28 Day Treasuries?

John19 | Sep 17, 2022 | 395 posts since 2022

When buying 1 month treasuries at Schwab do you earn interest between auction and settlement date? How does it work on auto-enroll? Never bought a treasury in my life but looks like I have to get started. Could use some help.

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CTM | Sep 17, 2022 | 179 posts since 2010

While not a Schwab user, I can describe the timeline of a T-Bill purchase via Treasury Direct.

Using the last 4 week auction as an example, the Auction Date (09/15/22) is the date you commit to purchasing the specific T-Bill and amount. The Issue Date, or settlement date (09/20/22) is the date the money is withdrawn from your funding account. This is similar to the "T+3" settlement for a stock trade. The price of the T-Bill in this auction was 99.792333, so your account would be debited $ 9979.23 for a $ 10000.00 purchase. The Maturity Date (10/18/22) is when the funds from the matured T-Bill will be deposited back into your account. In this example, you would receive the full $ 10000.00 face value.

It is my experience that Treasury Direct pulls the funds a nano-second after midnight on the Issue Date and returns them a nano-second after midnight on the Maturity Date.

You will not earn interest on the T-Bill between the auction date and the settlement date, as you do not yet own the T-Bill. If the funding account is interest bearing, you will still earn interest on that account.

The Treasury auction result press release for this example can be seen here:
https://www.treasurydirect.gov/instit/annceresult/press/preanre/2022/R_20220915_1.pdf

John19 | Sep 17, 2022 | 395 posts since 2022

If it's on Treasury Direct auto-roll, it will still return the funds at maturity to an external account every month? And then pull them again from the external account on the next issue date? That's usually like a week or so. I don't think I could fund the bill at Schwab using an external account on the issue date. I'm confused I sent like 20k over there and I'll have to run some experiments I guess, lol.

RichardW | Sep 17, 2022 | 810 posts since 2019

I don’t have a Schwab account so I can’t assist you with specifics about their platform. In the past, Ken has suggested reading this article by Harry Sit of The Finance Buff to gain some understanding about buying Treasuries at online brokerage firms. Unfortunately, the article primarily describes the platforms available at Fidelity and Vanguard. Not as much detail is provided regarding Schwab. But perhaps you will still find the article helpful.

https://thefinancebuff.com/treasury-bills-cd-money-market.html

alan1 | Sep 17, 2022 | 877 posts since 2015

If the funds being used to purchase the Treasury securities are in an interest-bearing account, they will earn interest until the issue date of the security.

On the issue date, the funds will be removed from the account being used to pay for those securities.

from TreasuryDirect Research Center, "Auction Issuance":

On issue day, the Treasury delivers securities to bidders who were successfully awarded securities in a particular auction. In exchange, Treasury charges the accounts of those bidders for payment of the securities. Issue days vary by security.

[snip]

On issue day, payment is received and securities are simultaneously issued in an account previously specified by the bidder.
https://www.treasurydirect.gov/indiv/research/indepth/auctions/res_auctions_iss.htm

MAKNYC | Sep 17, 2022 | 323 posts since 2015

I routinely buy 28 day treasuries at Schwab. Assuming no holiday impacts they auction on Thursdays and settle on the following Tuesday. And funds needed for the purchase are not removed from your account until the Tuesday settlement, so you would earn whatever interest you would ordinarily get on such funds until then (probably Schwab Bank interest or Schwab One interest or purchased MMF). In my case excess cash is invested in purchased money market funds, primarily Schwab Value Advantage. I enter an order to liquidate those MMF shares on Monday as that trade settles next business day, so the funds availability aligns with both trades.

I assume you are also asking about auto-roll. While I have not utilized that feature, I’m pretty sure it’s straightforward. The typical maturity date for 28 day bills is also on Tuesdays. Schwab would enter your like notional amount order in the auction on the Thursday prior to its upcoming Tuesday maturity and the settlement of the new purchase would align with the maturity. The net result is on the auto-roll settlement day you would have a net credit to your account for the interest accrual for the maturing bill.

John19 | Sep 17, 2022 | 395 posts since 2022

Sounds like you're solving my question but creating a new one with MMFs. But on auto-roll it would mature and then you can get MMFs for that week until the issue date? Don't know much about MMFs either. How do those rates usually compare to standard banks with expenses and such? Is there time limits? Thanks. Trying to avoid my money sitting for days earning nothing and I'm not patient in reading instructions.

John19 | Sep 17, 2022 | 395 posts since 2022

I think I"m understanding now. I was worried that they make you wait a week after the bill matures till the next auction and issue date. That would suck.

MAKNYC | Sep 17, 2022 | 323 posts since 2015

Schwab Value Advantage is currently @ 2.25%. Their government security only products are slightly less. If you’re investing above a million you can buy the lower expense version and earn slightly more. To avoid non-interest bearing and/or being assessed margin interest days, keep in mind that MMF purchases and sales settle next business day, so barring a holiday adjustment you can enter an order to buy or sell MMF shares the prior day to maximize interest income.

w00d00w | Sep 20, 2022 | 360 posts since 2012

apologies for going slightly off-topic, but the default "settlement fund" at Schwab is Cash which pays 0.25%. so you have to take action on that money to get the much better MMF rate. not as customer-friendly when compared with Vanguard or Fidelity where the default settlement fund can be a money market fund.

GH1 | Sep 17, 2022 | 1,054 posts since 2017

Good question.

jack12 | Sep 19, 2022 | 307 posts since 2021

I am pretty sure you earn whatever the broker pays in the meantime

I have never used autoroll and I don't think it would let me in my IRA as I don't have the free funds to even buy a 9-22 settlement despite the fact that one matures on 9-20

In my regular account I can

I do wonder how much work I am creating for myself at tax time given that these are zeros

Does EVERY Treasury have to be listed at cost and maturity and how will my tax return know they are not subject to state income taxes

CTM | Sep 19, 2022 | 179 posts since 2010

There is no additional work required for Treasuries purchased at auction. These are not zero coupon or OID bonds (or bills). What seems to be a discount is reported in box 3 of your 1099-INT as "Interest on US Savings Bonds and Treasury obligations. This is how states know it is not taxable.

alan1 | Sep 19, 2022 | 877 posts since 2015

CTM is correct, but one twist should be noted. If you use a taxable account to purchase a Treasury bill, note, or bond at auction, and sell it before maturity, you will need to enter the information on Form 1040 Schedule D and, possibly, Form 8949.

jack12 | Sep 20, 2022 | 307 posts since 2021

Fid calls them zero coupon even though they are not apparently

By the way - bought a 6 month that appears to pay just under 3.9%

Fidelity would like to inform you of an event that has occurred on one of the securities which you hold in your portfolio.

The below security was affected by a Full redemption:
Security Description : UNITED STATES TREAS BILLS ZERO CPN 0.00000% 09/20/2022

CTM | Sep 20, 2022 | 179 posts since 2010

jack12 -

Did you buy them in the auction or in the secondary market?

The 26 week T-Bill at the last auction (09/19) was 3.907% @ 98.089 (CUSIP 912796U31).

jack12 | Sep 20, 2022 | 307 posts since 2021

yes that is what I got in the auction

100-98.089 =1948x2=3896%

But its not worth arguing about

I was unable to buy in my IRA because I did not have the cash in my account a few days ago but I do now
(one matured today)

So now I have to wait for another auction to put that ira money back to work

Nothing available today except a 20 year I think

jack12 | Sep 20, 2022 | 307 posts since 2021

Now I see 4 week 8 week and I guess 16 week
Settle on 9-27

UNITED STATES TREAS BILLS ZERO CPN 0.000
-- 10/25/2022 -- -- -- 2.408 Yes -- 09/27/2022 CP SFP
RI

UNITED STATES TREAS BILLS ZERO CPN 0.000
-- 11/22/2022 -- -- -- 2.752 Yes -- 09/27/2022 CP SFP
RI

UNITED STATES TREAS BILLS ZERO CPN 0.000
-- 01/24/2023 -- -- -- 3.399 Yes -- 09/27/2022 CP SFP

CTM | Sep 21, 2022 | 179 posts since 2010

For DA readers that don't normally purchase Treasuries, jack12's post about the latest auction announcement contains one of the less common types of Treasury securities. The third entry, maturing 01/24/23, is a 119 day Cash Management Bill. CMBs are unusual in that they do not have a fixed auction schedule. The Treasury has recently been auctioning 119 day CMBs on a weekly basis, and they seem to yield ~ 0.25% more than a 13 week T-Bill auctioned in the same week. In August, the Treasury held one auction of ultra-short 21 day CMBs. Another oddity is that you cannot purchase CMBs through Treasury Direct, only through your broker.

jack12 | Sep 21, 2022 | 307 posts since 2021

I just bought the 1-24-23 one at $98.8133 which using my crude math gives me approx. 3.6%

I bought some of the 4 or 8 week (i forget which) too but it has not priced yet despite settling on the same day

RichardW | Sep 21, 2022 | 810 posts since 2019

jack12, the rate listed by CTM for the "26-week" T-Bill (CUSIP: 912796U31) is correct. The investment rate is 3.907%. Here is the math: 100 - 98.089 = 1.911; 1.911/98.089 = 0.019482; ((0.019482/182) x 365) = 0.03907 or 3.907%. Note that the “26-week” T-Bill has an actual term of 182 days. If you look at the Treasury Auction Results document for this T-Bill (see the link provided below), you will see the Investment Rate is listed as 3.907%.

https://www.treasurydirect.gov/instit/annceresult/press/preanre/2022/R_20220919_2.pdf

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