Treasuries On The Secondary Market

Capper | Nov 14, 2022 | 50 posts since 2018

I have never purchased T-Bills before and might be interested in doing so now. The reason I am interested is because I want very short terms such as 1 month. Currently I have been purchasing short term brokered CD's in my Merrill account but as I live in a very high income tax state, I am getting interested in T-Bills.

Merrill only sells on the secondary market on-line. Here's my question. Is the yield to worst essentially the interest rate I get if I buy and hold till maturity? For example if a 4 week bill is showing yield to worst of 3.65% and I buy and hold to maturity (4 weeks) my annualized rate is 3.65%? Thanks

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Answers

MAKNYC | Nov 14, 2022 | 323 posts since 2015

While I’m not familiar with Merrill’s online system, your interpretation should be correct. Obviously that 3.65% is an annualized number. But a few points. I am surprised Merrill quotes a YTW. Yield to worst is the lower of yield to maturity and yield to call. Treasuries are not callable early. So there would never be a deviation from the held to maturity yield. Also very surprised you can’t buy new issues at auction via their system. I use Schwab & Fidelity and assumed everyone offers fee-free auction purchases at this point. As a general rule the auction yields will be higher than secondary market yields most of the time. And the 4 week bill you cite auctions every week.

Capper | Nov 14, 2022 | 50 posts since 2018

Thanks for the reply and info. Appreciate it. Currently with Merrill you can only buy the auctioned bills if you call to place the order and they charge $30 for that. While the auction would give a better yield, I want to keep my funds consolidated to Merrill for other reasons so I don't want to use Fidelity or Schwab.

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