned earlier, I'm setting up my Mom's fixed income under a new account at Fidelity. (I have a POA (Power Of Attorney) account under her credentials so I have full access to everything I need.) In addition to a money market fund, I'm considering T-Bills as part of her fixed income allocation.

The information in this thread has been very helpful and I've read How To Buy Treasury Bills & Notes Without Fee at Online Brokers, by The Finance Buff. The "Auto Roll" feature looked interesting.

I then looked at Fidelity's fixed income site "live" for the first time. The Fidelity Auto Roll Service is only available for Treasury auction securities (and other securities that I'm not interested in).

Fixed Income, Bonds & CDs --> Bonds --> U. S. Treasury --> Auction

Shows 3 zero-coupon bills. Selecting "Buy" does indeed bring up the Auto Roll feature.

At the very least, it simplifies the security selections considerably. Is this the right approach? I'm not going after maximum return, just something more than money market funds.
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Re: Trading Treasuries (nominal and TIPS)

Post by billyt »

Rolling T-bills will indeed give you a higher return than a money market fund. However, consider that a rolling bond ladder is nothing more than a do it yourself bond fund. An equivalent fund might be more convenient.
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Re: Trading Treasuries (nominal and TIPS)

Post by mongstradamus »

billyt wrote: Tue Sep 20, 2022 2:14 pm Rolling T-bills will indeed give you a higher return than a money market fund. However, consider that a rolling bond ladder is nothing more than a do it yourself bond fund. An equivalent fund might be more convenient.
Just for arguments sake a bond fund has an expense ratio usually while rolling your own treasury ladder or something similar does not. I wonder how something like shv, tbill etf with approximate maturity of 3-4 month does vs rolling your own 3 month tbill ladder, is there any way to do calculations on fees + differences in apy of those options ?
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Re: Trading Treasuries (nominal and TIPS)

Post by billyt »

Yes, that is true. The cost of a fund is reflected in its expense ratio, but the SEC yield is net of those expenses. Only you can decide if the expense is worth the convenience.
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Re: Trading Treasuries (nominal and TIPS)

Post by LadyGeek »

mongstradamus wrote: Tue Sep 20, 2022 2:17 pm
billyt wrote: Tue Sep 20, 2022 2:14 pm Rolling T-bills will indeed give you a higher return than a money market fund. However, consider that a rolling bond ladder is nothing more than a do it yourself bond fund. An equivalent fund might be more convenient.
Just for arguments sake a bond fund has an expense ratio usually while rolling your own treasury ladder or something similar does not. I wonder how something like shv, tbill etf with approximate maturity of 3-4 month does vs rolling your own 3 month tbill ladder, is there any way to do calculations on fees + differences in apy of those options ?
billyt wrote: Tue Sep 20, 2022 2:21 pm Yes, that is true. The cost of a fund is reflected in its expense ratio, but the SEC yield is net of those expenses. Only you can decide if the expense is worth the convenience.
Those are good points, thanks to both.

Fidelity's analysis tools are impressive. Check out: Fixed Income Tools & Services - which includes a bond ladder tool. However, that depends on knowing which bonds you want to use.

mongstradamus - The Fixed Income Analysis Tool might do what you want (login required).

I'll avoid going further into my portfolio composition, as this thread is for trading.
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