Re: Treasury Bond Buying Tutorial
Posted: Wed May 23, 2012 2:34 pm
Since rates are only at 2.8%, I'll hesitate from my usual lecture about not placing LTT's in a taxable account if you can avoid it .
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Sorry, I meant to say *at auction*, where Vanguard shows a minimum of ten. Fidelity lets me pick whatever number I want, so far.hoost wrote: Vanguard also let's you buy fewer than 10. I think the price goes up slightly though. I'm not sure how their prices/internal markups are relative to Fidelity, I bought six bonds a couple months ago with no issues.
Ah, I haven't tried to buy any at auction, so I'll take your word for it.dualstow wrote:Sorry, I meant to say *at auction*, where Vanguard shows a minimum of ten. Fidelity lets me pick whatever number I want, so far.hoost wrote: Vanguard also let's you buy fewer than 10. I think the price goes up slightly though. I'm not sure how their prices/internal markups are relative to Fidelity, I bought six bonds a couple months ago with no issues.
I think I read somewhere on this forum that you get a tiny discount if you buy at auction, but I don't know if it's even true. But, the offerings come frequently enough- more frequently than any new cash coming in, ;) so I tend to use the auctions.hoost wrote:Ah, I haven't tried to buy any at auction, so I'll take your word for it.dualstow wrote:Sorry, I meant to say *at auction*, where Vanguard shows a minimum of ten. Fidelity lets me pick whatever number I want, so far.hoost wrote: Vanguard also let's you buy fewer than 10. I think the price goes up slightly though. I'm not sure how their prices/internal markups are relative to Fidelity, I bought six bonds a couple months ago with no issues.
From a broker: specifically Fidelity. Treasuries are traded there with no fee whatsoever, so the "discount" has nothing to do with fees. I'll try to find the thread and post tomorrow.1NV3ST0R wrote: Are you speaking about purchasing the treasuries at auction from a broker or from TreasuryDirect?
This is so very helpful to me. I've never been able to make heads or tails of these screens until now. Thank you!Gumby wrote: For those interested in owning your own Treasury bonds directly*, I've put together a series of 5 screenshots to show you how easy it is to buy Treasury Bonds at Fidelity. I
Yes, in a matter of speaking. Though, you won't see different coupon rates for the exact same maturity date. You might see different coupon rates for Treasuries with slightly different maturity dates and in that case it shouldn't matter which one you purchase (tax considerations aside) since the pricing takes the differences into account. Basically, when buying 30-year bonds, you're looking for a long duration, not coupon.Kriegsspiel wrote:1. So, the yields aren't really important, because it'll even out in that you'll pay more for a higher yielding bond with the same maturity date than you would for one with a lower yield, so at maturity, you'd have the same amount of money?
It seems like you're only buying 1 single $1000 bond, but in reality you're buying a basket of 10 bonds, because the Treasury officially issues 30-year bonds in $100 increments. It's confusing, I know. Call your brokerage if you have questions on this.Kriegsspiel wrote:2. You can only buy long term treasuries in batches of $1000? So if the "min quantity bid" was 1, at a price of 95.824, you would be paying $958.24 for that bond?
Right.Kriegsspiel wrote:3. Then, once you have the bonds, they show up in your brokerage account (mine is in my Roth) like stocks would. And you can either sell them if you need to rebalance because interest rates dropped and maybe that one you bought at 95.824 is now worth 99.000 or whatever. OR, you sell them after they've matured 10 years. So if you bought a bond with 29 years left, you sell it 9 years later, if you've never had to rebalance and sell it prior to that?
Right, I remember seeing that on here. I did talk to Vanguard and while they didn't say that I would be buying 10 bonds, they did say the minimum buy quantity was... the minimum. I did forget to ask them, is the minimum sell quantity 10 bonds also?Gumby wrote:It seems like you're only buying 1 single $1000 bond, but in reality you're buying a basket of 10 bonds, because the Treasury officially issues 30-year bonds in $100 increments. It's confusing, I know. Call your brokerage if you have questions on this.Kriegsspiel wrote:2. You can only buy long term treasuries in batches of $1000? So if the "min quantity bid" was 1, at a price of 95.824, you would be paying $958.24 for that bond?
I don't know. Maybe someone else can answer that one.BearBones wrote: Great thread! 4 questions:
1. Looks like I can buy LTTs directly at TDAmeritrade. Has anyone done that?
Neither. I would say buy all 2042's and in 2022 sell them all (you may have some other bonds that you bought along the way when you rebalanced) and buy 2052's.2. One should ladder different years and sell 10% (the shortest duration) each year, right? Or do you buy all 2042's and sell 10%/yr, eventually ending up with 10 yr ladder?
Why are you talking about a 10 year ladder in the context of the LT bond part of the PP? I may have missed it somewhere up-thread.3. If the former, there is a gap in LTTs between 2031-36, right in the beginning of my 10 year ladder! Just buy 2036-42?
I wouldn't think that the spread would be anything like 3/8%, but I haven't bought individual bonds in quite a while, so no, it doesn't sound right to me. I would think it would be quite a bit less, but in any case I don't know that it would matter since you won't be selling most of them for at least 10 years.4. In talking to the bond desk at TDA, it seems that trades are "free." The commission is from slight mark-up price which the person estimated to be about 3/8% on a 10k trade. If so, it takes about 2.5 years for the ER of TLT to equal the same. Does this sound right?
Yes, one option to get there is:1NV35T0R (Greg) wrote: Perhaps I'm somehow missing it but does Vanguard sell STRIPS? I know Fidelity does but I haven't found them on Vanguard yet.
That seems relatively high. I have a TDA account, but I haven't used it to buy/sell treasuries. I found the ask price easily, but unfortunately, I couldn't find the bid price. I assume the 3/8% is from the bid/ask spread, but I couldn't find the data to recalculate it. In my experience at Vanguard, the bid/ask spread is about 0.08% on minimum-1 orders, and about 0.03% on minimum-25 orders. There shouldn't be any other 'fees'.BearBones wrote: ...
4. In talking to the bond desk at TDA, it seems that trades are "free." The commission is from slight mark-up price which the person estimated to be about 3/8% on a 10k trade. If so, it takes about 2.5 years for the ER of TLT to equal the same. Does this sound right?
Here is the info from TDA indicating how compensation is achieved. This seems to be a hidden commission rather than bid/ask spread, right? I am interpreting the former being fixed by the brokerage and the latter variable, dictated by the market.jimbojones wrote:That seems relatively high. I have a TDA account, but I haven't used it to buy/sell treasuries. I found the ask price easily, but unfortunately, I couldn't find the bid price. I assume the 3/8% is from the bid/ask spread, but I couldn't find the data to recalculate it... There shouldn't be any other 'fees'.BearBones wrote: ...
4. In talking to the bond desk at TDA, it seems that trades are "free." The commission is from slight mark-up price which the person estimated to be about 3/8% on a 10k trade. If so, it takes about 2.5 years for the ER of TLT to equal the same. Does this sound right?
Lately I have been looking at a PP-like account at TDA, looking to rebalance. I got to wondering how many things I did wrong. One thing that stuck out is that I bought Treasuries from the secondary market through TDA, with little thought that there might be a markup in the price. I feel stupid now, even though it's been over two years.BearBones wrote:Here is the info from TDA indicating how compensation is achieved. This seems to be a hidden commission rather than bid/ask spread, right? I am interpreting the former being fixed by the brokerage and the latter variable, dictated by the market.jimbojones wrote:That seems relatively high. I have a TDA account, but I haven't used it to buy/sell treasuries. I found the ask price easily, but unfortunately, I couldn't find the bid price. I assume the 3/8% is from the bid/ask spread, but I couldn't find the data to recalculate it... There shouldn't be any other 'fees'.BearBones wrote: ...
4. In talking to the bond desk at TDA, it seems that trades are "free." The commission is from slight mark-up price which the person estimated to be about 3/8% on a 10k trade. If so, it takes about 2.5 years for the ER of TLT to equal the same. Does this sound right?
"TD Ameritrade may act as principal on any fixed-income transaction. When acting as principal and receiving compensation on a net yield basis, we will add a markup to any purchase, and subtract a markdown from every sale. The markup or markdown will be included in the price and yield quoted to you."
Quote from a friend in Calgary:blue_ruin17 wrote:Is there an equivalent tutorial for buying Federal Bonds in Canada? I've searched google and it puzzles me that I can't find a single guide in this regard.
Ahh, I see. Thank you...ochotona wrote:Quote from a friend in Calgary:blue_ruin17 wrote:Is there an equivalent tutorial for buying Federal Bonds in Canada? I've searched google and it puzzles me that I can't find a single guide in this regard.
"Not available to public through auction (primary market). Can buy 100% Fed bonds through ETFs from BMO: ZFL, ZFM, ZFS (traded on TSX) or on the secondary market through broker. Unless they are buying over $100,000 it's best to stick with ETF option. Other government bond ETFs are available but have provincial or agencies paper adding to the risk."