Great video! My wife and i just started getting t bills and I Bonds last April. So helpful in this market to have something we can count on! We've created a t bill ladder of 13 week t bills and it's really helped us.
It's a shame the online brokerages won't deal with ibonds. I wonder why not ? But I do buy my other than ibond treasuries through Schwab, because of their stellar support and service. Always appreciate your work Eric.
Fantastic content - glad to have found reliable information on fixed income options when the markets seem volatile. Refreshing compared to the usual stock market talking heads.
just noticed that they are giving 5.605% (issue date 5/16/2023) on 4 week bill and I calculated based on what I got (100 purchased at 99.56) and did compute the High Rate as 5.605% correctly as shown at site. However the Investment rate it shows 5.723% but I only get 5.707% based on your calculation procedure. However if I base my calculations on 366 days in stead of 365 then I agree with what is on Treasurydirect site. Did they change the formula recently?
Great question, Pappu! You can check out their updated formulas & calculations for T-Bill pricing here on the government website here: www.treasurydirect.gov/instit/annceresult/press/preanre/2004/ofcalc6decbill.pdf
Here comes the question: If we buy T-bills from Treasury Direct, do we use High rate or Investment rate to calculate the return? It seems like I have been using the same math as Investment Rate to calculate the annual yield on Merrill.
Good question! The standard yield for individual bonds is generally calculated on a 360-day basis. Mathematically, it's a lot easier for institutions to pay interest based on twelve 30-day months rather than doing 365 single day calculations. This 360-day basis is the "High Rate" shown on the T-Bill. The "Investment Rate" would be more like what we're used to where it's calculated on a 365-day basis.
What happens if I hold T bills until maturity with Vanguard? If I do nothing, do the funds automatically revert to Vanguard money market in this account?
thanks for this video. i was hoping you had an answer to a question i have. as you mentioned, with t -bills your bank account is debited by an amount that is less than par value, based on the investment rate ie 3%, 1 year t bill would have purchased price of $97, But i noticed that this is not the case for longer maturities, where the discount rate doesn't match the investment rate (as per the recent auction results on the longer term maturities on the t-direct site) So my question is, if i wanted to invest 10,000, at 4.61% for a 2 year note, then how would i know what purchase price to enter, to ensure that 10k is taken out of my account, so that at the end of 2 years, i 'll get $10,992 back. i would really appreciate any help with this. T-direct offer no help
Great question! Unfortunately, I don't believe there's any way you can deposit exactly $10,000 into a 2-Year Treasury Note via Treasury Direct. As you noted earlier, every transaction is done based on the par value (face value) of the particular security, not the initial purchase price because that variable will depend on auction results and the discount rate. When it comes to longer term maturities, there are two factors that influence the overall yield: coupons and discount price. The discount price on T-Notes and T-Bonds tends to be fairly close to $100 (often around $99.80 or so), so that is one option to get as close to $10,000 as possible. Another possible method is going through a broker, and some allow you to fine tune exactly what yields you are willing to pay for and how much. This could be another way to get as close to $10,000 as possible, but it might not be worth your time and it will depend on your broker. When we think about CDs and savings accounts, it's definitely easier to think about it in terms of depositing $10,000 and getting $10,992 back! Super intuitive and easier to calculate. Unfortunately, bonds and treasuries trade a different way where its $X,XXX that becomes $10,000, which is much less intuitive in my opinion. Unfortunately, that's just how it is!
Great question! I personally prefer 6 month Treasury Bills because I feel rates will rise just a tiny bit more in 2023, but current rates are also extremely high already!
Good job, i had been googling the diff btw High Rate & Investment Rate to no avail until i watched your video today. Thank You!
Thanks so much! Happy to have helped out!
Same here !
Great video! My wife and i just started getting t bills and I Bonds last April. So helpful in this market to have something we can count on! We've created a t bill ladder of 13 week t bills and it's really helped us.
Awesome job! A ladder of 13 week Treasury Bills definitely helps earns some high rates but still being very liquid!
It's a shame the online brokerages won't deal with ibonds. I wonder why not ? But I do buy my other than ibond treasuries through Schwab, because of their stellar support and service. Always appreciate your work Eric.
💯 I'd love if Schwab could offer those I-Bonds too! Hope you're having a good start to 2023 too Ed!
treasury direct does
Fantastic content - glad to have found reliable information on fixed income options when the markets seem volatile.
Refreshing compared to the usual stock market talking heads.
Thanks so much and glad it was helpful!
just noticed that they are giving 5.605% (issue date 5/16/2023) on 4 week bill and I calculated based on what I got (100 purchased at 99.56) and did compute the High Rate as 5.605% correctly as shown at site. However the Investment rate it shows 5.723% but I only get 5.707% based on your calculation procedure. However if I base my calculations on 366 days in stead of 365 then I agree with what is on Treasurydirect site. Did they change the formula recently?
Great question, Pappu! You can check out their updated formulas & calculations for T-Bill pricing here on the government website here: www.treasurydirect.gov/instit/annceresult/press/preanre/2004/ofcalc6decbill.pdf
Here comes the question:
If we buy T-bills from Treasury Direct, do we use High rate or Investment rate to calculate the return? It seems like I have been using the same math as Investment Rate to calculate the annual yield on Merrill.
Good question, Will! Investment Rate is the best one to compare with APYs and YTMs on other brokerage platforms!
Do you know why the high rate is multiplied by 360 days compared to 365 days for investment rate? Isn't one year 365 days?
Good question! The standard yield for individual bonds is generally calculated on a 360-day basis. Mathematically, it's a lot easier for institutions to pay interest based on twelve 30-day months rather than doing 365 single day calculations. This 360-day basis is the "High Rate" shown on the T-Bill. The "Investment Rate" would be more like what we're used to where it's calculated on a 365-day basis.
What happens if I hold T bills until maturity with Vanguard? If I do nothing, do the funds automatically revert to Vanguard money market in this account?
Great question! The funds would automatically be deposited into your Vanguard Money Market account (or other core position) on the maturity date!
thanks for this video. i was hoping you had an answer to a question i have. as you mentioned, with t -bills your bank account is debited by an amount that is less than par value, based on the investment rate ie 3%, 1 year t bill would have purchased price of $97, But i noticed that this is not the case for longer maturities, where the discount rate doesn't match the investment rate (as per the recent auction results on the longer term maturities on the t-direct site)
So my question is, if i wanted to invest 10,000, at 4.61% for a 2 year note, then how would i know what purchase price to enter, to ensure that 10k is taken out of my account, so that at the end of 2 years, i 'll get $10,992 back. i would really appreciate any help with this. T-direct offer no help
Great question! Unfortunately, I don't believe there's any way you can deposit exactly $10,000 into a 2-Year Treasury Note via Treasury Direct. As you noted earlier, every transaction is done based on the par value (face value) of the particular security, not the initial purchase price because that variable will depend on auction results and the discount rate.
When it comes to longer term maturities, there are two factors that influence the overall yield: coupons and discount price. The discount price on T-Notes and T-Bonds tends to be fairly close to $100 (often around $99.80 or so), so that is one option to get as close to $10,000 as possible.
Another possible method is going through a broker, and some allow you to fine tune exactly what yields you are willing to pay for and how much. This could be another way to get as close to $10,000 as possible, but it might not be worth your time and it will depend on your broker.
When we think about CDs and savings accounts, it's definitely easier to think about it in terms of depositing $10,000 and getting $10,992 back! Super intuitive and easier to calculate. Unfortunately, bonds and treasuries trade a different way where its $X,XXX that becomes $10,000, which is much less intuitive in my opinion. Unfortunately, that's just how it is!
@@EricTangOfficial Thank you so much. This is very helpful, and i think i understand
would you go with 6 month t bills or treasury notes for those coupons? both have about the same rates right now
Great question! I personally prefer 6 month Treasury Bills because I feel rates will rise just a tiny bit more in 2023, but current rates are also extremely high already!
@@EricTangOfficial makes sense thanks!
If an APY is 3.4% you won't earn $1700 on $100k in 6 months. Think about it.