I know you mentioned (and others too) that you buy the T Bills from secondary market like fidelity. How do you ensure you get the optimal yield?
I see there is a bid-ask spread and sometimes the spread is quite a bit off from the yield to maturity.
Do you just set a bid that you are happy with and put a GTC order, and see what happens?
Also, have you ever noticed where the yields change dramatically within the day?
If so, how do you decide when to buy? For example, do you track the Treasury yields multiple times in the day and buy when the yields go up?
I guess I am being stupid as the differences in yield changes during regular times are hardly going to make any noticeable dentin the account for anyone, but the huge money played by big institutions…however, like stocks, I wonder if we ever have wild swings in the yields like a 1 year going from 5% to 4% and then shooting right back to 5%… I would hate to be on the wrong end of that trade. Hence, just wanted to see if there is a tracker you may use for the treasury yields on a daily basis.
Hi, @Peter003. When I see a secondary market bond I want I just meet the ask price. I have seen that trying to undercut that price (such as a GTC order) almost always gets canceled and not filled.
For short-term T-bills (one year and less) I often place an order through Fidelity for the next Treasury auction. Fidelity posts an expected interest rate and doesn’t charge for the order. For example, I just bought a 17-week T-Bill yielding 5.2%.
DH and I often check the secondary market yields daily since they do fluctuate. But I don’t always have cash to invest. I have a fixed income ladder and have to wait for a rung to mature before re-investing.
Thanks Wendy. Very helpful. You mentioned secondary market bond…Are there any specific criteria you use to avoid the bad ones… I guess going with AAA rated ones is a good start, but is there any significant difference between those and the Treasury bills…Thank you.
@Peter003, some AAA securities are callable. These usually yield about 1% more than non-callable bonds. These include FDIC-insured CDs and mortgage bonds from Federal agencies. Treasuries are never callable.
Whenever I search for a secondary-market bond I always choose “Call Protected.” This eliminates the callable bonds. Then they are equivalent in safety to Treasuries.
Callable and call-protected bonds are equally safe (in terms of zero default risk). But if interest rates are falling the callable bonds will be called and re-issued at a lower yield. The call-protected bonds will keep their yield even if the market’s yield drops. The investor has to decide which is the bigger risk since the callable bonds usually have a higher yield to start with.