Anyone actual hold physical Treasury Bills?

[TripleB]

Who here holds actual physical treasury bills for your cash portion?

How do you structure purchases and rebuying new ones when they mature?

What brokerage do you use?

Any general tips or tricks?

[Greg]

I'm adding my question to TripleB.

I believe Lone Wolf has a short-term treasury ladder. I believe it'd involve purchasing a 3 year and a 2 year treasury note and waiting until the treasury note turns into a 1 year. Then you sell it and purchase a new 3 year note for a 50% turnover each year.

Not sure if this is what Lone Wolf does, he might just let the 2 year note that turned into a 1 year just mature and after it matures then purchase a new 3 year. This would then mean a portfolio turnover of only 33% a year for the cash Treasury Notes Portion.

I believe he does it through Fidelity but not positive.

My question stems more from holding treasury bills potentially as a taxable investor. If you are looking at on Fidelity in their Fixed-Income area and you see 3 bonds that you could use for the 3 year old Treasury Note, which one should you use?



The middle one I would think would make sense. Pay the least amount of premium for the lowest distribution. Since the distribution is taxed as ordinary income, my guess is that paying a higher premium to get a higher distribution for either of the other two and then getting taxed more doesn't make sense.

Does the fact that the first one has a higher yield mean that even though the second one in my mind would be better for a taxable investor, that if you were not a taxable investor, to go with the top one? My guess is that the top one, even if it has a higher yield, if held in a taxable account is going to be not as good of an idea as purchasing the middle one but wanted to get feedback if this made sense or not.

[TripleB]

If you're going to buy 2 and 3 year T-Notes then why not just buy the VG Short Term Treasury bond fund? Sure, it may have 20% non-treasuries in there, and it may have a ~0.2% ER but you can use it as a "cash sweep" type account whereas if you put the money into T-Notes then you have to wait a full year before you do anything with your "cash" otherwise.

The biggest reason I don't use the VG Short Term Treasury fund is because the duration is too long (2 years). If interest rates rise 3% then I lose 6% of my cash position. Since I'll also be losing half of my long-term bond position in this case, that 6% drop in cash will hurt.

If I did a Cash ladder I would think 1 through 6 month T-Bills would be what I want, except it would be a hassle to do. If VG really did cut all fees on secondary T-Bill trading then maybe I should set up a 1 to 6 month ladder that I like, and I don't have to worry about when the auctions occur because I'll log in once a month, sell the lowest rung that might have 1 to 5 days left in maturity (depending on which day of the month I choose to log in), and replace it with a 6 month on the secondary market that might have 5.9 months left.

My goals are that I don't want to be beholden to the auction dates and feel compelled to log in at certain times/days. Additionally, I don't want to be obligated to buy them in $10k blocks like VG used to require to avoid commissions.

I also don't currently care to switch away from VG for my primary brokerage at this point. I have diversification of assets through other non-brokerage account holdings.

[sophie]

Amazing how complicated the cash portion can get....

I have some recent posts on this topic, but here's what I did for taxable cash:

1. FDIC money market at my bank yielding 0.02%, tied to my checking account with overdraft protection.
2. Small amount in brokerage sweep account.  No worse than anything else and no minimum balance to worry about.
3. A very short term (< 6 months) ladder of secondary treasuries.  For people with high state/local tax rates, picking the HIGHEST interest rate, most expensive bond increases the effective yield, by giving you a capital loss on the state return.
4. I bonds

Fortunately I don't have to pay commissions on secondary treasuries.  TripleB, why not get another account at Fidelity?  It would give you some diversification, and you can take advantage of commission-free secondary bond buying.

Short term treasuries going out to 3 years would be part of "deep" cash, after filling the i-bond quota, so I haven't done this.  I wouldn't want to sell one of these before its time except in an emergency.  Risking loss of capital isn't warranted by the measly interest rates, especially since I view taxable cash differently from tax-deferred cash - the former has to function as emergency fund, so I'm unwilling to take risks with it.  I do have VFISX in a retirement account.

I might add that I put half of my taxable savings into prepaying the mortgage.  That's effectively a 3% return (after taxes), which beats any cash returns and also the PP for the past year.

[Lone Wolf]

Who here holds actual physical treasury bills for your cash portion?

Hi TripleB.  1NV35T0R is right -- I maintain a Treasury ladder with T-bills and T-notes.  I hold them in my and my wife's Fidelity accounts due to their long-standing policy of offering free trades on Treasury securities.  In my next batch of purchases, I plan to experiment with using TreasuryDirect as well for a bit more institutional diversification.  I'll also be expanding to Vanguard now that they offer free Treasury trades as well.  (I do hold other forms of cash such as savings bonds, checking accounts, and an old CD ladder.)

How do you structure purchases and rebuying new ones when they mature?

I maintain a spreadsheet that contains all of my T-bill and -note holdings (including the date of maturity.)  This spreadsheet categorizes each holding into <=3 year, <=2 year, and <=1 year rungs.  It calculates how short or overstuffed each rung of the ladder currently is.  When I have some cash on hand (due to maturing notes or just plain getting paid), I buy into whichever rung is lightest.  That is typically the 3-year rung.

Fully mature holdings are highlighted by the spreadsheet to let me know it's time to buy a new (probably) 3-year.  These are of course not included in the calculation.  This post contains a bit more detail on how I do this.

I also ran the numbers for the 1981 era to get a sense of how this all holds up in the face of rapidly rising interest rates.  These were my findings.  (Summary: the ladder did fine.)  These days, the 3-year is only offering a measly 0.3% advantage over the 3-month so laddering isn't as richly rewarding as when the spreads were more like 1%.

If you're going to buy 2 and 3 year T-Notes then why not just buy the VG Short Term Treasury bond fund? Sure, it may have 20% non-treasuries in there, and it may have a ~0.2% ER but you can use it as a "cash sweep" type account whereas if you put the money into T-Notes then you have to wait a full year before you do anything with your "cash" otherwise.

If I needed to raise cash, I'd simply sell something out of the ladder.  Most likely I'd choose the security that was closest to maturity.  I enjoy knowing exactly what I'm holding so I don't get much value out of paying an ER for someone to park T-bills for me.  The 0% expense ratio just feels so satisfying.

However, if this kind of thing would just be an annoyance, then you are getting real value out of the very reasonable expense ratios offered by funds like SHV/SHY and the rest of them.

I still can't justify the nearly 0.5% expense ratios charged by some of the Treasury Money Market funds, though.  That is serious money for what strikes me as not particularly high value!

My goals are that I don't want to be beholden to the auction dates and feel compelled to log in at certain times/days. Additionally, I don't want to be obligated to buy them in $10k blocks like VG used to require to avoid commissions.

Yes, I always buy on the secondary market.  Auction seems like more trouble than it's worth given how efficient the Treasury market is.

It's unfortunate that VG requires you to use only $10k blocks.  I wasn't aware that they have that requirement.  That does make individual purchase less attractive.

[TripleB]

I logged into VG and can confirm that they changed their policy and are now offering free secondary treasury trades. Also, there's some t-bills that can be traded in $1k increments.

Personally, I don't see the desire to ladder anything, perhaps because we're at 0% interest and interest rates on T-bills can really only go up. I'm thinking of putting all my cash into $1k increments of a t-bill that matures about 5 to 6 weeks from now, then in about a month +/- a week, I log in, sell everything and re-buy another set that matures in 5 to 6 weeks.

That ensures that if I log in at least monthly, I will never have anything mature and never risk being out of the market, where the money rolls over into the MMF sweep account. It also ensures I don't have to log in on any specific day of the week when an auction occurs.

Seems like a good plan of action.

[Lone Wolf]

Personally, I don't see the desire to ladder anything, perhaps because we're at 0% interest and interest rates on T-bills can really only go up. I'm thinking of putting all my cash into $1k increments of a t-bill that matures about 5 to 6 weeks from now, then in about a month +/- a week, I log in, sell everything and re-buy another set that matures in 5 to 6 weeks.

That ensures that if I log in at least monthly, I will never have anything mature and never risk being out of the market, where the money rolls over into the MMF sweep account. It also ensures I don't have to log in on any specific day of the week when an auction occurs.

Another option might be to simply stagger relatively short-duration T-bills so that they will mature on a rolling schedule.  This is basically just a ladder with a very short duration.

Harry Browne, IIRC, recommended buying one-year T-bills.  You could structure a ladder that went as far out as a year, 6 months, or whatever made you comfortable.  That way even if you didn't manage to check in on it for a while, only a fraction of your ladder would be maturing at any given time.

If you are concerned about maturing T-bills getting swept into a Money Market Fund account, would you consider using TreasuryDirect and having your maturing T-bills go into a TreasuryDirect Certificate of Indebtedness?  Those pay 0% interest but have virtually no credit risk (just like a T-bill.)

[TripleB]

If you are concerned about maturing T-bills getting swept into a Money Market Fund account, would you consider using TreasuryDirect and having your maturing T-bills go into a TreasuryDirect Certificate of Indebtedness?  Those pay 0% interest but have virtually no credit risk (just like a T-bill.)

Unfortunately TDirect is worthless to me because:

1) Can't use IRA money in it and I put all my cash into tax-shelters
2) Can't quickly transfer money from it into stocks/gold and the point of my cash is for re-balancing

If the stock market crashes 50% overnight and it takes me a week to move my cash from TDirect into a brokerage, then I may have missed out. I may miss out on another 50% drop, but I'd rather have quick access to my cash for rebalancing.

[dualstow]

Harry Browne, IIRC, recommended buying one-year T-bills. 

His #1 recommendation was a treasury money market fund, which is what I use for some of my cash. Sadly, the Vanguard one is closed to new investors.

[Lone Wolf]

Harry Browne, IIRC, recommended buying one-year T-bills. 

His #1 recommendation was a treasury money market fund, which is what I use for some of my cash. Sadly, the Vanguard one is closed to new investors.

Thank you, dualstow, you're right to point this out.  As you say, Browne's "go-to" recommendation in "Fail-Safe Investing" was to simply use a Treasury Money Market fund.  Unfortunately, due to the high expense ratios of Treasury MM funds these days, I just can't bear to do it!  My bias should not dissuade anyone looking for an extremely convenient, safe solution for their cash.  Treasury MMF's do that quite well.

Browne focused more on the use of individually-held Treasury Bills in his earlier "Why the Best-Laid Investment Plans Usually Go Wrong".  At this earlier time, Browne's main recommendation was to use Treasury securities that matured within a year.

For the Permanent Portfolio, use 52-week Treasury Bills  -- or use Treasury notes or bonds (which can be bought in denominations of $1,000) that mature in about a year.

As each item matures, replace it with a new instrument that will mature in about a year.

[dualstow]

As you say, Browne's "go-to" recommendation in "Fail-Safe Investing" was to simply use a Treasury Money Market fund.  Unfortunately, due to the high expense ratios of Treasury MM funds these days, I just can't bear to do it! 

I feel your pain.  In fact, I started with a treasury MM account which I had "B.P.P." (Before discovering the PP), but I have since been influenced by you guys and have bought T-Bills recently. So I hold both. It is certainly odd to look at the treasury MM and add pennies in interest while subtracting dollars for the account fee. I think of that account as my real emergency cash, and new cash will go into T-Bills. Of course, it wouldn't be the end of the world if I had to sell T-Bills instead of letting them reach maturity.