T-Bill Yield Question

[dualstow]

Having mostly bought 2- and 3- year treasury notes in the past, I haven't yet seen any instrument shorter than one year come to maturity.

Right now, I see 1-Year T-Bill yields at 1.153% (src: http://quotes.wsj.com/bond/BX/TMUBMUSD01Y )
and 1-Month bills at 0.857% (src: http://quotes.wsj.com/bond/BX/TMUBMUSD01M )

Yield curve craziness aside, you don't really get 0.857% from 1-month bills, right? Do I need to divide that by 12 to determine the true yield, and divide 26-week t-bill yields by 2, and so on? Is that how instruments shorter than a year work?

Or are those numbers above useless but for a very different reason?

[dualstow]

I do own a 26-week bill and for that, I simply subtract cost from par value and divide by cost. (0.27%)
I just don't understand how the WSJ is getting those numbers above.

[Tyler]

Yield curve craziness aside, you don't really get 0.857% from 1-month bills, right? Do I need to divide that by 12 to determine the true yield, and divide 26-week t-bill yields by 2, and so on? Is that how instruments shorter than a year work?

Correct. When reporting yields for periods less than a year, the standard procedure is to list the annualized rate. The return you'll actually receive for a 1-month T-Bill is the annualized rate divided by 12.

I agree that it's kinda unintuitive. I suspect they do it that way to make it easier to compare investments, as annual returns is the standard most people look for.

[dualstow]

Many thanks, Tyler. It is indeed unintuitive, although more intuitive than the notion that I could turn 10K into 11K after a year of 4-wk tBills. :-) Glad to know that I can do *something* with those WSJ numbers, then.

[Pet Hog]

Not to be nitpicky, but I think it would be more accurate to divide the "one-month" annualized yield by 13, not 12, since the bills have a four-week term.

[dualstow]

Nitpicky is good in this case. We want precision. 52÷4
Thanks!

[sophie]

Holy flattening yield curve, Batman.

https://www.treasury.gov/resource-cente ... data=yield

Yes, confirm what Tyler said, the yield for all bills/bonds is reported as annual returns. i.e., you would get 0.86% interest if a) Treasury rates were frozen for a year, b) you put a fixed amount into 4 week Tbills and turned on autoroll, and c) you hold the proceeds in a zero interest rate account and totaled them up at the end of the year. If you reinvest the interest, that would give you an effective rate.

[dualstow]

The six-month bills actually look pretty decent, don't they, Sophie.
Every time stocks go up I sigh when I think of cash, but ... I think expanding my total pp should begin with cash.
And no more messing around with 3-year notes.

[sophie]

You practically invented the short term treasury note ladder for deep cash! I still remember your posts on this.

Between the Fed's interest rate plans and the flattening yield curve, this seems like the time to stick with short term T bills. Out of sheer laziness (or busy-ness) I haven't moved the cash out of my online savings account like I was going to, but this latest hike in interest rates is a good motivator.

[dualstow]

I can't take any credit for that. Adopted the idea from others (Moda?) and I've been very happy with it. I'm moving to 6- & 12-month bills for much of it this year. My calendar will remind me to reread Tyler's article every 3 months.

[Jeffreyalan]

You need to share the links to those old rolling treasury bill posts!

[dualstow]

You need to share the links to those old rolling treasury bill posts!

Nothing particularly earth shattering in those. There's a post from rickb that's not too old, detailing what he did.

EDIT:
viewtopic.php?f=1&t=8883&p=157845&hilit ... ar#p157845

[Jeffreyalan]

Thanks! I have recently come into some cash and I have decided to set up a Treasury Direct account and keep it in treasury bills. So any ideas on that subject are very helpful.