Good FAQ Or Article On Buying Treasury Bills?

mimuna | Sep 22, 2022 | 24 posts since 2017

The rates on short-term Treasury bills are better than the rates on deposit accounts, but I've never bought a Treasury bill before. Is there a good FAQ or article on Treasury bills? I want to make sure I understand all the issues.

The current rates are here:

https://www.treasurydirect.gov/instit/annceresult/annceresult.htm

I already have a Treasury Direct account.

thanks! :)

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Answers

RichardW | Sep 22, 2022 | 810 posts since 2019

mimuna...In addition to the useful information which alan1 has just presented, you may find these two articles helpful. Here is an article by David Enna of Tipswatch.com which describes how to buy new issue Treasury bills through TreasuryDirect:
https://tipswatch.com/2022/07/04/looking-to-put-cash-to-work-consider-short-term-treasury-bills/
Here is an article by Harry Sit of The Finance Buff which describes how to purchase new issue Treasury bills through online brokerage firms:
https://thefinancebuff.com/treasury-bills-cd-money-market.html

RichardW | Sep 22, 2022 | 810 posts since 2019

mimuna…Here are two additional items regarding Treasury bills which you may find informative. The first one is from Investopedia.com and the second one is from TreasuryDirect.gov
https://www.investopedia.com/terms/t/treasurybill.asp
https://www.treasurydirect.gov/instit/marketables/tbills/tbills.htm

sams1985 | Sep 22, 2022 | 781 posts since 2022

Need some help with this too. I’m trying to buy through vanguard. The secondary market is confusing. What does “coupon” mean ?

WonderingWoman | Sep 22, 2022 | 15 posts since 2011

it is the interest payment. It's a rate that's fixed at the issue date and paid twice a year.

alan1 | Sep 22, 2022 | 877 posts since 2015

WonderingWoman states that interest is "paid twice a year".

Interest on Treasury bills is not paid twice a year.

from TreasuryDirect article, "Treasury Bills":

"Treasury bills, or T-bills, are sold in terms ranging from a few days to 52 weeks. Bills are typically sold at a discount from the par amount (par amount is also called face value); rarely, they have sold at a price equal to the par amount.

"When a bill matures, you are paid its par amount. If the par amount is greater than the purchase price, the difference is your interest."
https://www.treasurydirect.gov/indiv/products/prod_tbills_glance.htm

Interest on Treasury notes is paid every six months. It is a fixed rate.
https://www.treasurydirect.gov/indiv/products/prod_tnotes_glance.htm

Floating Rate Notes pay varying amounts of interest quarterly.
https://www.treasurydirect.gov/indiv/products/prod_frns_glance.htm

Interest on Treasury bonds is paid every six months. It is a fixed rate.
https://www.treasurydirect.gov/indiv/products/prod_tbonds_glance.htm

TIPS (Treasury Inflation-Protected Securities) pay interest "twice a year, at a fixed rate. The rate is applied to the adjusted principal; so, like the principal, interest payments rise with inflation and fall with deflation."
https://www.treasurydirect.gov/indiv/products/prod_tips_glance.htm

CTM | Sep 22, 2022 | 179 posts since 2010

sams1985 -

As a novice, I would strongly advise you not to try to trade bonds, even Treasuries, in the secondary market. Purchasing Treasuries at auction is uncomplicated. As a non-competitive bidder, you get the best price. In the secondary market, you are competing with a seller, your broker and other potential buyers.

I have included examples from three retail brokers. These quotes are from about 1:15 EDT on 09/22/22. You can see the price and yield differences, on the exact same bonds, between the three brokers. I picked these three bonds because all three brokers had quotes and the selection demonstrates the variability of pricing of bonds with the same maturity.

For more experienced traders, I believe Interactive Brokers has both the best price and (near) complete transparency.

(Sorry for the formatting on DA)

E*Trade, via BondDesk

CUSIP, Ask / Bid, Interest Rate, Minimum purchase

9128283U2 99.6020/99.5200 3.505/3.740 $ 250K
912828P38 99.4060/99.3200 3.442/3.690 $ 300K
91282CBG5 98.8090/98.7420 3.539/3.732 $ 300K

Merrill Edge

CUSIP, Price, Interest Rate

9128283U2 99.6060 3.492
912828P38 98.8360 3.460
91282CBG5 99.4023 3.454

TD Ameritrade, via ValuBond

CUSIP, Price, Interest Rate, Highest minimum purchase - Lowest minimum purchase

9128283U2 99.6100 3.480 $ 300K - 99.6130 3.472 $ 30K
912828P38 99.4220 3.397 $ 300K - 99.4300 3.374 $ 30K
91282CBG5 98.8360 3.460 $ 300K - 98.8480 3.425 $ 30K

And this is a coupon!

https://www.glabarre.com/item.php?item_id=9096&page=1&category_id=52

CuriousDave | Sep 22, 2022 | 233 posts since 2018

In addition to all that, bond brokers often “make a market” in bonds, meaning they buy and sell bonds for their own account, for profit. Not only may the public who buy bonds through their brokers pay commissions on purchases and sales, far more importantly they may also be paying the “spread” - the broker’s gross profit, which is the difference between the broker’s buying and selling price. Brokers are required to indicate if they are making a market in their own securities, so we investors need to carefully read the details of their offerings - another example of Buyer Beware.

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