Selling Treasuries

Capper | Nov 20, 2023 | 50 posts since 2018

I only got into treasuries in the past year or so. Mostly shorter terms and have always held to maturity. My question is on selling them if needed before maturity. What is the process to sell and how fast can you sell them? Do you get a market price or can you set a sell price? ( I realize the original coupon rate compared to then current rates will affect the price). What are the odds that you can’t sell or is the market so liquid that never happens? Specifically I am looking at longer terms like 5 &10 year notes. And I would be using Vanguard. Any answers would be greatly appreciated.

Post an answer

Answers

MAKNYC | Nov 20, 2023 | 323 posts since 2015

U.S. Treasuries are one of the most liquid markets in the world. Selling any (reasonable) size is immediate and with no market impact. Depending on your broker, you should be able to see live bid/offer prices/yields and immediately execute against them. For Schwab and Fidelity, the process is seamless. The only thing to note is that there may be tighter markets made with regard to quantity. Sometimes larger quantities will receive preferential pricing, but you will see that prior to agreeing to any quoted price. I am not aware of any brokers offering the ability to set a limit price outside of the current market.

Capper | Nov 20, 2023 | 50 posts since 2018

Thank you.

Anonymous32 | Nov 22, 2023 | 7 posts since 2017

What is considered to be a reasonable size for immediate selling? About how much for preferential pricing?

MAKNYC | Nov 22, 2023 | 323 posts since 2015

10’s to 100’s of millions at least (via discount brokers), but in the real world it is much higher. I assumed this limitation wouldn’t affect many who peruse this board, but if this is a concern for anyone we should have lunch. :)

Higher size orders can receive pricing advantages and in a general sense it would be in the third or possibly second decimal spot on price….97.021 vs. 97.027. Some specific maturities could be greater than others of course, and the YTM on such price differences would be more impacted on shorter duration paper. If you are trying to sell 1 bond ($1000 face) you could take a haircut at any given moment, but quantities greater than that will usually be much tighter with the best available price.

Anonymous32 | Nov 22, 2023 | 7 posts since 2017

Thank you!

w00d00w | Nov 21, 2023 | 360 posts since 2012

like other brokers, Vanguard offers a depth of book on T Bonds, so you can see what the best current offer is for the amount of T Bond you want to sell. market prices can continue to fluctuate in the short time it takes to submit the sell order. if the offering price rises in that interval, you'll likely get a higher/better sell price at execution. if the offering price falls substantially in that short interval, the sell order at the higher price can be rejected. in that case, the order would need to be re-submitted at a lower market price to get execution.

Capper | Nov 21, 2023 | 50 posts since 2018

Thank you. I also called Vanguard and they were pretty helpful in explaining the process.

betaguy | Nov 21, 2023 | 180 posts since 2022

this is an add on to your questions.
I'm curious if anyone knows how the interest is calculated into a secondary market buy or sell of a treasury. I have bought some (2nd) and there is always interest cost. Which I guess I get back at the next coupon payment. So, in effect, I dont really get that coupon, I just get paid back.

I haven't sold any but would assume that if I sold I would get interest of a future payment.

Anyone know how this works? I dont get it. (obviously)

MAKNYC | Nov 21, 2023 | 323 posts since 2015

Yes, this is typical fixed income convention. The issuer of the instrument in question typically makes semiannual interest payments. That payment will be the coupon / 2 (assuming the bond has been outstanding for the full period). The payment is made to the party holding the bond on the interest record date. If the bond was held by more than one party during the 6 month period in question, the buyer of the security makes an additional payment to the seller of the security for the number of days the instrument was held by the seller during the 6 month period in question. So if the seller held the instrument for 20 days after the last interest payment by the issuer, the buyer, in addition to the transaction price of the bond, would pay the seller 20/360 of the annual coupon to account for the partial holding period of the seller. Then when the issuer makes the next coupon payment, the then current holder would receive the full coupon payment, which includes reimbursement for the amount previously paid to the seller. It is important to note that the accrued interest component of such a secondary market transaction is interest income for tax purposes. It is not lumped into the transaction price and reflected in capital gain or loss.

Also, since 'treasury' could be treasury bills....they are an exception to this. Since they are zero coupon bonds there is no separately accrued interest component. The market price reflects all interest earned up to that point plus the markets demand for interest going forward until it matures and is paid off at 100 by the U.S. Treasury. So barring daily market movements and expectation changes a t-bill will accrete a small amount each day until in matures to reflect the interest component.

betaguy | Nov 22, 2023 | 180 posts since 2022

Thanks MAKnyc

The financial institution, product, and APY (Annual Percentage Yield) data displayed on this website is gathered from various sources and may not reflect all of the offers available in your region. Although we strive to provide the most accurate data possible, we cannot guarantee its accuracy. The content displayed is for general information purposes only; always verify account details and availability with the financial institution before opening an account. Contact [email protected] to report inaccurate info or to request offers be included in this website. We are not affiliated with the financial institutions included in this website.