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T-Bills, 2-yr T-Notes and 5-yr TIPS are all good now. They do different things. I notice that many posters are too stuck with funds when sometimes directly accessing the underlying product may be better - now is such a time (with a rapidly changing scenario).
I updated a previous post with the Treasury TIPS announcement that came yesterday - repeated below. Brokerages will now allow order entry until early-morning of the auction on next Thursday. Last time, I used Schwab and it took money out on the afternoon of the auction day even though the settlement isn't until a week later. This time I am testing Fido - it seems that Fido takes money out few days after the auction but still well before the settlement day. Note that unlike regular stock purchases, one doesn't have until the settlement date to provide the money. https://www.treasurydirect.gov/instit/annceresult/press/preanre/2022/A_20220616_1.pdf
In addition, at Fidelity, the same 5-yr TIPS stated the Expected yield at 0.423%. Are these yield the same as "Real yield" noted earlier this week at 0.54%.
Those are for TIPS purchases in the secondary market with bid-ask (you sell at bid, buy at ask). Coupons were fixed when the TIPS were issued, and real YTM shown is based on quoted price.
Treasury auctions work a bit differently. Most Treasury auctions are oversubscribed (2x-3x is considered normal). Treasury sets a clearing price that will get it the amount it needs from competitive bids (by institutional investors) and all noncompetitive bids (by retail and institutional investors). EVERYBODY gets the same clearing price - this is a great benefit for retail buyers. About 1-2 hours after the auction time, Treasury announces the clearing price, amount it purchased, total orders it received. It will take until the settlement day for Treasuries to show up in your account (a placeholder entry may be shown before that).
Thank you for your patience in your explanation. Where can I find the real yield at auction if the secondary market YTM is different from the real yield?
I place an order with Fidelity easily this morning. Trying the same transaction with Vanguard encountered many blank pages.
I place an order with Fidelity easily this morning. Trying the same transaction with Vanguard encountered many blank pages.
I experienced issues last month while attempting to purchase Treasuries via Vanguard. Clicked Account > Transact > Trade bonds or CDs > selected targeted account.
Initially, I used Firefox (private mode and "regular" mode). In the lower-left section of the screen, the URL (www.tradewebretail.com) would continuously flash and the web page did not display. It rapidly kept hitting the site to no avail.
I then tried Chrome (incognito mode and "regular" mode). I didn't experience any issues using Chrome.
You have lots of patience. I used both Chrome and Safari browsers but not successful. Tried to clear the cache in history and several reboots, no luck. I was, however, able to place the order at Fidelity.
Sorry for a naive question. I never bought Treasury bonds, and I missed this auction. Does it make sense to buy the same TIPS now at Fidelity without auction, or their price will be significantly higher?
Sorry for a naive question. I never bought Treasury bonds, and I missed this auction. Does it make sense to buy the same TIPS now at Fidelity without auction, or their price will be significantly higher?
Next 5-yr TIPS auction will be on 10/20/22.
You can buy TIPS at Fido in the secondary market. Commissions are low and note the YTM on "ask" (retail customers buy at "ask" and sell at "bid").
I wonder whether there is any real advantage in buying TIPS on auction as compared to secondary market? On auction, the shortest period is 5 years. There is a chance that in one or two years inflation will be much lower, and then the advantage of TIPS for the rest of the 5 years will disappear. Meanwhile on secondary market one can buy them for about 6 months or a year, or two years. Do I understand correctly that inflation adjustment will be the same as for I-bonds? If so, why would one hesitate if one can get about 9% for a year and then invest again if inflation is still high instead of buying 5 year TIPS which will be most rewarding only at the beginning of these 5 years?
I invested to I-bonds to the max, but I have zero experience with TIPS, so most probably I am missing something trivial.
I really appreciate your efforts to educate us in this respect.
@finder, you can buy shorter-term TIPS in the secondary market. Note bid-ask (you buy at ask, sell at bid) and related real-YTM that will cut into inflation-adjustment. You may also have to call the broker to enter the TIPS order and make sure that you won't be charged any fees/commissions/markups (I checked Schwab only and it says to call for TIPS but allows online orders for other Treasuries) and that you will get close to posted ask-price (not some jacked up ask from broker inventory). If you are not careful, fees/commissions/markups on small orders can negate what you want to do - none of this hassle for buying TIPS at auctions although the next 5-yr TIPS auction is on 10/20/22; note that since I started posting on this, there have been 2 auctions for 5-yr TIPS).
Thank you very much for your suggestions, I will call the broker, at least the first time I will do it. But all the bid-ask issues seem to modify the profits at a fraction of a percent, not much, as compared with 9% per year. Perhaps I am missing something here, and TIPS do not fully adjust for the current inflation rate, unlike I-bonds? Otherwise the possibility to get 9% per year nearly risk-free is too good to ignore.
@finder, please see David Enna, who also covers TIPS and treasury topics. The Q&A section should able to provide information you are seeking. https://tipswatch.com/why-tips/
Shorter-term TIPS held individually to maturity follow the CPI (less discount to par at purchase) & work as intended. Purchase at Treasury Direct (TD) or brokerages. Of course, go to TIPS after fully using annual limits for I Bonds (at TD only). TIPS funds (Mutual Funds, ETFs) introduce other factors – rate effects via duration; non-maturity; annual distributions of inflation-adjustments (whether earned or not); confusing presentations of 30-day SEC yields (real only vs real + current CPI). Beware of this when reading media articles (Twitter, M*, MFO 8/1/22) about issues of TIPS funds. https://ybbpersonalfinance.proboards.com/thread/278/mechanics-buying-selling-yr-tips?page=1&scrollTo=729
Just an FYI - on the question of commissions, most brokerages appear to charge a commission (e.g., 0.01%) in buying and selling Agency bonds. Today, Agency short term bonds were yielding nearly 50 pbs higher than Treasuries of the same maturities. If there is a wider interest in exploring Agency debt, we should open a separate thread to keep this thread on topic.
For those interested in buying Treasuries at auctions,
26-week and shorter are every week.
Next 1-yr/52-week on 10/4/22 (Tu), 11/1/22 (Tu), etc
Next 2-year on 9/26/22 (M), 10/25/22 (Tu), etc
Next 5-year TIPS on 10/20/22 (Th), 12/22/22 (Th), etc
Orders can be entered only after the related announcements are out until the early-AM on the auction day.
Treasuries can be bought in the secondary market anytime, although these make more sense when there are no nearby auctions. Note that there is bid-ask, and one buys at "ask", sells at "bid".
Just an FYI - on the question of commissions, most brokerages appear to charge a commission (e.g., 0.01%) in buying and selling Agency bonds. Today, Agency short term bonds were yielding nearly 50 pbs higher than Treasuries of the same maturities. If there is a wider interest in exploring Agency debt, we should open a separate thread to keep this thread on topic.
Since we are now in the new environment where rates are rising, I think it would be great to open a separate thread on buying and selling Agency bonds instead of bond funds.
Comments
https://tipswatch.com/2022/06/14/attention-investors-tips-are-now-a-viable-attractive-alternative-to-i-bonds/#comments
I am planning to purchase some at Fidelity next week as part of my fixed income bucket.
Last time, I used Schwab and it took money out on the afternoon of the auction day even though the settlement isn't until a week later.
This time I am testing Fido - it seems that Fido takes money out few days after the auction but still well before the settlement day.
Note that unlike regular stock purchases, one doesn't have until the settlement date to provide the money.
https://www.treasurydirect.gov/instit/annceresult/press/preanre/2022/A_20220616_1.pdf
https://home.treasury.gov/resource-center/data-chart-center/interest-rates/TextView?type=daily_treasury_real_yield_curve&field_tdr_date_value_month=202206
https://stockcharts.com/h-sc/ui?s=$$CPI&p=D&yr=1&mn=0&dy=0&id=p79880476618
https://www.treasurydirect.gov/instit/annceresult/press/preanre/2022/A_20220616_1.pdf
https://bloomberg.com/markets/rates-bonds/government-bonds/us
In addition, at Fidelity, the same 5-yr TIPS stated the Expected yield at 0.423%. Are these yield the same as "Real yield" noted earlier this week at 0.54%.
Treasury auctions work a bit differently. Most Treasury auctions are oversubscribed (2x-3x is considered normal). Treasury sets a clearing price that will get it the amount it needs from competitive bids (by institutional investors) and all noncompetitive bids (by retail and institutional investors). EVERYBODY gets the same clearing price - this is a great benefit for retail buyers. About 1-2 hours after the auction time, Treasury announces the clearing price, amount it purchased, total orders it received. It will take until the settlement day for Treasuries to show up in your account (a placeholder entry may be shown before that).
I place an order with Fidelity easily this morning. Trying the same transaction with Vanguard encountered many blank pages.
https://www.treasurydirect.gov/instit/annceresult/annceresult.htm
I experienced issues last month while attempting to purchase Treasuries via Vanguard.
Clicked Account > Transact > Trade bonds or CDs > selected targeted account.
Initially, I used Firefox (private mode and "regular" mode).
In the lower-left section of the screen, the URL (www.tradewebretail.com)
would continuously flash and the web page did not display.
It rapidly kept hitting the site to no avail.
I then tried Chrome (incognito mode and "regular" mode).
I didn't experience any issues using Chrome.
https://www.treasurydirect.gov/instit/annceresult/press/preanre/2022/R_20220623_3.pdf
Thanks for the Treasury Auction Results link.
So the stated High Yield value equals the real YTM?
You can buy TIPS at Fido in the secondary market. Commissions are low and note the YTM on "ask" (retail customers buy at "ask" and sell at "bid").
https://www.fidelity.com/trading/commissions-margin-rates
I wonder whether there is any real advantage in buying TIPS on auction as compared to secondary market? On auction, the shortest period is 5 years. There is a chance that in one or two years inflation will be much lower, and then the advantage of TIPS for the rest of the 5 years will disappear. Meanwhile on secondary market one can buy them for about 6 months or a year, or two years. Do I understand correctly that inflation adjustment will be the same as for I-bonds? If so, why would one hesitate if one can get about 9% for a year and then invest again if inflation is still high instead of buying 5 year TIPS which will be most rewarding only at the beginning of these 5 years?
I invested to I-bonds to the max, but I have zero experience with TIPS, so most probably I am missing something trivial.
I really appreciate your efforts to educate us in this respect.
https://tipswatch.com/why-tips/
26-week and shorter are every week.
Next 1-yr/52-week on 10/4/22 (Tu), 11/1/22 (Tu), etc
Next 2-year on 9/26/22 (M), 10/25/22 (Tu), etc
Next 5-year TIPS on 10/20/22 (Th), 12/22/22 (Th), etc
Orders can be entered only after the related announcements are out until the early-AM on the auction day.
Treasuries can be bought in the secondary market anytime, although these make more sense when there are no nearby auctions. Note that there is bid-ask, and one buys at "ask", sells at "bid".
https://home.treasury.gov/system/files/221/TentativeAuctionScheduleQ32022.pdf