Treasury Bond Buying Tutorial

Discussion of the Bond portion of the Permanent Portfolio

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Kriegsspiel
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Re: Treasury Bond Buying Tutorial

Post by Kriegsspiel » Fri Sep 21, 2012 7:02 am

Gumby wrote:
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?
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.
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?
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Re: Treasury Bond Buying Tutorial

Post by Kriegsspiel » Fri Sep 21, 2012 9:40 am

Just did it, it was very easy!  Thanks guys.
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Re: Treasury Bond Buying Tutorial

Post by Greg » Mon Oct 08, 2012 8:29 pm

Perhaps I'm somehow missing it but does Vanguard sell STRIPS? I know Fidelity does but I haven't found them on Vanguard yet.
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Re: Treasury Bond Buying Tutorial

Post by BearBones » Mon Oct 15, 2012 12:28 pm

Great thread! 4 questions:
1. Looks like I can buy LTTs directly at TDAmeritrade. Has anyone done that?
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?
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?
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?
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Re: Treasury Bond Buying Tutorial

Post by MediumTex » Thu Nov 01, 2012 9:18 pm

BearBones wrote: Great thread! 4 questions:
1. Looks like I can buy LTTs directly at TDAmeritrade. Has anyone done that?
I don't know.  Maybe someone else can answer that one.
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?
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.
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?
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.
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?
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. 

It sounds like you are asking the LT treasury bond equivalent of: "Should I buy gold krugs at $15 over spot price if they are currently buying them back for $10 under spot price if the spread per shares on GLD is tighter?"
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Re: Treasury Bond Buying Tutorial

Post by jimbojones » Fri Nov 02, 2012 9:42 am

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.
Yes, one option to get there is:

Buy & Sell > View and trade bonds or CDs > Treasuries > Treasury type > Strips
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Re: Treasury Bond Buying Tutorial

Post by jimbojones » Fri Nov 02, 2012 9:52 am

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?
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'.
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Re: Treasury Bond Buying Tutorial

Post by BearBones » Sat Nov 03, 2012 2:14 pm

jimbojones wrote:
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?
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'.
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.

"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."
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Re: Treasury Bond Buying Tutorial

Post by edamat » Sat Nov 10, 2012 1:09 pm

[quote="Gumby"]
[quote="foglifter"]
However, I would definitely recommend that you use a limit order when selling your bonds. That way you get the price that you want.

Gumby or anyone:

I tried to sell the bonds using limit orders at Fidelity. First I set the price a bit higher than Ask price (real time quote at lower right hand), Fidelity cancelled it after a min. Then I set the price exactly at Ask price, Fidelity cancelled again. It won't let me do limit order any more because "too many attempts". So I tried to sell at Market and I got the price much less than Bid price. e.g. bid price at 99.875, market order got me at 99.828.

So have anyone successfully sell a limit order at Fidelity? if so, what did I do wrong and how would I get the price I want?

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Re: Treasury Bond Buying Tutorial

Post by Lowe » Tue Jun 03, 2014 1:47 pm

BearBones wrote:
jimbojones wrote:
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?
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'.
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.

"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."
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.

I just called the help number, which transferred me to the fixed income group.  The guy there told me there was no markup, and that prices reflect only the spread, typically 0.25 to 0.75 percent.  I see in the TDA literature that there may be a markup, but maybe they don't really do this?  Either that or he lied to me straight up.
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Re: Treasury Bond Buying Tutorial

Post by blue_ruin17 » Sun Aug 14, 2016 10:09 am

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.
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Re: Treasury Bond Buying Tutorial

Post by ochotona » Sun Aug 14, 2016 8:52 pm

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.
Quote from a friend in Calgary:

"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."
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