treasuries....bill, note, bonds

[Rukh O'Rorke]

So Tiny and I were discussing a little bit on other threads, thought I would give this topic it's own, in case others are interested.

Recent high interest rates
2.65% for a 52 week bill
2.875% for both 7 year and 10 year
3.25% for a 20 year bond.


www.treasurydirect.gov/instit/annceresult/annceresult.htm


So reading on the site it seems bills are always at or below par value, whereas notes and bonds might actually sell at a higher than par value - so you pay 102 for a 100 bill. Last summer some notes went as high as 111! Lately - most are 99 and some change. For Bonds, as low as 88 recently, with a eyeballing high I saw one at 116/117.

You don't know the price as it is determined at auction, and I can't see that you see the exact interest rate either!! This just seems so bizarre to me, but typical rukh, I had to get in the game to see what was going on. I've put in an order for 500 on a 3 year note acutioned 6/7 and issued 6/15. So me and Forest are going to take a bite of that and see what we get.

[Rukh O'Rorke]

So - I think most small timers acquire these kinds of investment through funds, but it seems to me that the payouts - if any - are so modest that paying a middleperson here is just counter productive. What with the expense ratio to substract, and it seems like everything has gone down recently, included the funds of securities. So paying someone to plan a negative return? Seems like DIY might be a good idea.

The only decision is how to arrange the money across different maturity dates.  It doesn't seem like it would be that difficult to formulate a plan, and it doesn't seem like you could make a huge *mistake*, as they are all sort of similar for terms.

[Tiny]

The purchase of my 8 Week Treasury Bill went thru!

I'm not shy about the numbers (it's from EE bonds maturing) 

ADDED:  I paid 499.19 for the T-Bill when it matures I will have $500.00.  Atleast that's how reading what I see at TD. 

I can't tell 100% sure (another old EE bond matured and messed up the total in my "not getting any interest" account at TD) but it looks like I literally paid $500.00 for the T-Bill I bought:
  
Here's what TD says I purchased:

MARKETABLE SECURITIES

Treasury Bills $500

Security Type: 8-Week Bill
Par Amount: $500.00
Price per $100: 99.838222
Investment/Interest Rate: 1.056%

Issue Date: 06-07-2022
Maturity Date: 08-02-2022

It looks like my $500 will accrue 1.056% interest for 8 weeks. Better than my Ally HYSA and the CDs I could open at local banks, but not as good as IBonds in the short term. And probably not as good as EE bonds if you are gonna hold 'em for 20 or 30 years.

I just bought a second $500.00 8 week T-Bill (with the $$ from the old EE bond that matured and whatever was left from the first $500 purchase. I need to look for a "report" of the ins and outs from my TD accounts.).

I've got another EE bond maturing in 9/2022 - so I'll have 4 weeks between when these mature and the next EE bond hits my "no interest" TD account (I have got to find out the official name of it.)

[Rukh O'Rorke]

Nice!You also benefit from the discount on par!

[Tiny]

So, Excel has a TBILLYIELD function - not sure it's useful as it looks like TD gives the interest rate...

Description
Returns the yield for a Treasury bill.

Syntax
TBILLYIELD(settlement, maturity, pr)

I couldn't get the results to match the info from TD... but I don't think I am using the right settlement date....

I'm thinking I will be .81 richer in 8 weeks.

[Tiny]

I visited TD again and drilled down further into the T-Bill I purchased:
Type: 8-Week Bill
Par Amount: $500.00
Purchase Price: $499.19

Investment/Interest Rate: 1.056%
Yield: 1.040%
Price per $100: 99.838222

Discount: $.81

Issue Date: 06-07-2022
Dated Date: None
Maturity Date: 08-02-2022
Number of Reinvestments: 0

And found the 1.040 that the excel function returns...
AND the "discount" which is the interest I will be paid of .81.

What kind of nerd/geek comes up with this kind of math Why? why? why?

So why two percentages?    What do you compare them to, to get a meaningful measurement??    

[Tiny]

Jun 5, 2022 10:49:00 GMT -5 Rukh O'Rorke said:

 
So reading on the site it seems bills are always at or below par value, whereas notes and bonds might actually sell at a higher than par value - so you pay 102 for a 100 bill. Last summer some notes went as high as 111! Lately - most are 99 and some change. For Bonds, as low as 88 recently, with a eyeballing high I saw one at 116/117.
 

so, why would you want to pay 102.00 for a $100.00 TSP??      at some point in the future will the $100 TSP be worth MORE than $102.00 

There must be some reason the TIPS is available for sale at $102.00  

ADDED:  oh wait... when you go to sell that $100 TSP - are you hoping that the auction price it sells for is MORE than $102.00   Is that were the "magic" happens and you have an increase in value? 

ADDED some more - this feels like something where newbies jump in with both feet and get burned while everyone else who's familiar with it know what to do to not loose money...    it's not gambling - it's more of a "convoluted set of rules that don't work as one would "intuit" they would...." thing...       You have to be in "know" to make it work. 

[Rukh O'Rorke]

Jun 9, 2022 16:51:08 GMT -5 Tiny said:

Jun 5, 2022 10:49:00 GMT -5 Rukh O'Rorke said:

 
So reading on the site it seems bills are always at or below par value, whereas notes and bonds might actually sell at a higher than par value - so you pay 102 for a 100 bill. Last summer some notes went as high as 111! Lately - most are 99 and some change. For Bonds, as low as 88 recently, with a eyeballing high I saw one at 116/117.
 

so, why would you want to pay 102.00 for a $100.00 TSP??      at some point in the future will the $100 TSP be worth MORE than $102.00 

There must be some reason the TIPS is available for sale at $102.00  

ADDED:  oh wait... when you go to sell that $100 TSP - are you hoping that the auction price it sells for is MORE than $102.00   Is that were the "magic" happens and you have an increase in value? 

ADDED some more - this feels like something where newbies jump in with both feet and get burned while everyone else who's familiar with it know what to do to not loose money...    it's not gambling - it's more of a "convoluted set of rules that don't work as one would "intuit" they would...." thing...       You have to be in "know" to make it work. 

as far as I can tell, you just don't know what the purchase price will be. Makes it pretty hard to make decisions!

You can buy via competitive bid, but I don't know how that happens.

[Rukh O'Rorke]

I've put in 2 orders for 52 week bills.. One to go through in July, and one in March. Just 500/each.

[Tiny]

Was the duration (52 weeks) and the July purchase based on the Fed raising the rate .75?

Is the March one - 2023?

I did the 8 week durations because I'm trying to consolidate all of my EE bond maturity amounts and bonds were maturing one or two a month...

I think in Aug or Sept - my last EE bond matures. At that point I will do longer term T-Bill... hopefully the rates on t-bills will be a bit higher than they were a month ago.

[Rukh O'Rorke]

Just seemed the 52week was the highest interest…

I’m learning, but still know nothing!!

[Rukh O'Rorke]

So, my 3 year note purchase went through...


Security Type: 3-Year Note
Par Amount: $500.00
Price per $100: 99.851689
Investment/Interest Rate: 2.875%

Issue Date: 06-15-2022
Maturity Date: 06-15-2025
Number of Reinvestments: 0
Next Interest Payment: 12-15-2022

Interest Payment Amount: $7.19

My purchase price was 499.26 for the 500 par value. So not much of a discount. 

[Rukh O'Rorke]

My 52 week bill purchase went through.


Security Type: 52-Week Bill
Par Amount: $500.00
Price per $100: 97.007111
Investment/Interest Rate: 3.070%


Issue Date: 07-14-2022
Maturity Date: 07-13-2023
Number of Reinvestments: 0



So the rate is above 3% and the purchase price for par of 500 was 485.04, so pretty nice in my book! Not thinking too hard but it looks like a ~6% return for holding the year. Interested to know if I am not interpreting this correctly!

Looks like a recent 2 year note auction has similar interest rate, but the price per 100 was over 99, so it looks to me like the 52 week bill is the current sweet spot for treasuries.

a 20 year bond has a 3% interest - original auction amount was 99.41/100 but the redo 1 month later was only 96.60/100. I am keeping an eye if the bonds will ever get to 5% or higher. It seem likely that they may, and then I will want to get some for the long term, but wade in slowly, as they might continue to increase. Will we ever get to mortgages at 16/18% again? Seems unlikely but with this terpsy turvey world, I wouldn't bet too much against it. 

I have another 52 bill purchase going through in august, interested to see what that is. The 52 bill a month ago - that I did not buy - was better terms than this one I jus bought. Feel like I am figuring this out. Either before or around that time, I should get some RI money to play with (sent invoice this week) and will determin if my next one will be another 52 week bill or a note and of what denomination.

Lower than 52 weeks have lower interest rates, higher purchase price, and seems like more work to monitor and repurchase, etc. So for now anyway, sticking with only 52 week bills and notes, and keeping an eye on bonds and shorter term bills.

spending time here to research
www.treasurydirect.gov/instit/annceresult/annceresult.htm

[Tiny]

A bonus (I'm estimating it will be 3K)  will hit my checking account tomorrow... it was originally slated to pay down my 4.125% mortgage  but I'm seriously considering moving the $$ to TD.  The mortgage is already on a path to pay off that I'm happy with.    I may wait to do the next purchase - the 2 tbills I bought mature in mid  August - and I've got another CD that will mature the first week of september I think...   

Will update what I'm doing when it's done. 

I think you are right about the ~6% return.   This stuff makes my brain hurt.      I think you did "good"!    


There's an "auto repurchase" option you can use so you don't have to pay too much attention...  but on the 52 week length I'd probably want to make the decision to repurchase.  

[Rukh O'Rorke]

put in two more orders - another 52 week bill and a 2 year note, both for 500. Auctions in Aug and Sept.

I got two separate $0.07 deposits in my checking account.....I was confused about where they came from, so interest from treasuries. I'd prefer they just compounded? Is there a way to do that or not?

[Tiny]

Yay!  My initial t-bill matured and I have $500 in my IofC account (no interest) or whatever it's called at TD  Zero-Percent C of I account at TD. 
 I have no idea why the name of that account always falls out of my head.   

Ally has upped their interest to 1.40%  so this T-Bill lagged behind that but it was more than a CD at my local bank.  

Jun 8, 2022 13:40:00 GMT -5 Tiny said:

ADDED:  I paid 499.19 for the T-Bill when it matures I will have $500.00.  Atleast that's how reading what I see at TD. 
   
Here's what TD says I purchased:

MARKETABLE SECURITIES

Treasury Bills $500

Security Type: 8-Week Bill
Par Amount: $500.00
Price per $100: 99.838222
Investment/Interest Rate: 1.056%

Issue Date: 06-07-2022
Maturity Date: 08-02-2022

It looks like my $500 will accrue 1.056% interest for 8 weeks. Better than my Ally HYSA and the CDs I could open at local banks.

I'm "saving" up this money for my 2023 I-bond purchase. I'm waiting for an old EE bond to mature in Sept 2022... and I just moved 1K to TD - so I'm going with another 4 week T-Bill which will be issued on 8-9-2022. The same day my second t-bill matures.

I think I missed the boat for TIPS....    I don't have a lot of money right now to lock up for more than 1 year and I think the deal with TIPS is that you hold them long term.    I will see what August brings - I might dip my toes in the TIPS pool... if I can scrap up some $$. 

[Tiny]

Jul 29, 2022 11:03:32 GMT -5 Rukh O'Rorke said:

put in two more orders - another 52 week bill and a 2 year note, both for 500. Auctions in Aug and Sept.

I got two separate $0.07 deposits in my checking account.....I was confused about where they came from, so interest from treasuries. I'd prefer they just compounded? Is there a way to do that or not?

When I put in todays order for a T-Bill - there's an option for where to have the money go when it matures I have it staying at TD (and not going back to my checking account)  it goes back into my   Zero-Percent C of I  account.  

I don't think there's a way to get the interest added back to the product (t-bill, note, TIPS) you purchased.

[Tiny]

I'm still playing around with T-Bills.   I added 1K to my "experimentation money" at TD.   (building up some $$ to go towards I bonds after Jan 1, 2023).   This is all short term money for me (so I don't think I want to go with a one year T-Bill or the longer duration T-Notes or TIPS.    

I'm "math challenged" and basically "slow" when it comes to getting the hang of stuff (or how it works).   LOL!  in school - other kids would get the "mental muscle memory" of some concept after one walk thru and doing 4 super easy "example problems" not me...    It takes me 3 or 4 walk thoughs of different "super easy examples" and then I need to do lots and lots of easy and mildly harder examples before I "get it"       Just mentioning that if anyone is like "what don't you understand? it's so obvious!!!"     

I'm just putting this here as a place marker for me.   I just bought a new 4 week t-bill: 

     Security Type: 4-Week Bill

     Par Amount: $1,500.00

     Price per $100: 99.835889

     Investment/Interest Rate: 2.143%



     Issue Date: 08-09-2022

     Maturity Date: 09-06-2022

I think the thing that most "befuzzles" my brain is that no where is it mentioned that I actually paid $1497.54 for this security.    It's hidden in there somewhere (you have to do math to figure it out).    Yes, the info provided is interesting and valid - but to figure out "what did I pay for this?" which one would think is an important number - I have to do math.     OR I have to look at the "transaction history" on my account to see how much was taken out of my  Zero-Percent C of I account.  Why is that 1497.54 a big secret      I guess I need to start figuring out how to mentally calculate the 1497.54  if I know the interest rate and the Par Amount.... and then get good at doing that calc in my head.... (or have a guestimate for various interest rates on 1K  so I can "guestimate" the amount I'm gonna pay for the security).     

I'll have more practice - as I just put in an order for another 500.00 4 week Bill that will be purchased next week.   (I maybe should have waited to buy this after the next FOMC meeting as rates may rise agian... so many moving parts.) 

(just an aside - some of the "befuzzling" comes for the fact that most of the other times in real life I have to "guestimate" a final value - I'm going from "I'm paying this amount and now I need to figure out the final value based on "tax amounts" or some other added in thing.    this t-bill stuff is going the other way -  my total is X and now I need to figure out in my head  and 2.143%  of 1500 is NOT 2.46...     so I'm not really sure what the interest rate of 2.143%  actually means....   Math is challenging....) 

[tskeeter]

Aug 9, 2022 12:05:55 GMT -5 Tiny said:

I'm still playing around with T-Bills.   I added 1K to my "experimentation money" at TD.   (building up some $$ to go towards I bonds after Jan 1, 2023).   This is all short term money for me (so I don't think I want to go with a one year T-Bill or the longer duration T-Notes or TIPS.    

I'm "math challenged" and basically "slow" when it comes to getting the hang of stuff (or how it works).   LOL!  in school - other kids would get the "mental muscle memory" of some concept after one walk thru and doing 4 super easy "example problems" not me...    It takes me 3 or 4 walk thoughs of different "super easy examples" and then I need to do lots and lots of easy and mildly harder examples before I "get it"       Just mentioning that if anyone is like "what don't you understand? it's so obvious!!!"     

I'm just putting this here as a place marker for me.   I just bought a new 4 week t-bill: 

     Security Type: 4-Week Bill

     Par Amount: $1,500.00

     Price per $100: 99.835889

     Investment/Interest Rate: 2.143%



     Issue Date: 08-09-2022

     Maturity Date: 09-06-2022

I think the thing that most "befuzzles" my brain is that no where is it mentioned that I actually paid $1497.54 for this security.    It's hidden in there somewhere (you have to do math to figure it out).    Yes, the info provided is interesting and valid - but to figure out "what did I pay for this?" which one would think is an important number - I have to do math.     OR I have to look at the "transaction history" on my account to see how much was taken out of my  Zero-Percent C of I account.  Why is that 1497.54 a big secret      I guess I need to start figuring out how to mentally calculate the 1497.54  if I know the interest rate and the Par Amount.... and then get good at doing that calc in my head.... (or have a guestimate for various interest rates on 1K  so I can "guestimate" the amount I'm gonna pay for the security).     

I'll have more practice - as I just put in an order for another 500.00 4 week Bill that will be purchased next week.   (I maybe should have waited to buy this after the next FOMC meeting as rates may rise agian... so many moving parts.) 

(just an aside - some of the "befuzzling" comes for the fact that most of the other times in real life I have to "guestimate" a final value - I'm going from "I'm paying this amount and now I need to figure out the final value based on "tax amounts" or some other added in thing.    this t-bill stuff is going the other way -  my total is X and now I need to figure out in my head  and 2.143%  of 1500 is NOT 2.46...     so I'm not really sure what the interest rate of 2.143%  actually means....   Math is challenging....) 

Damn word problems!

Tiny, the information is there.  But you need to figure out which pieces of the information you have are important to answer your question.  The relevant pieces of information to figure out how much you paid for the T-bill are the “Par Amount” and the “Price per $100”. The “price per $100” is the percentage of the “Par Amount” that you paid for the T-bill.  If the price per $100 is less than 100, you paid less than the par amount. If the price per $100 is more than 100, you paid more than the par amount.  If the price per $100 is exactly 100.000000, you paid the par amount. The math in this case is $1,500 par amount X .99835889 price per $100 = $1,497.534834 purchase price, which rounds to a purchase price of $1,497.54 for the T-bill.

[MarionTh230]

Yes, the T-bills are simple.  You make money on the spread.  Which means you only make money by buying at a discount.  To be fair, I've only ever seen them auction at a discount.  I've never seen them auctioned for a premium.

Par value of $100 with a purchase price of $99.835889 means that the interest is calculated at $100 minus $99.835889 = $0.164111.  This profit is then divided by the purchase price.  $0.164111 divided by $99.835889, which is then multiplied by the number of periods in a year (a 4 week bill has 13 periods to equal one year) which calculates out to 2.1369% which is 2.14%.

T-bills do not pay coupon interest.

You paid $1497.54 for 4 week bills that have a par value of $1500.  In 4 weeks, when they mature, you will get $1500.00 deposited into your C of I account (or whatever account you have earmarked for destination).  You made $2.46 on the transaction.

I haven't been interested in anything but 52 week bills recently.  The ones that auctioned today went for $96.764444 per $100 of par value.

I have purchased I-bonds, T-bills, 2-year notes, and 5-year TIPS through Treasury Direct.  For some years now.  I do enjoy the simplicity of the bills.  I like to ladder my bills to maintain a certain amount of liquidity.

[Tiny]

Aug 9, 2022 12:34:16 GMT -5 tskeeter said:

Aug 9, 2022 12:05:55 GMT -5 Tiny said:

 
I'm just putting this here as a place marker for me.   I just bought a new 4 week t-bill: 

     Security Type: 4-Week Bill

     Par Amount: $1,500.00

     Price per $100: 99.835889

     Investment/Interest Rate: 2.143%



     Issue Date: 08-09-2022

     Maturity Date: 09-06-2022
 

Damn word problems!

Tiny, the information is there.  But you need to figure out which pieces of the information you have are important to answer your question.  The relevant pieces of information to figure out how much you paid for the T-bill are the “Par Amount” and the “Price per $100”. The “price per $100” is the percentage of the “Par Amount” that you paid for the T-bill.  If the price per $100 is less than 100, you paid less than the par amount. If the price per $100 is more than 100, you paid more than the par amount.  If the price per $100 is exactly 100.000000, you paid the par amount. The math in this case is $1,500 par amount X .99835889 price per $100 = $1,497.534834 purchase price, which rounds to a purchase price of $1,497.54 for the T-bill.

Thanks TSkeeter!  


Face palm: the "price per $100" is the percentage of the "Par Amount".... took me a while for that to sink in and trying out the calculation on the other T-Bills I bought... I wasn't getting the right amount... I wasn't seeing/thinking of the 99.835889 as "price per $100" * .01 in my head and moving that decimal point. I may have made my HS algebra teacher cry at some point.

That got my "brain" out of the rut it was in, and I started working on what the heck the Investment/Interest rate represented.

I found a calculator:

www.calculatorsoup.com/calculators/financial/simple-interest-plus-principal-calculator.php

basically doing this: Simple Interest Calculator A = P(1 + rt)

And when I plug in the 1,497.54 I paid as Principle(P)
and the 2.143% interest rate from TD as Rate(r)
and 4 weeks as Time(t)

I got the 1500 face value of my T-Bill

Here's the explanation of the math from the calculator referenced above:
A = $1,500.01

I = A - P = $2.47

Equation:
A = P(1 + rt)

Calculation:
First, converting R percent to r a decimal
r = R/100 = 2.143%/100 = 0.02143 per year.

Putting time into years for simplicity,
4 weeks / 52 weeks/year = 0.076923 years.

Solving our equation:
A = 1497.54(1 + (0.02143 × 0.076923)) = 1500.0086346237
A = $1,500.01

The total amount accrued, principal plus interest, from simple interest on a principal of $1,497.54 at a rate of 2.143% per year for 0.076923 years (4 weeks) is $1,500.01.

And this: The total amount accrued, principal plus interest, from simple interest on a principal of $1,497.54 at a rate of 2.143% per year for 0.076923 years (4 weeks) is $1,500.01  is what I need to repeat to myself when doing these calculations....

[Tiny]

Aug 9, 2022 16:00:23 GMT -5 MarionTh230 said:

Yes, the T-bills are simple.  You make money on the spread.  Which means you only make money by buying at a discount.  To be fair, I've only ever seen them auction at a discount.  I've never seen them auctioned for a premium.

Par value of $100 with a purchase price of $99.835889 means that the interest is calculated at $100 minus $99.835889 = $0.164111.  This profit is then divided by the purchase price.  $0.164111 divided by $99.835889, which is then multiplied by the number of periods in a year (a 4 week bill has 13 periods to equal one year) which calculates out to 2.1369% which is 2.14%.

T-bills do not pay coupon interest.

You paid $1497.54 for 4 week bills that have a par value of $1500.  In 4 weeks, when they mature, you will get $1500.00 deposited into your C of I account (or whatever account you have earmarked for destination).  You made $2.46 on the transaction.

I haven't been interested in anything but 52 week bills recently.  The ones that auctioned today went for $96.764444 per $100 of par value.

I have purchased I-bonds, T-bills, 2-year notes, and 5-year TIPS through Treasury Direct.  For some years now.  I do enjoy the simplicity of the bills.  I like to ladder my bills to maintain a certain amount of liquidity.

Ok, I got the math for interest Rate for my 4 week T-Bill to work... and I get why the conversion to a yearly rate.     (helps with comparing if all the interest rates are based on the same time frame).  

So, for a 1 year T-bill auctioned today  the interest rate is   3.34% 
(  100 - 96.764444 =  3.23558 
    3.23558 / 96.764444 = .0334374  
    .0334374 * 1 =  .0334374  since it's a 1 year term - there's only 1 period
    .0334374 * 100 =    3.34%  )


This is my first foray into T-Bills (I have old EE Bonds and some old I-Bonds and some new I-Bonds   )  Thought I'd use the money from maturing EE Bonds to try to get my brain to understand how they work and how to interpret the info given about the Bills (the par amount, the interest rate, the term, and how much they actually cost...)  and I needed quick turn around on the amounts... hence the 4 week terms.  

[MarionTh230]

Well, I think you did great for a 4 week term.  I certainly don't have any other account that would pay that interest in 4 weeks.  

The entire TD website drives me bonkers.  It's such an effort to dig through each transaction to find all the amounts that matter!  

[Tiny]

MarionTh230 -  meant to say Thank you for your explanation of how the interest rate was calculated and some "sample" data for me to play with (that had a different time frame than what I'm working with).      

I went all geeky (doing math and getting the "answers" to match what I expected) and forgot to say Thanks!    

 

[MarionTh230]

Jun 9, 2022 16:51:08 GMT -5 Tiny said:

Jun 5, 2022 10:49:00 GMT -5 Rukh O'Rorke said:

 
So reading on the site it seems bills are always at or below par value, whereas notes and bonds might actually sell at a higher than par value - so you pay 102 for a 100 bill. Last summer some notes went as high as 111! Lately - most are 99 and some change. For Bonds, as low as 88 recently, with a eyeballing high I saw one at 116/117.
 

so, why would you want to pay 102.00 for a $100.00 TSP??      at some point in the future will the $100 TSP be worth MORE than $102.00 

There must be some reason the TIPS is available for sale at $102.00  

ADDED:  oh wait... when you go to sell that $100 TSP - are you hoping that the auction price it sells for is MORE than $102.00   Is that were the "magic" happens and you have an increase in value? 

ADDED some more - this feels like something where newbies jump in with both feet and get burned while everyone else who's familiar with it know what to do to not loose money...    it's not gambling - it's more of a "convoluted set of rules that don't work as one would "intuit" they would...." thing...       You have to be in "know" to make it work. 

For TIPS, it's a bit complicated.  I only buy 5 year TIPS.  I have never seen them auction at a discount.  I've only ever seen them auction at a premium.  Right now they look to be hanging around $101 - $102 for $100 par value.

At its core, it functions as a simple bond.  Par value and a stated interest rate.  Interest paid semi-annually.  The trick with the TIPS is there is the additional inflation protection component.  When the CPI increases during periods of inflation, the bond's value is increased.  That $100 principal value increases to more than $100.  Then, the next interest payment is made not on the $100 original value, but on the new increased principal value.

Increases to principal of TIPS works well in times of inflation.  In times of deflation though, the principal will decrease.  There is a stop-gap where the Treasury says your TIP will never be less than the original value at maturity.  Which means if deflation has reduced the value of your TIP below the original par value and it is time for that security to mature, you will receive the original $100 value, not the deflated principal value.

For TIPS, the regular interest payments are reported via 1099-INT.  The increase in the security's principle due to the CPI adjustments are reported via 1099-OID.  At maturity, the gross proceeds are reported via 1099-B.  Requires a little bit of proper tracking and accounting of the OID to document the correct cost basis.

[MarionTh230]

Jul 29, 2022 11:03:32 GMT -5 Rukh O'Rorke said:

put in two more orders - another 52 week bill and a 2 year note, both for 500. Auctions in Aug and Sept.

I got two separate $0.07 deposits in my checking account.....I was confused about where they came from, so interest from treasuries. I'd prefer they just compounded? Is there a way to do that or not?

No, the interest on these treasuries cannot be compounded.  This is the main reason I just have all the interest payments redirected to my Zero Percent C of I.  To avoid tracking pennies magically appearing in my checking account  On a more serious note, the TD website is not user friendly.  But, there's no hidden button to compound the interest on these particular treasuries.  The simple interest paid via coupon rates is just inherent to these particular treasuries.  Archaic?  Maybe.  But, it's the federal government.  Archaic is somewhat expected!

[Rukh O'Rorke]

My latest purchase:

Security Type: 2-Year Note
Par Amount: $500.00
Price per $100: 99.890561
Investment/Interest Rate: 3.250%

Issue Date: 08-31-2022
Maturity Date: 08-31-2024
Next Interest Payment: 02-28-2023
Interest Payment Amount: $8.13



so it looks like notes due have a percent interest payment, plus an advantage fi you purchase at less than par, but that bills do not. I would expect bonds to function like the notes in that respect, but I haven't bought any of those, yet!

So this one is 3.25%.

[Rukh O'Rorke]

August auctions seeing best rates generally on the bonds, edging towards mid 3% range, but need to lock in for 20 or more years, then the notes at or abovet 3%, with bills being more variable, but many still in the mid to high 2% range.

Still watching bonds, would like a higher interest rate to lock in for so many years....

[MarionTh230]

Sept 2, 2022 18:49:06 GMT -5 Rukh O'Rorke said:

My latest purchase:

Security Type: 2-Year Note
Par Amount: $500.00
Price per $100: 99.890561
Investment/Interest Rate: 3.250%

Issue Date: 08-31-2022
Maturity Date: 08-31-2024
Next Interest Payment: 02-28-2023
Interest Payment Amount: $8.13



so it looks like notes due have a percent interest payment, plus an advantage fi you purchase at less than par, but that bills do not. I would expect bonds to function like the notes in that respect, but I haven't bought any of those, yet!

So this one is 3.25%.

Correct.  A note will pay you a coupon interest.  Reported as 1099-INT income.  When the note matures, the Treasury will issue a 1099-B for the maturity payment.  That discount on par will be reported to the IRS via one of the schedules (don't remember which one), using the 1099-B.  Bills do not pay coupon interest.  Notes and bonds do.  So yes, a note functions as a short term bond in that respect.  There is a list somewhere about time to maturity.  I had thought notes would be 10 years or less to maturity and bonds were 20 years or more to maturity?  Either way, the notes and bonds function the same way in terms of interest and purchase mechanisms.

[MarionTh230]

Sept 2, 2022 18:57:45 GMT -5 Rukh O'Rorke said:

August auctions seeing best rates generally on the bonds, edging towards mid 3% range, but need to lock in for 20 or more years, then the notes at or abovet 3%, with bills being more variable, but many still in the mid to high 2% range.

Still watching bonds, would like a higher interest rate to lock in for so many years....

I've said previously I only purchase bills, 2 year notes, and 5 year TIPS.  Realistically, the 5 year TIPS lock my money up longer that I would like in a perfect world.

If you purchase bonds, is your plan to just hold until maturity?  Or are you seeking to liquidate early via the secondary market?

The reason I haven't dipped my toes in the bond water is because I literally have no idea how to sell my marketable treasury holdings in Treasury Direct on the secondary market.  Which means, I just go in with the idea that whatever I buy (excluding savings bonds), I will need to hold until maturity.  Which makes me quite nervous when looking at bonds given the long time to maturity.