Treasury Bond Buying Tutorial

Discussion of the Bond portion of the Permanent Portfolio

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MikeK
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Re: No bonds listed at Vanguard?

Post by MikeK » Mon Mar 19, 2012 10:23 pm

foglifter wrote:
MikeK wrote: Based on the recent news about TLT, I figured it'd be a good time to go look into how to buy LTT bonds directly. 
What news about TLT did you mean? I haven't been following the market  lately...
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Re: Treasury Bond Buying Tutorial

Post by foglifter » Thu Mar 22, 2012 2:22 pm

I just got rid of TLT and bought my first bond at Fidelity. :)

First I tried a limit order with price in between the bid and ask but this one somehow showed as "Cancelled" right after I clicked "Submit". Is this because bond market works differently from the stock market and there is no open orders? Anyways, after that I placed a market order and it got filled at an Ask price.

Can somebody explain what "price" actually means in the bond position? Looks like it's 1/10 of the actual price of a 1000-dollar bond. For example, my trade confirmation for buing 4 bonds says "4000 bonds filled @ $95.5312".

Thanks
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Re: Treasury Bond Buying Tutorial

Post by Gumby » Thu Mar 22, 2012 7:11 pm

foglifter wrote:First I tried a limit order with price in between the bid and ask but this one somehow showed as "Cancelled" right after I clicked "Submit". Is this because bond market works differently from the stock market and there is no open orders? Anyways, after that I placed a market order and it got filled at an Ask price.
You can certainly have open orders on Bonds. Next time, just call up Fidelity and they'll walk you through it over the phone.
foglifter wrote:Can somebody explain what "price" actually means in the bond position? Looks like it's 1/10 of the actual price of a 1000-dollar bond. For example, my trade confirmation for buing 4 bonds says "4000 bonds filled @ $95.5312".
So... the reason the market price is roughly $100 (instead of roughly $1000) is because that's what the official face value is of a bond is when you buy it directly from the Treasury...

http://www.treasurydirect.gov/indiv/pro ... glance.htm

... but Fidelity doesn't want to be in the business of selling only $100 worth or $1200 worth of Treasury bonds. They want you to buy in blocks of $1000 (i.e. 10 bond increments) — likely to keep costs down. So, to make it "easy" they just tell you that the face value is $1000 and give you the official market price (which is based on $100 bonds). It's a little confusing, but it's better than giving you an error for trying to buy 11 $100 or 15 $100 bonds — which wouldn't work since they want you to buy in blocks of ten.
Last edited by Gumby on Thu Mar 22, 2012 7:14 pm, edited 1 time in total.
Nothing I say should be construed as advice or expertise. I am only sharing opinions which may or may not be applicable in any given case.
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Re: Treasury Bond Buying Tutorial

Post by foglifter » Thu Mar 22, 2012 7:53 pm

Gumby wrote:
foglifter wrote:First I tried a limit order with price in between the bid and ask but this one somehow showed as "Cancelled" right after I clicked "Submit". Is this because bond market works differently from the stock market and there is no open orders? Anyways, after that I placed a market order and it got filled at an Ask price.
You can certainly have open orders on Bonds. Next time, just call up Fidelity and they'll walk you through it over the phone.
foglifter wrote:Can somebody explain what "price" actually means in the bond position? Looks like it's 1/10 of the actual price of a 1000-dollar bond. For example, my trade confirmation for buing 4 bonds says "4000 bonds filled @ $95.5312".
So... the reason the market price is roughly $100 (instead of roughly $1000) is because that's what the official face value is of a bond is when you buy it directly from the Treasury...

http://www.treasurydirect.gov/indiv/pro ... glance.htm

... but Fidelity doesn't want to be in the business of selling only $100 worth or $1200 worth of Treasury bonds. They want you to buy in blocks of $1000 (i.e. 10 bond increments) — likely to keep costs down. So, to make it "easy" they just tell you that the face value is $1000 and give you the official market price (which is based on $100 bonds). It's a little confusing, but it's better than giving you an error for trying to buy 11 $100 or 15 $100 bonds — which wouldn't work since they want you to buy in blocks of ten.
Thanks, Gumby!
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Re: Treasury Bond Buying Tutorial

Post by foglifter » Fri Mar 23, 2012 3:13 pm

Inspired by flyingpylon's excellent input on getting bond prices in real-time using Google APIs I made a screenshot that helps understand how the formula works:

Image

The red rectangle shows the first 5 rows of the table #10 in the page source. The values are in the 2nd column, so to get the third party price (which seems to be the last close price) you would use the value in the 5th row:

=index(ImportHtml("http://fixedincome.fidelity.com/fi/FIBo ... p=CUSIP",1,10),5,2)

To get the bid price just change 5 to 1:
=index(ImportHtml("http://fixedincome.fidelity.com/fi/FIBo ... p=CUSIP",1,10),1,2)

And here's the formula for the ask price:
=index(ImportHtml("http://fixedincome.fidelity.com/fi/FIBo ... p=CUSIP",1,10),2,2)

CUSIP in the above examples should be replaced with an actual value. I found convenient to use indirect addressing by putting bond's CUSIP into a cell and referring to a cell in the formula, for example if the CUSIP is in the cell D3:
=index(ImportHtml("http://fixedincome.fidelity.com/fi/FIBo ... ORD&cusip="&$D3,1,10),2,2)

flyingpylon, thank you for educating us on this highly useful technique to get bond prices!  :)

The same method can be used for getting all kinds of data from the web, for example to get real-time gold prices (but this should go to the Gold section).
Last edited by foglifter on Mon Apr 09, 2012 7:30 pm, edited 1 time in total.
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Re: Treasury Bond Buying Tutorial

Post by flyingpylon » Fri Mar 23, 2012 4:16 pm

Good idea, nice job... a picture is worth a thousand words!
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Re: Treasury Bond Buying Tutorial

Post by Tyler » Wed Mar 28, 2012 12:14 am

So I finally took the plunge today in selling my TLT and buying direct treasuries through Fidelity.  It was very simple, and honestly I don't know why I waited so long.

Just wanted to thank Gumby specifically for the very helpful guide, and everyone for all the info on TLT and owning treasuries in general.  Having a resource like this forum to guide me through good decisions makes me confident that the HBPP is something I'll be sticking with long term. 
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Re: No bonds listed at Vanguard?

Post by hoost » Wed Mar 28, 2012 9:24 am

MikeK wrote: Based on the recent news about TLT, I figured it'd be a good time to go look into how to buy LTT bonds directly.  The above instructions for Fidelity are very helpful and I'll be using them when I've accumulated enough cash to need a rebalance. 

I also have an account with Vanguard and figured I'd look over their Bond desk.  But I can never get anything to show up with the searches I've done thus far.

Image

Image

What am doing wrong?  It's gotta be something obvious, because I can't see it!

mike
Mike,

I had the same issue when I first tried searching for bonds with Vanguard.  What time/day were you performing the search?  I found that results only show up if you search while the market is open.  At least, after getting no results the first time (on a Sunday afternoon), I went back in on Monday morning and was able to get results.

I hope that helps.
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Re: No bonds listed at Vanguard?

Post by MikeK » Wed Mar 28, 2012 10:52 am

hoost wrote: I had the same issue when I first tried searching for bonds with Vanguard.  What time/day were you performing the search?  I found that results only show up if you search while the market is open.  At least, after getting no results the first time (on a Sunday afternoon), I went back in on Monday morning and was able to get results.

I hope that helps.
Yep, you are exactly right!  Just did a search and I got a few hits.  Now, just need to figure out how to understand the results.....

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Re: Treasury Bond Buying Tutorial

Post by moda0306 » Wed Mar 28, 2012 10:56 am

If anyone here has done a few Vanguard bond trades and would be willing to post a tutorial it would be MUCH appreciated by myself and others.
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Re: No bonds listed at Vanguard?

Post by hoost » Wed Mar 28, 2012 11:01 am

MikeK wrote:
hoost wrote: I had the same issue when I first tried searching for bonds with Vanguard.  What time/day were you performing the search?  I found that results only show up if you search while the market is open.  At least, after getting no results the first time (on a Sunday afternoon), I went back in on Monday morning and was able to get results.

I hope that helps.
Yep, you are exactly right!  Just did a search and I got a few hits.  Now, just need to figure out how to understand the results.....

mike
I used the quick searches on the left hand sidebar.  Choose secondary treasury.  Then Bonds, 15 to 30 year.  They're sorted by maturity descending (at least for me).  The longest right now is 2/15/2042; it says min qty is 100, but I bought 6 last week and didn't have any issues.  Click buy on the left side and it will take you into the buying menu; should be straight-forward from there if I recall.

rgds,

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Re: Treasury Bond Buying Tutorial

Post by l82start » Wed Mar 28, 2012 1:05 pm

just had a broker talk me through my first vanguard bond purchase, it was pretty easy and fairly self explanatory.. 

we did have a small glitch on date's, bonds close in one day, TLT sales take two... but since the broker was the one guiding me he fixed it on his end,
i will see if i remember the steps easily when i repeat the process for another account over the next few days..
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Re: Treasury Bond Buying Tutorial

Post by Reub » Thu Apr 12, 2012 11:36 am

I just purchased my first direct LT treasuries through Vanguard. However, I sold TLT to do it. Will this be a problem if the TLT sale settles in 2 days and the LT bonds settle in 1 day?

Thanks to everyone for the great advice on accomplishing this transaction!
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Re: Treasury Bond Buying Tutorial

Post by l82start » Thu Apr 12, 2012 11:47 am

yes this is the exact problem/glitch i had, fortunately because i was being "walked through" the buying process by a customer service rep and he didn't spot the problem before we hit buy (his error not mine),  he was able to make a internal call and get the buy covered with credit some how....   when i made my second purchase (i remembered the steps just fine ) i waited the extra day to give the TLT sale time to close.

you may want to make a phone call and make sure the sell/buy are going to happen and not be canceled, i don't know what happens or what the SOP for dealing with this are, i bet it happens often enough that they will have some kind of policy for dealing with it...
Last edited by l82start on Thu Apr 12, 2012 11:50 am, edited 1 time in total.
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Re: Treasury Bond Buying Tutorial

Post by foglifter » Thu Apr 12, 2012 12:01 pm

Reub wrote: I just purchased my first direct LT treasuries through Vanguard. However, I sold TLT to do it. Will this be a problem if the TLT sale settles in 2 days and the LT bonds settle in 1 day?

Thanks to everyone for the great advice on accomplishing this transaction!
This is one of the areas where Fidelity shines. I sold TLT and bought the bond without any worries.
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Re: Treasury Bond Buying Tutorial

Post by Reub » Thu Apr 12, 2012 12:03 pm

I just called them and they were very helpful. They told me that if I sell the TLT before purchasing the Treasury bonds then my account will show a credit and allow the purchase even though the sale will settle after the purchase does.
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Re: Treasury Bond Buying Tutorial

Post by l82start » Thu Apr 12, 2012 12:11 pm

glad it worked out to be a smooth trade,  i had a feeling it was a common situation that they would have a way to deal with....  i like vanguards customer service, they seem to try to make it as easy as possible...
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Re: Treasury Bond Buying Tutorial

Post by dualstow » Thu Apr 12, 2012 12:51 pm

I bought a "decimal dozen" (seriously, what's the word for ten of something?) of 10-YR treasuries for my vP and that executed yesterday. Very different from Fidelity. The only reason I know the CUSIP is because I'd saved a screenshot when I put in my non-competitive bid in the auction.

I, too, had recently sold something that hadn't settled before the treasury order executed. But, when you trade with Vanguard, you can always see how much is available to trade.
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Re: Treasury Bond Buying Tutorial

Post by Reub » Fri Apr 13, 2012 4:16 pm

OK. I purchased the 2042-02-15 with semi-annual payments in Feb. and Aug. Does this mean that I should sell in 2032 right after a semi-annual repayment and then purchase a new 30 yr bond at that time?
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Re: Treasury Bond Buying Tutorial

Post by hoost » Fri Apr 13, 2012 4:28 pm

You'll want to sell in 2022, as at that point the bond would have 20 yrs left on it.  If you wait until 2032 it will only have 10 years remaining.
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Re: Treasury Bond Buying Tutorial

Post by Tortoise » Sat Apr 14, 2012 1:26 am

Also, Reub, it doesn't matter when you sell the bond within a given year. Immediately after a coupon payment, the market price of the bond simply drops by roughly the amount of the coupon payment.
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Re: Treasury Bond Buying Tutorial

Post by Greg » Wed May 23, 2012 10:05 am

Anyone know for Fidelity if you were to purchase 10 $1000 face value 30 year bonds and then want to sell, can you sell just 5 of those original 10 or do you have to sell all 10?
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Re: Treasury Bond Buying Tutorial

Post by dualstow » Wed May 23, 2012 10:17 am

1NV3ST0R wrote: Anyone know for Fidelity if you were to purchase 10 $1000 face value 30 year bonds and then want to sell, can you sell just 5 of those original 10 or do you have to sell all 10?
Although I've never sold any, I would think you could sell 5. After all, (unlike Vanguard) Fidelity does let one buy fewer than 10.
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Re: Treasury Bond Buying Tutorial

Post by hoost » Wed May 23, 2012 10:19 am

Vanguard also let's you buy fewer than 10.  I think the price goes up slightly though.  I'm not sure how their prices/internal markups are relative to Fidelity, I bought six bonds a couple months ago with no issues.
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Re: Treasury Bond Buying Tutorial

Post by Greg » Wed May 23, 2012 10:41 am

I'll have to call Fidelity and see what they say. Perhaps it is like tax lots with ETFs/Stocks where you can pick and choose how much of each lot to sell.
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