My First Ever T-Bills Matured

[dualstow]

I only recently switched from SHY to real T-Bills, and mostly bought twelve-month ones. But, I bought some at auction that would mature in May, anticipating an overdue home renovation project. Some  6-mo ("182-day") bills matured the other day. $18.71 gain on a cost of $9,981.29 (for total proceeds of exactly $10,000, as expected). That's not terrible.

This is much more satisfying than the nickel or so interest that my bank gives me every year for a larger principal.

[foglifter]

This is much more satisfying than the nickel or so interest that my bank gives me every year for a larger principal.

I think the major point of owning T-bills is the fact that they are (almost) risk-free. I prefer FDIC or NCUA insured savings accounts that pay way more than T-bills AND bonds. There are quite a few banks that pay 1%.

While FDIC insurance is not bulletproof, I think it is still very close to the level of protection that the Treasury securities offer. If we get to the point when FDIC fails on a large scale we will have bigger issues to worry about.

[jswinner]

There is a great difference in the credit risk between FDIC and treasuries.  Thanks to Gumby in an earlier thread, he provides a link to the HB archive and a transcript of the salient portion of the show.  If the time comes when it matters,  FDIC covered accounts offer nowhere near the same level of protection as treasuries, thus the reason why there is a spread between them.

See gumby's reply #4 here:

http://gyroscopicinvesting.com/forum/ht ... hp?t=14.90

[dualstow]

This is much more satisfying than the nickel or so interest that my bank gives me every year for a larger principal.

I think the major point of owning T-bills is the fact that they are (almost) risk-free.

Absolutely. If it weren't for the pp, I would never think of buying them. But, until the auction results came in, I was expecting a gain of zero on my investment, or perhaps a tiny loss. I think my other auction purchases of the past will yield $5. Like you said, it's all about safety.

[rocketdog]

For relatively small amounts of cash (under $25K-$50K), I just assume have an FDIC-insured rewards checking account.  You can earn 5x-10x more on your money than you can with a T-Bill.  Nobody's ever lost a nickel in an FDIC-insured account.  With T-Bills, you made less than $19 for a 6-month investment of $10K.  With a reward checking accounts you could have made $75 or more. 

[dualstow]

With T-Bills, you made less than $19 for a 6-month investment of $10K.  With a reward checking accounts you could have made $75 or more.

I guess the main point is that in addition to the safety, T-bills gave more than I thought they would. Of course, I was expecting the worst.
There are quite a few threads about whether bank accounts are good enough.

I have to hold a checking account anyway so I can pay my bills. But, I try not to keep too much in it. Enough to get a free safe deposit box in one, and to pay the bill on my amex card, which garners a 2% reward. In another, just a few hundred so I can use the penny arcade.

[dualstow]

The U.S. got free cash in the bond market for the first time in 17 months, paying no yield as it sold $20 billion of four-week Treasury bills.

http://online.wsj.com/article/SB1000142 ... 36250.html
Well, I guess that's the end of that. :-D

[Bean]

The U.S. got free cash in the bond market for the first time in 17 months, paying no yield as it sold $20 billion of four-week Treasury bills.

http://online.wsj.com/article/SB1000142 ... 36250.html
Well, I guess that's the end of that. :-D

I was a buyer and I hate myself for it.

[dualstow]

Don't, Bean. As mentioned above, you've got the safety. It's money well "spent."

Speaking of spending, I get 2% back on my Fidelity Amex, which is a damn sight better than anything a bank will give me. Maybe I should spend more and save less.

[Pointedstick]

Don't, Bean. As mentioned above, you've got the safety. It's money well "spent."

Speaking of spending, I get 2% back on my Fidelity Amex, which is a damn sight better than anything a bank will give me. Maybe I should spend more and save less.

Looks like the Fed's efforts have paid off! 

[Bean]

Can tbill rates go negative?

[dualstow]

Can tbill rates go negative?

I believe they can.
Best to look away and focus on your long-term bond principal. :-)

[Bean]

Can tbill rates go negative?

I believe they can.
Best to look away and focus on your long-term bond principal. :-)

This whole situation perplexes me.  How can tbills, denominated in dollars, go negative when physical position gives you a 0% return.

My thoughts/emotions right now are I no longer feel safe with with tbills at 0% or negative.  I think I would rather hold a physical pile of cash or pay off my mortgage till short term rates get back over 1%.  (Caveat: I am still maxing out I Bonds each month for my cash portion)

[KevinW]

Well for one thing, it's a lot easier to transact $100 million in T-bills than it is in paper cash.

[rocketdog]

Well for one thing, it's a lot easier to transact $100 million in T-bills than it is in paper cash.

If only I had such a problem! 

[AgAuMoney]

Can tbill rates go negative?

I believe they can.

This whole situation perplexes me.  How can tbills, denominated in dollars, go negative when physical position gives you a 0% return.

Yes, they most certainly can, and have.

How:  TBills are sold at auction.  Instead of buying at a discount, buy at a premium.

Why:  If you have "cash" let's assume it is in some account somewhere, not small bills in a valise or steamer. An "account" means that value is held in trust for you by a trustee (ala brokerage account) or is lent by you to a creditor (typical bank account).  What happens if the trustee/creditor goes bankrupt or experiences an employee or institutional change of morals and transfers your account to a secret account in the Caymans?  If instead you buy Treasuries with that cash, the U.S. gov't promises to pay you the face amount in the future.  That safety may be worth paying a premium.

Practically:  Unless you are managing institutional funds or are a very rare participant on this forum, I don't expect the amount of cash you are dealing with to pose a problem such that the safety aspect would justify paying a premium.  On the other hand, once you are set up to roll over treasuries, the simplicity of it might be worth paying a premium instead of rate chasing.

Dreams:  I like to plan what I would do if I won a few $million in a lottery.  I know how to calculate the interest rate of the annuity option, and in spite of their advantage in being able to invest the entire amount vs. me only investing the after-tax amount, their rate of return is typically not too stellar.  So I'd probably take the lump sum.  What would you do if you received $5,000,000 lump sum check or direct deposit to the institution of your choice?  (if they'll take it, some won't accept those large amounts or will only accept them by special arrangement).  You certainly do not want to leave that kind of money sitting in a checking and/or savings account at your local credit union or even Bank of America/JPMChase for very long.  I'd probably put it into my brokerage account and then into short term treasury fund(s) (like SHY and/or SHV) while I pondered my options.  I wouldn't leave it as cash, because neither of my current brokerage accounts insure $5,000,000 in cash, but they do insure that much (and more) in securities such as a bond fund.