Trading Treasuries (nominal and TIPS)

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vineviz
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Re: Trading Treasuries (nominal and TIPS)

Post by vineviz »

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 ?
iShares 0-3 Month Treasury Bond ETF (SGOV) has an expense ratio of just 0.05% and has beat its index since inception.

A fund like Vanguard Short-Term Treasury ETF (VGSH) will only cost you $40/year on a balance of $100k. That's less than a meal for two at the Olive Garden.
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Re: Trading Treasuries (nominal and TIPS)

Post by Kevin M »

LadyGeek wrote: Tue Sep 20, 2022 1:59 pm 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.
Yes, there is a link to Harry's blog post about buying at auction in the OP. Very useful.
LadyGeek wrote: Tue Sep 20, 2022 1:59 pm 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.
Yes, auto-roll is only available for securities bought at auction. All Treasury bills are zero coupon.

The bills to be auctioned on Thursday (settlement next Tuesday) are 4-week, 8-week, and 119-day maturities.
LadyGeek wrote: Tue Sep 20, 2022 1:59 pm 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.
Personally, I would not let the auction schedule dictate my maturity selection. I would determine that first, then possibly buy at auction if it met my needs. That is, unless you want to use the auto-roll feature, and are OK with bills, which are auctioned frequently. I probably would go for a minimum of 8-week for a rolling Tbills, since money market fund yield may be pretty close to the 4-week, but you can check.

If you have $100K in a taxable account or $10K in an IRA, I would buy FZDXX, which is Fidelity's highest yielding money market fund. It is not Treasuries, so no state income tax deduction, and not quite as safe as a Treasury fund, but safe enough for me. I park my cash in FZDXX unless I use it immediately after transferring in to buy something else. You do not need to keep any minimum amount in it to keep it open--at least that is my experience over the last few years, during which there were long stretches where I kept almost nothing in it.

FZDXX works as a settlement fund, unlike at Vanguard where you must have cash in the settlement fund. So you could buy FZDXX today, then tomorrow enter your auction order for Thursday. The proceeds will come from FZDXX to pay for the auction purchase. I do this frequently, but mostly for secondary market purchases, but that doesn't matter.

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Re: Trading Treasuries (nominal and TIPS)

Post by Kevin M »

billyt wrote: Tue Sep 20, 2022 1:22 pm 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.
Nope, you still don't get it. Tell me how the expected nominal yield for a 5-year TIPS is 1.16% (the SA value for the 4/15/27 TIPS)? The expected nominal yield is closer to 3.8%--the yield of a 5-year nominal Treasury.
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Re: Trading Treasuries (nominal and TIPS)

Post by billyt »

Kevin: The 'adjustment' in the adjusted yields is a nominal adjustment. When you buy a TIPS security, you get the quoted real yield, not the 'adjusted' one. Again, for emphasis, the real yield is calculated from the price and the coupon. It has nothing at all to do with the inflation adjustment. Yes, the nominal yield of a TIPS is affected (just barely) by the annual inflation cycle.

1) Why would any Boglehead care about the nominal yield of a TIPS? Great for traders who are making huge leveraged bets, not for the average Joe!

2) Why would a Boglehead think they know more than the market when it comes to the price of securities?
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Re: Trading Treasuries (nominal and TIPS)

Post by Kevin M »

billyt wrote: Tue Sep 20, 2022 1:49 pm 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.

I agree with both of these statements.
billyt wrote: Tue Sep 20, 2022 1:49 pm 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'.
This is where you get it backwards. The traders are factoring in the seasonality, as you stated earlier. That's why we see the sawtooth pattern in quoted yields at shorter maturities, which is not normal for a yield curve. By making your decisions based on the SA yields, you are trading with the institutional traders who understand this, and set their bids accordingly.

Please tell us why you think the 7/15 maturity quoted yields are all lower than the adjacent maturities? What is it about the 7/15 issues, at all maturities, that the traders currently don't like? Should we not buy the 7/15 because of the lower quoted yield?

Then, as we approach 1/15/23, the January maturities will all be close to the quoted yields, while the other ones will not. We would then be favoring or avoiding different mm/dd maturities then than we are now unless we consider seasonality.

Billy, if you want to continue this discussion, perhaps we could move it to the thread focused on seasonal adjustments, which I have linked to several times. Just a thought--I don't mind discussing it here, but I would prefer that it not become the primary focus of the thread, which it is not. It is too complicated to go into a lot of detail here, as probably many members participating in this thread don't understand it and are not interested in getting into the gory details, which is what really is required if you want to understand it deeply. The other thread is for getting into the gory details.

I see you have posted again about this while I was writing this. I will continue to respond appropriately.

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Re: Trading Treasuries (nominal and TIPS)

Post by billyt »

Yes, the small yield differences between adjacent TIPS are not meaningful, and one should ignore them, as you have argued so eloquently. I think we agree! Where we part company is you seem to think you can find meaningful differences in the 'adjusted' yields.
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Re: Trading Treasuries (nominal and TIPS)

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As a reminder, this thread is about trading treasuries (not about bond funds). Please avoid making off topic posts that might derail the thread.

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Re: Trading Treasuries (nominal and TIPS)

Post by LadyGeek »

Kevin M wrote: Tue Sep 20, 2022 2:48 pm Personally, I would not let the auction schedule dictate my maturity selection...
Again, thank you. All of your points are noted and much appreciated.
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Re: Trading Treasuries (nominal and TIPS)

Post by Kevin M »

billyt wrote: Tue Sep 20, 2022 3:19 pm Yes, the small yield differences between adjacent TIPS are not meaningful, and one should ignore them, as you have argued so eloquently. I think we agree! Where we part company is you seem to think you can find meaningful differences in the 'adjusted' yields.
Yes, one way to factor in seasonality is just to visualize the yield trend line through the maturities with the closest mm/dd in the maturity date; at least that would work now--we shall see how well it works in January, since the SA adjustment for 1/15 maturities will be 0 then. Or as you say, basically ignore the weird deviations in the quoted yields. That means one would find the 7/15/27 TIPS as desirable as the 4/15/27, assuming one is comfortable with a flat yield curve in this range.

Another way is to do the seasonal adjustments and view the seasonally adjusted yield curve, which will be similar to the trend line drawn as indicated above (as of now). Personally, this gives me more confidence in buying the maturities where the quoted yields are depressed due to seasonality, and not favoring maturities where the quoted yields are inflated due to seasonality.

But, many people have posted they buy the TIPS with the highest quoted yield for a particular year. That's not necessarily a mistake, but they likely will be favoring certain maturities over others due to seasonality, whereas I would not. I have bought a lot of 1/15, 4/15, 7/15, and a few 10/15 mm/dd maturity TIPS in recent months; I considered the SA yields in making my purchase decisions, but I could also have ignored yields altogether, and possibly ended up with the same holdings.

One could also just buy Jan TIPS in Jan, Feb TIPS in Feb, Apr TIPS in Apr, and Oct TIPS in Oct, since then the SA and quoted yields will be the same or very close.

Oh, and the adjustments aren't necessarily small for very short-term TIPS, which I understand you and many may not be interested in, but some may be (Vanguard short-term TIPS fund held more 1/15/23 TIPS than any other issue as of 8/31/22). For the 1/15/23 the seasonal adjustment is -138 basis points, for the 4/15/23 it's -100 basis points. It's quite a bit lower, but still meaningful I think, for 1/15/24 at -33 bps, 4/15/24 at -36 bps. We are close to October, so the 10/15/24 adjustment is the smallest for 2024 at -3 bps; the 7/15/24 adjustment is -7 bps.

Now, there could be some events that have occurred since the last CPI release, earlier this month, that institutional TIPS traders are factoring into their purchase decisions, and that could be part of the very large negative SA adjustments for Jan and Apr 2023 TIPS. This is acknowledged in the Canty paper I've referenced.

I think the bigger concern for these TIPS (which I own) is deflation over the next few months, as we have had in the last 2 months, which could mean negative inflation adjustments from now until maturity; deflation will be required to get the headline YoY inflation number down in the next few months to where markets are happy. Yes, if you bought the 1/15/23 TIPS today at 3.18%, you will earn that real yield through maturity, but I personally will be happier with my nominal fixed income holdings maturing in January if that's the case.

For 2025 maturities, the larger seasonal adjustments are in the -20 bps ballpark, for 2026 in the -15 bps ballpark, and for 2027 in the -10 bps ballpark--decreasing in magnitude with maturity as expected. If one thinks that 10 bps is insignificant (in the ballpark of the expense ratio of a fund), then one can probably ignore the entire topic if buying maturities of 5 years or greater, which I think we also can agree on.

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Re: Trading Treasuries (nominal and TIPS)

Post by rgzeta »

Does Merrill Edge support auto-rolling Treasuries? How about direct issue CD's? Or is Fidelity the one everyone talks about for a reason?

I'm asking since I'm running out of patience with the online banks' lag between their savings account / CD rates and MM / Treasury / direct issue CD / Fed funds rates. I have a Roth at Vanguard, but I'm getting a little annoyed with having to roll my Treasuries / CDs by hand, and if I'm opening a taxable account for my short-term savings, I might as well look everywhere. Merrill Edge could be useful since I could try to aim for a Preferred Rewards tier, but only if there's nothing too annoying.
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Re: Trading Treasuries (nominal and TIPS)

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Kevin M wrote: Tue Sep 20, 2022 2:48 pmThe bills to be auctioned on Thursday (settlement next Tuesday) are 4-week, 8-week, and 119-day maturities.
The 4-week and 8-week auctions announced today will indeed be held on Thursday. However, the 119-day (i.e., 17-week) auction also announced today will be held tomorrow. This is normal for this Cash Management Bill's [*] auctions. They are announced on Tuesday and held on Wednesday. All three bills will be issued on the same date, Tuesday the 27th, as Kevin says. Since they are all issued on a Tuesday, they all mature on a Tuesday; 4, 8, or 17 weeks later.

Several weeks ago in this post I compared the auction yields of 13, 17, and 26 week bills. The 17-week compared favorably. Yields were well above the 13-week, but not too much less than the 26-week.

[*] Cash Management Bills (CMB) work like regular 4, 8, 13, 26, and 52 week treasury bills except that they have an ad hoc issuance. E.g., they aren't shown in the Treasury's Tentative Auction Schedule. And they aren't available for purchase on TreasuryDirect. However, they are shown in Upcoming Auctions. Although not officially on a regular schedule, the 17-week CMBs have been issued every week this year. According to this post, the Treasury plans to regularize the 17-week bills beginning with the October 19th auction.

Edited 9/21/2022 12:05 PM to add auction results:
The 17-week auction just closed. The Investment Rate was 3.684%. This compares to 3.343% for the 13-week and 3.907% for the 26-week which were auctioned on Monday.
Last edited by #Cruncher on Wed Sep 21, 2022 11:04 am, edited 1 time in total.
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Re: Trading Treasuries (nominal and TIPS)

Post by mongstradamus »

I have random question about buying treasuries on secondary market any particular reason why at fidelity their requirements are like 250k min for some 3 month treasuries I was looking at while almost all 3 month treasuries on vanguard have min 1k.

Just wondering for people with smaller er that want to use treasuries to hold them buy in secondary market at fidelity seems like not optimal.
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Re: Trading Treasuries (nominal and TIPS)

Post by TheTimeLord »

I am building out a TIPS ladder but have run into the issue there are no TIPS maturing from 2033-2040 yet issued so I need to wait for future auctions fill out those rungs. Any thoughts on if it would be better to buy a short duration TIPS cover the time until future 10 year auctions or longer duration TIPS (say 10 yr) to get to a point where I could buy multiple rungs for my ladder when they mature. I was originally thinking of doing the former but with longer duration TIPS paying over 1% real I am tempted to do the latter.
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Re: Trading Treasuries (nominal and TIPS)

Post by martint »

I have a question about buying short-time-to-maturity TIPS on the secondary market. Can someone confirm my understanding of the expected performance?

Example: Today I see a TIPS maturing 1/15/23 with 0.125% coupon, bid/ask 98.91/99.05, YTW 3.178%.

If I were to have purchased this TIPS today, and CPI-U is flat from (when? The CPI-U report for August 2022 release Sept 13? Or is it based on the July release?) through December 2022 (report release January 12 2023) I would get this YTW? If CPI-U goes up in that time I’ll get a higher yield, if it goes down I’ll get a lower yield. Is this right?

I think I understand the process for buying at auction, but the secondary market metrics are a little opaque to me. Appreciate the help, thanks!
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Re: Trading Treasuries (nominal and TIPS)

Post by bridge2benefits »

TheTimeLord wrote: Tue Sep 20, 2022 9:32 pm I am building out a TIPS ladder but have run into the issue there are no TIPS maturing from 2033-2040 yet issued so I need to wait for future auctions fill out those rungs. Any thoughts on if it would be better to buy a short duration TIPS cover the time until future 10 year auctions or longer duration TIPS (say 10 yr) to get to a point where I could buy multiple rungs for my ladder when they mature. I was originally thinking of doing the former but with longer duration TIPS paying over 1% real I am tempted to do the latter.
It's a little bit of a market timing question, but I think it also comes down to how comfortable you are with having 2033-2040 empty in your ladder, implying that your income for those years is not yet protected from inflation.

In my case I'm missing 2033 - 2038. For 2033, I have a 5 year TIPS maturing next April that I plan to roll into a new 10 year TIPS. For 2034 - 2038, I have one year covered by I Bonds, and the remaining 3 years are not inflation protected yet - I plan to purchase the TIPS for those 3 years using a combination of funds from my 401k and a MYGA. If the funds for those last 3 years were already in my IRA right now, I would be very tempted to buy enough 10 year TIPS to cover those last 3 rungs now, to lock in the 1% real rate. It would only result in a small amount of re-investment risk, since 3 extra rungs worth of TIPS would mature in 2033, at which point I'd need to reinvest those rungs to last 2, 3, and 4 years.
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Re: Trading Treasuries (nominal and TIPS)

Post by FactualFran »

martint wrote: Tue Sep 20, 2022 10:00 pm I have a question about buying short-time-to-maturity TIPS on the secondary market. Can someone confirm my understanding of the expected performance?

Example: Today I see a TIPS maturing 1/15/23 with 0.125% coupon, bid/ask 98.91/99.05, YTW 3.178%.

If I were to have purchased this TIPS today, and CPI-U is flat from (when? The CPI-U report for August 2022 release Sept 13? Or is it based on the July release?) through December 2022 (report release January 12 2023) I would get this YTW? If CPI-U goes up in that time I’ll get a higher yield, if it goes down I’ll get a lower yield. Is this right?
If the reference CPI on the maturity date (1/5/23) is equal to the reference CPI on the settlement date (9/21/22, for a trade done on 9/20/22), then the actual nominal annualized return will be the real yield in the quote (3.178%). If the reference CPI on the maturity data is lower than on the settlement date, then the actual nominal annualized return will be lower than the real yield on the quote. If the reference CPI on the maturity data is higher than on the settlement date, then the actual nominal annualized return will be higher than the real yield on the quote.

The reference CPI on 9/21/22 of 296.28767 is a linear interpolation between the reference CPI on 9/1/22 of 296.311 (the CPI-U for 6/22) and the reference CPI on 10/1/22 of 296.276 (the CPI-U for 7/22).

The reference CPI on the maturity date will be a linear interpolation between the reference CPI of 1/1/23 (the CPI for 10/22) and the reference CPI on 2/1/23 (the CPI for 11/22).
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Re: Trading Treasuries (nominal and TIPS)

Post by martint »

Thanks FactualFran! Very clear explanation.
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Re: Trading Treasuries (nominal and TIPS)

Post by phoroner »

TheTimeLord wrote: Tue Sep 20, 2022 9:32 pm I am building out a TIPS ladder but have run into the issue there are no TIPS maturing from 2033-2040 yet issued so I need to wait for future auctions fill out those rungs. Any thoughts on if it would be better to buy a short duration TIPS cover the time until future 10 year auctions or longer duration TIPS (say 10 yr) to get to a point where I could buy multiple rungs for my ladder when they mature. I was originally thinking of doing the former but with longer duration TIPS paying over 1% real I am tempted to do the latter.
For a family member I helped with this, we bought extra of the maturities right before and after the gap with plan to sell them to fill in the ladder over time. The interest rate risk is trivial for selling some 2032 maturity to fund purchase of the 2033 maturity at auction, but rises a bit with gap in years (e.g. selling 2032 to buy 2036). But it is low risk and still seems like the best approach.
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Re: Trading Treasuries (nominal and TIPS)

Post by acegolfer »

Sorry, if these were asked before. The thread is too long to read through all.

Are Treasuries a good option as an emergency fund in terms of liquidity? Specifically, how soon can I convert into cash (withdrawal)?
Is TD or brokerage better for this purpose?
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Re: Trading Treasuries (nominal and TIPS)

Post by vineviz »

phoroner wrote: Tue Sep 20, 2022 11:24 pm
TheTimeLord wrote: Tue Sep 20, 2022 9:32 pm I am building out a TIPS ladder but have run into the issue there are no TIPS maturing from 2033-2040 yet issued so I need to wait for future auctions fill out those rungs. Any thoughts on if it would be better to buy a short duration TIPS cover the time until future 10 year auctions or longer duration TIPS (say 10 yr) to get to a point where I could buy multiple rungs for my ladder when they mature. I was originally thinking of doing the former but with longer duration TIPS paying over 1% real I am tempted to do the latter.
For a family member I helped with this, we bought extra of the maturities right before and after the gap with plan to sell them to fill in the ladder over time. The interest rate risk is trivial for selling some 2032 maturity to fund purchase of the 2033 maturity at auction, but rises a bit with gap in years (e.g. selling 2032 to buy 2036). But it is low risk and still seems like the best approach.
This would be the least risky approach.

Even buying a 2036 bond using proceeds from a mix of 2032 and 2041 bonds would present little risk.
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Re: Trading Treasuries (nominal and TIPS)

Post by vineviz »

acegolfer wrote: Wed Sep 21, 2022 5:38 am Sorry, if these were asked before. The thread is too long to read through all.

Are Treasuries a good option as an emergency fund in terms of liquidity? Specifically, how soon can I convert into cash (withdrawal)?
Is TD or brokerage better for this purpose?
Treasury Direct would be inappropriate for this usage, since bonds held there cannot be sold before maturity.

Personally I would use a bond fund, not a rolling ladder of individual Treasuries, for an emergency fund. Both would be "liquid" in the technical sense, but partial withdrawals are less disruptive from the fund.
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Re: Trading Treasuries (nominal and TIPS)

Post by Tubes »

acegolfer wrote: Wed Sep 21, 2022 5:38 am Sorry, if these were asked before. The thread is too long to read through all.

Are Treasuries a good option as an emergency fund in terms of liquidity? Specifically, how soon can I convert into cash (withdrawal)?
Is TD or brokerage better for this purpose?
To add a bit more to vineviz's message...

You *can* eventually sell "Marketable Securities" listed on TD. However, you can't do it there.

You have to go through a process to transfer the security from TD to a brokerage like Vanguard, Fidelity, Schwab or whatever. If you have been reading the threads about TD, you will know this could be a long, arduous process. And heaven forbid you make a mistake and lock yourself out of the account!

Form FS 5511 is required, and this needs a medallion stamp, which are getting near impossible to find.

Wanna read more? Here it is in all its painful glory: https://www.treasurydirect.gov/indiv/he ... rnMore.htm

So, yeah, you can make your TD liquid. Perhaps if you have a 3, 5 or 10 year term security, the process may be worth it. But consider, the paperwork could easily take 2 or more months, and likely more. You'll also suffer frustration guaranteed. As long as your emergency can wait 2 or 3 months, it is perfectly liquid. :D

Just hold your treasuries at a brokerage and avoid the pain! Selling any treasury at your brokerage is easy.
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Re: Trading Treasuries (nominal and TIPS)

Post by acegolfer »

Why would anyone use TD to buy Treasuries? Does it have any advantage over brokerage?
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Re: Trading Treasuries (nominal and TIPS)

Post by Tubes »

acegolfer wrote: Wed Sep 21, 2022 8:10 am Why would anyone use TD to buy Treasuries? Does it have any advantage over brokerage?
The ONLY thing I can think of is you can go down to $100 increments.

Of course, iBonds are only available on TD. Everything else, don't use TD if you are OK with $1000 increments.
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Re: Trading Treasuries (nominal and TIPS)

Post by acegolfer »

Tubes wrote: Wed Sep 21, 2022 8:11 am
The ONLY thing I can think of is you can go down to $100 increments.
TY.
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Re: Trading Treasuries (nominal and TIPS)

Post by MisterMister »

acegolfer wrote: Wed Sep 21, 2022 5:38 am Sorry, if these were asked before. The thread is too long to read through all.

Are Treasuries a good option as an emergency fund in terms of liquidity? Specifically, how soon can I convert into cash (withdrawal)?
Is TD or brokerage better for this purpose?
At Fidelity, you can generally sell your existing treasury bonds almost instantly on the secondary market. The cash is available for withdrawal the next day, and can be wired to your bank without charge (Fidelity does not charge; your bank may but many do not for incoming wires). So you can generally convert your bonds to cash-in-the-bank in 1-2 business days. TD is not a good option for bonds which must be liquid; they can't be sold on TD.

Managing individual securities is not difficult but it can take a fair bit of time for monitoring, keeping aware of rates, maturities and to plan trades. So for some people a fund is better.
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Re: Trading Treasuries (nominal and TIPS)

Post by acegolfer »

I understand that with Fidelity one can only purchase "new" issues at $1k not $100 increments. But what about secondary market? Can I buy a fraction of a T-bond? (I'm asking because I have about $200 in my Fidelity account from bonus/cash back.)
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Re: Trading Treasuries (nominal and TIPS)

Post by billyt »

I have used Treasury Direct as well as Vanguard to buy treasuries and TIPS. In Treasury Direct I buy only relatively short term bonds, which I intend to hold to maturity. The bonds I buy in Vanguard are generally longer term and I intend to hold those to maturity as well, but have the option to sell anytime. I have not, as of yet, had any problems with Treasury Direct. I like that money is withdrawn directly from your bank on the settlement date and directly deposited on the day of maturity. You can auto roll too I guess, but I have not tried that.
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Re: Trading Treasuries (nominal and TIPS)

Post by billyt »

As far as I know most brokerages require a minimum of $1,000.
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Re: Trading Treasuries (nominal and TIPS)

Post by Tubes »

billyt wrote: Wed Sep 21, 2022 8:32 am I like that money is withdrawn directly from your bank on the settlement date and directly deposited on the day of maturity. You can auto roll too I guess, but I have not tried that.
Ah yes, TD does have an auto-roll (recurring) feature. I've used it. It works fine. You can even cancel it on demand if necessary.

Fidelity has an auto-roll feature. This is where the brokerage matters. Vanguard doesn't have auto-roll. So if you compare TD with VG, chalk one up for TD in this feature.

TD does settle quickly with banks. True. They are the government after all. The mother of all clearing houses.
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Re: Trading Treasuries (nominal and TIPS)

Post by vineviz »

Tubes wrote: Wed Sep 21, 2022 8:11 am
acegolfer wrote: Wed Sep 21, 2022 8:10 am Why would anyone use TD to buy Treasuries? Does it have any advantage over brokerage?
The ONLY thing I can think of is you can go down to $100 increments.

Of course, iBonds are only available on TD. Everything else, don't use TD if you are OK with $1000 increments.
An investor who already has a Treasury Direct account but does not have a taxable brokerage account might prefer to buy bonds through TD rather than open a taxable brokerage account just for that purpose.
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Re: Trading Treasuries (nominal and TIPS)

Post by Tubes »

vineviz wrote: Wed Sep 21, 2022 9:03 am
Tubes wrote: Wed Sep 21, 2022 8:11 am
acegolfer wrote: Wed Sep 21, 2022 8:10 am Why would anyone use TD to buy Treasuries? Does it have any advantage over brokerage?
The ONLY thing I can think of is you can go down to $100 increments.

Of course, iBonds are only available on TD. Everything else, don't use TD if you are OK with $1000 increments.
An investor who already has a Treasury Direct account but does not have a taxable brokerage account might prefer to buy bonds through TD rather than open a taxable brokerage account just for that purpose.
Agree.

I was there for a long time having only mutual fund accounts and treasury direct.

Once I got comfortable with the brokerage, it took me another few years to consider the treasury/bond side of things.

Now that I understand it, I won't go back since the liquidity is so much better at the brokerage.
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Re: Trading Treasuries (nominal and TIPS)

Post by mongstradamus »

acegolfer wrote: Wed Sep 21, 2022 8:10 am Why would anyone use TD to buy Treasuries? Does it have any advantage over brokerage?
Places like vanguard don’t have auto reroll would be only reason. There is also only 100 dollar min at td brokers is 1000
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Re: Trading Treasuries (nominal and TIPS)

Post by Doc »

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.
A rolling ladder buys 52 wk T-bills and holds them to maturity. Average "duration" about 26 weeks.

A Treasury money market find likely buys all new issue and holds them to maturity.

Example Schwab" Investor Shares SNOXX| Ultra Shares SCOXX Schwab Treasury Obligations Money Fund":

Weighted Average maturity: 15 days
Weighted Average like: 31 days

https://www.schwabassetmanagement.com/r ... fact-sheet

The "penalty" you get with the fund for the extra return with the longer duration is price variation. But if you need money you just sell the shorter issues in your ladder.

Caveat: I'm currently using a 26 week ladder because of the FOMC rate changes. It's a real PITA. :annoyed
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Re: Trading Treasuries (nominal and TIPS)

Post by billyt »

Doc, I must be misunderstanding what you are saying. Where is the price variation in a money fund that is fixed at $1 per share?
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Re: Trading Treasuries (nominal and TIPS)

Post by Kevin M »

mongstradamus wrote: Tue Sep 20, 2022 9:22 pm I have random question about buying treasuries on secondary market any particular reason why at fidelity their requirements are like 250k min for some 3 month treasuries I was looking at while almost all 3 month treasuries on vanguard have min 1k.

Just wondering for people with smaller er that want to use treasuries to hold them buy in secondary market at fidelity seems like not optimal.
Did you look at depth of book? Click the depth of book icon at the far right of the row, and usually you will see quotes for smaller min quantities--usually there is at least one for min qty 1. Occasionally I've seen a Treasury with no depth of book, but it's not common. I am usually able to buy quantity 10 of any Treasury I want to buy at Fidelity, but as I said, there have been a few exceptions.

If you don't understand this, please provide a CUSIP for a Treasury you can't find a smaller min quantity for, and I'll check it.

Kevin
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Re: Trading Treasuries (nominal and TIPS)

Post by Kevin M »

acegolfer wrote: Wed Sep 21, 2022 5:38 am Sorry, if these were asked before. The thread is too long to read through all.

Are Treasuries a good option as an emergency fund in terms of liquidity? Specifically, how soon can I convert into cash (withdrawal)?
Is TD or brokerage better for this purpose?
I only buy I bonds at TD.

At a brokerage, you can sell Treasuries on any trading day, and the trade settles the next trading day (T+1), and then the cash is available to withdraw. You can the EFT or wire the cash to your bank, and it will be there same day or next day at latest. Fidelity does not charge for outgoing wires; you just have to set up your bank for wire transfers at Fidelity. Your bank may charge a fee for an incoming wire.

The bid/ask spread typically is quite small for Treasuries, often just 1 or 2 basis points, but there are some exceptions. The average price bid/ask for all Treasuries yesterday was about 3 basis points (0.03%)

If you sell before maturity, your return is uncertain. You may earn the same, lower, or higher return than if you held to maturity.

Since yields have been rising, most nominal Treasuries I've bought this year that have not matured have a slight loss. My returns at this point range from -1.5% to +0.3%, but these are not annualized numbers.

Personally, I would keep a rung in a money market fund, the best of which have yields not too much less than a 1-month Treasury, and they will continue to increase as the fed funds rate continues to increase. I do my cash withdrawals from the MM fund, and only sell Treasuries if there is a better opportunity.

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Re: Trading Treasuries (nominal and TIPS)

Post by mongstradamus »

Kevin M wrote: Wed Sep 21, 2022 11:36 am
mongstradamus wrote: Tue Sep 20, 2022 9:22 pm I have random question about buying treasuries on secondary market any particular reason why at fidelity their requirements are like 250k min for some 3 month treasuries I was looking at while almost all 3 month treasuries on vanguard have min 1k.

Just wondering for people with smaller er that want to use treasuries to hold them buy in secondary market at fidelity seems like not optimal.
Did you look at depth of book? Click the depth of book icon at the far right of the row, and usually you will see quotes for smaller min quantities--usually there is at least one for min qty 1. Occasionally I've seen a Treasury with no depth of book, but it's not common. I am usually able to buy quantity 10 of any Treasury I want to buy at Fidelity, but as I said, there have been a few exceptions.

If you don't understand this, please provide a CUSIP for a Treasury you can't find a smaller min quantity for, and I'll check it.

Kevin
Thank you Kevin, it looks like I was dumb dumb, I looked at min on most of listing on main page but didn't look to depth chart. It looks like they are available for 1 tbill purchases, now the question I have how should I be comparing yields for a 3 month on secondary market approximately 12/22/2022 vs the most recent auction on monday. I am seeing 3.343 was the yield you would have gotten from auction vs 3.28 on tbill expiring 12/22/2022. Are difference so minuscule probably doesn't matter all that much?
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Re: Trading Treasuries (nominal and TIPS)

Post by Doc »

billyt wrote: Wed Sep 21, 2022 10:44 am Doc, I must be misunderstanding what you are saying. Where is the price variation in a money fund that is fixed at $1 per share?
The price variation is in the T-bill ladder not the money fund. That variation is one of the things that you have to "pay/incur" for using the ladder.

The other thing is the bookkeeping hassle.

What you gain is a bit more return. And the ability to tax gain/loss harvest if that makes sense in your case.
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Re: Trading Treasuries (nominal and TIPS)

Post by Kevin M »

mongstradamus wrote: Wed Sep 21, 2022 12:19 pm
Kevin M wrote: Wed Sep 21, 2022 11:36 am
mongstradamus wrote: Tue Sep 20, 2022 9:22 pm I have random question about buying treasuries on secondary market any particular reason why at fidelity their requirements are like 250k min for some 3 month treasuries I was looking at while almost all 3 month treasuries on vanguard have min 1k.

Just wondering for people with smaller er that want to use treasuries to hold them buy in secondary market at fidelity seems like not optimal.
Did you look at depth of book? Click the depth of book icon at the far right of the row, and usually you will see quotes for smaller min quantities--usually there is at least one for min qty 1. Occasionally I've seen a Treasury with no depth of book, but it's not common. I am usually able to buy quantity 10 of any Treasury I want to buy at Fidelity, but as I said, there have been a few exceptions.

If you don't understand this, please provide a CUSIP for a Treasury you can't find a smaller min quantity for, and I'll check it.

Kevin
Thank you Kevin, it looks like I was dumb dumb, I looked at min on most of listing on main page but didn't look to depth chart. It looks like they are available for 1 tbill purchases, now the question I have how should I be comparing yields for a 3 month on secondary market approximately 12/22/2022 vs the most recent auction on monday. I am seeing 3.343 was the yield you would have gotten from auction vs 3.28 on tbill expiring 12/22/2022. Are difference so minuscule probably doesn't matter all that much?
Treasury yields change from day to day, and at auction you're getting at least the high yield you see on secondary (large quantity), which now is 3.299%, compared to 3.274% for min qty 1, so less than a 3 basis point large/small-qty spread, which is good. You can't go back in time, so you can't buy at the auction, so you get what you get on the day you buy. All of these yields round to 3.3%. Auction yield was only about 7 basis points higher than what you'd pay for purchase today.

What you could do is buy half now and half at the auction, but the next 13-week auction is not until Oct 3, with settlement Oct 6. If you buy today, settlement is 9/22, so you get 14 days more of interest at the current yield if you buy today. I suspect the 13-week rate will be higher in 14 days, since it tends to keep rising as the fed is increasing the federal funds rate. And, you can earn money market interest in the meantime on any cash waiting for the next auction, and MM yields will continue to increase as well.

Kevin
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Re: Trading Treasuries (nominal and TIPS)

Post by Doc »

Kevin M wrote: Wed Sep 21, 2022 11:57 am
Personally, I would keep a rung in a money market fund, the best of which have yields not too much less than a 1-month Treasury, and they will continue to increase as the fed funds rate continues to increase. I do my cash withdrawals from the MM fund, and only sell Treasuries if there is a better opportunity.

Kevin
I've been thinking of using two T-bill positions in each account instead of a money market account. Say a December and a June position. Whenever you have an extra $1k in cash just buy more of the longer position on the secondary market. If you need cash sell whichever one makes more sense at the time.
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Re: Trading Treasuries (nominal and TIPS)

Post by Kevin M »

Doc wrote: Wed Sep 21, 2022 12:41 pm
Kevin M wrote: Wed Sep 21, 2022 11:57 am
Personally, I would keep a rung in a money market fund, the best of which have yields not too much less than a 1-month Treasury, and they will continue to increase as the fed funds rate continues to increase. I do my cash withdrawals from the MM fund, and only sell Treasuries if there is a better opportunity.

Kevin
I've been thinking of using two T-bill positions in each account instead of a money market account. Say a December and a June position. Whenever you have an extra $1k in cash just buy more of the longer position on the secondary market. If you need cash sell whichever one makes more sense at the time.
You could do that, but there's a good chance you will earn less than your original yield when you sell before maturity--perhaps even get a negative return, especially since we have high confidence that short-term rates will continue rising until the Fed is done hiking.

Kevin
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Re: Trading Treasuries (nominal and TIPS)

Post by Kevin M »

Today I see that the seasonally-adjusted (SA) yield on the 4/15/25 has increased by 147 basis points since my last purchase on 6/23/2022. When I look at 2025 issues, I see a spike, even in the SA yield, for one of the 1/15/25 issues:

Image

As we can see, there are two Jan 2023 issues, one with a 2.375% coupon, that has the higher yield, and one with a 0.250% with the lower yield. A higher coupon results in lower duration, so with a positive sloped yield curve, we'd expect the yield to be a bit lower than the low-coupon issue. The SA yield curve slope is positive for the Apr and Jul 2024 TIPS, but then negative for the 2025 issues, so I'm not sure duration explains it.

The index ratio (IR) on the high coupon issue is 1.57184, and for the low-coupon issue it's 1.25092, so unless the market expects more than 20% deflation over the term, the IR should not affect the yield. If there were more demand for the lower IR, the low-coupon issue price would be higher, and yield lower, so I guess that could explain it, but it seems a bit implausible to me.

Any other thoughts on why the higher-coupon Jan 2025 TIPS has a higher yield? Seasonal adjustment doesn't explain it, since the SA is exactly the same for each of these TIPS. If it's a liquidity issue, I don't care, since I probably will hold to maturity.

I'm tempted to buy some of the higher-yield Jan 2025 TIPS.

Incidentally, I see that the Fed rate hike of 75 bps has been announced, so that uncertainty is out of the way for now.

Kevin
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Re: Trading Treasuries (nominal and TIPS)

Post by Kevin M »

The difference in the Jan 2025 yields has almost disappeared!

Image

Now a difference of only 3 bps in the SA yields, 1.27% and 1.24%, and 4 bps in the ask yield, 1.47% and 1.43%.

Could the fed announcement have affected this?

The Apr 2025 yield has not changed much, as the SA yield is 146 bps higher than my last purchase (was 147 bps as of my last post).

I hold much less in 2025 TIPS than in 2023 and 2024 TIPS, so I'm still tempted.

Kevin
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Re: Trading Treasuries (nominal and TIPS)

Post by Kevin M »

Well, I actually bought the lower coupon Jan 2025 TIPS, and I may have chosen that for the same reason others prefer it: the amount to buy 10 would have been about $4K more ($16.1 K vs. $12.1 K) for the higher-coupon, higher-IR issue, due to the higher price and IR. So it's not a deflation concern, but the ability to buy the same face value for less money, due to lower price and less accrued principal.

Price: 97.352
Yield: 1.418%

This was at Vanguard. The large/small-qty spread was about 1-2 basis points, so happy with that.

I learned something from this trade!

Kevin
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Re: Trading Treasuries (nominal and TIPS)

Post by tah703 »

mangorunner wrote: Sat Sep 03, 2022 10:23 am I read in a 2020 thread (viewtopic.php?t=304490) that Schwab's auto-rollover system does not purchase the new/replacement T-bill on the same day as maturity date of the prior/matured T-bill. According to that thread, your money sits uninvested for a week until the next auction and settlement. Can anyone confirm if that is still the case? For a Schwab client with a T-bill ladder, is it optimal to make your purchases manually to avoid an uninvested week for each rung's reinvestment? (I'm still building my 13-week T-Bills ladder and have not yet experienced the first auto-rollover.)
I know there has been continued discussion about this weeks ago with some of what I'm going to write previously stated, but I don't know if this solution was presented.

If you want an N-week Tbill ladder that auto-rolls in a Schwab account with margin you can get around the 1-week uninvested money by placing N+1 manual orders and specify auto-invest "yes" for each of them. From that point forward the ladder will auto-roll as expected. You will not incur margin interest because maturities line up with settlements. For example (using N=4). Week 1 matures in Week 4. Schwab won't place the auto re-order until Week 5 but a manual Week 4 order can be settled with maturing week 1 -- Week 5's auto-invest order will be settled with Week 2 maturity -- etc.

This is what I do so I know it works.

The problem I have right now is that because a 4-week TBill is really an 8-week TBill that is 4-weeks old (they have the same CUSIP -- the same with 13/6-week TBills) you cannot have a concurrent N and 2N ladder. All of my 8-week rollovers are being placed as 4-week orders because the 4-week rollover request came after (and I'm assuming superseded) the initial rollover election. Right now I just cancel the Schwab placed order and re-order it myself. There's a chance I might be wrong about this because all of my original 8-week rollover elections were inexplicably wiped away in mid-August so I don't really have a maturing CUSIP that was placed with 2 auto-rollover "yes" instructions. The Oct 11 maturity will be the first.
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Re: Trading Treasuries (nominal and TIPS)

Post by jeffyscott »

Kevin M wrote: Wed Sep 21, 2022 2:36 pm Well, I actually bought the lower coupon Jan 2025 TIPS, and I may have chosen that for the same reason others prefer it: the amount to buy 10 would have been about $4K more ($16.1 K vs. $12.1 K) for the higher-coupon, higher-IR issue, due to the higher price and IR. So it's not a deflation concern, but the ability to buy the same face value for less money, due to lower price and less accrued principal.
But why do you care how many you buy? What's the difference if you buy 7 or 8 of one, instead of 10 of the other?
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Re: Trading Treasuries (nominal and TIPS)

Post by mongstradamus »

Kevin M wrote: Wed Sep 21, 2022 12:34 pm
mongstradamus wrote: Wed Sep 21, 2022 12:19 pm
Kevin M wrote: Wed Sep 21, 2022 11:36 am
mongstradamus wrote: Tue Sep 20, 2022 9:22 pm I have random question about buying treasuries on secondary market any particular reason why at fidelity their requirements are like 250k min for some 3 month treasuries I was looking at while almost all 3 month treasuries on vanguard have min 1k.

Just wondering for people with smaller er that want to use treasuries to hold them buy in secondary market at fidelity seems like not optimal.
Did you look at depth of book? Click the depth of book icon at the far right of the row, and usually you will see quotes for smaller min quantities--usually there is at least one for min qty 1. Occasionally I've seen a Treasury with no depth of book, but it's not common. I am usually able to buy quantity 10 of any Treasury I want to buy at Fidelity, but as I said, there have been a few exceptions.

If you don't understand this, please provide a CUSIP for a Treasury you can't find a smaller min quantity for, and I'll check it.

Kevin
Thank you Kevin, it looks like I was dumb dumb, I looked at min on most of listing on main page but didn't look to depth chart. It looks like they are available for 1 tbill purchases, now the question I have how should I be comparing yields for a 3 month on secondary market approximately 12/22/2022 vs the most recent auction on monday. I am seeing 3.343 was the yield you would have gotten from auction vs 3.28 on tbill expiring 12/22/2022. Are difference so minuscule probably doesn't matter all that much?
Treasury yields change from day to day, and at auction you're getting at least the high yield you see on secondary (large quantity), which now is 3.299%, compared to 3.274% for min qty 1, so less than a 3 basis point large/small-qty spread, which is good. You can't go back in time, so you can't buy at the auction, so you get what you get on the day you buy. All of these yields round to 3.3%. Auction yield was only about 7 basis points higher than what you'd pay for purchase today.

What you could do is buy half now and half at the auction, but the next 13-week auction is not until Oct 3, with settlement Oct 6. If you buy today, settlement is 9/22, so you get 14 days more of interest at the current yield if you buy today. I suspect the 13-week rate will be higher in 14 days, since it tends to keep rising as the fed is increasing the federal funds rate. And, you can earn money market interest in the meantime on any cash waiting for the next auction, and MM yields will continue to increase as well.

Kevin
Thank you for clarification, am I misreading the 13 week auction isn't it on 26 with settlement on 29? I am still a bit confused maybe best way to learn is to experiment a bit and see .
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Re: Trading Treasuries (nominal and TIPS)

Post by Kevin M »

jeffyscott wrote: Wed Sep 21, 2022 3:54 pm
Kevin M wrote: Wed Sep 21, 2022 2:36 pm Well, I actually bought the lower coupon Jan 2025 TIPS, and I may have chosen that for the same reason others prefer it: the amount to buy 10 would have been about $4K more ($16.1 K vs. $12.1 K) for the higher-coupon, higher-IR issue, due to the higher price and IR. So it's not a deflation concern, but the ability to buy the same face value for less money, due to lower price and less accrued principal.
But why do you care how many you buy? What's the difference if you buy 7 or 8 of one, instead of 10 of the other?
Without having done any calculations, I was thinking that both would mature at 100, and both would have the same inflation adjustments from settlement to maturity, so getting the same face value for less money was preferable. What I didn't think about was that the higher coupon and higher IR would result in significantly higher coupon payments, which make a significant difference in the return.

Since you asked, I felt obligated to investigate further, and came up with the following IRR analysis:

Image

So as expected for the straight-thinking person (which I apparently was not earlier today), the return is 4 basis points higher for the issue for which the yield is 4 basis points higher. Duh :oops: Now I've learned even more from this trade.

Here I assumed an annual inflation rate that is about what the BEI is for these issues, but changing the inflation rate has no impact on the difference between returns.

I also assumed that inflation increases linearly from settlement to maturity.

Note that quantity 8 is the closest I could get to the total amount for quantity 10 of the other issue, but the quantity does not affect the return (another duh).

So, why do you think the higher-coupon issue tends to have a higher yield? People like the cash higher cash flows? Just some meaningless noise in the yields?

Kevin
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Re: Trading Treasuries (nominal and TIPS)

Post by silvergga »

Kevin M wrote: Wed Sep 21, 2022 1:55 pm Today I see that the seasonally-adjusted (SA) yield on the 4/15/25 has increased by 147 basis points since my last purchase on 6/23/2022. When I look at 2025 issues, I see a spike, even in the SA yield, for one of the 1/15/25 issues:

Image

As we can see, there are two Jan 2023 issues, one with a 2.375% coupon, that has the higher yield, and one with a 0.250% with the lower yield. A higher coupon results in lower duration, so with a positive sloped yield curve, we'd expect the yield to be a bit lower than the low-coupon issue. The SA yield curve slope is positive for the Apr and Jul 2024 TIPS, but then negative for the 2025 issues, so I'm not sure duration explains it.

The index ratio (IR) on the high coupon issue is 1.57184, and for the low-coupon issue it's 1.25092, so unless the market expects more than 20% deflation over the term, the IR should not affect the yield. If there were more demand for the lower IR, the low-coupon issue price would be higher, and yield lower, so I guess that could explain it, but it seems a bit implausible to me.

Any other thoughts on why the higher-coupon Jan 2025 TIPS has a higher yield? Seasonal adjustment doesn't explain it, since the SA is exactly the same for each of these TIPS. If it's a liquidity issue, I don't care, since I probably will hold to maturity.

I'm tempted to buy some of the higher-yield Jan 2025 TIPS.

Incidentally, I see that the Fed rate hike of 75 bps has been announced, so that uncertainty is out of the way for now.

Kevin
Hi Kevin, is there a webpage or automated way to obtain the SA real yield?

Maybe someone can host a google doc with view only privilege?

:D
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