Treasury Bond Buying Tutorial

Discussion of the Bond portion of the Permanent Portfolio

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vnatale
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Re: Treasury Bond Buying Tutorial

Post by vnatale » Fri Apr 24, 2020 5:07 pm

Gumby wrote:
Thu Nov 03, 2011 10:59 am
foglifter wrote: A couple of questions came to my mind after reading your post:

1. Market order vs. limit order: does it really matter which type of order to use?
It depends on what you want. If you know what price you want to pay for the bonds — and don't mind waiting for the market to hit that price — then use a limit order. If you just want the bonds now — and don't mind paying the market price — use a market order. With a market order, you are going to pay something close to the latest "Ask" price. However, with a limit order, you risk not getting the bonds at all if the market price rises from that point forward. I have also used market orders for Treasuries many times and never been disappointed. So, it really depends on what you want and how much you're willing to spend.

One easy way to decide is to look at the Bid/Ask spread. Since the Treasury market is very liquid, the Bid/Ask spread is almost always very tight. In other words, the bidder's price will almost always be extremely close to the asker's price. When you place a market order, you are basically saying that you're willing to take the "Ask" price, whatever it may be. With Treasuries, I don't think it really matters because of the liquidity and the spread is almost always going to be very tight.

Keep in mind that retail brokerages don't put you at the front of the line when limit trades happen. Most of these brokerage houses will usually only sell you something as a limit order if the price drops a few pennies below your bid price, because they will typically try to buy for a slight discount and then quickly sell it to you for the price you asked for. This is even true in full-service brokerage houses — and it's been a long-standing tradition on Wall Street. Remember, most people on Wall Street make most of their money through billions and billions of pennies that add up.

However, I would definitely recommend that you use a limit order when selling your bonds. That way you get the price that you want.
foglifter wrote:2. Is it better to use a ladder of bonds spreading the purchases in time or just sell all my EDV/TLT and buy bonds at once?
If you're unhappy with TLT, just sell it and buy 30 year Treasuries all at once. Your 20-30 year ladder will happen gradually over time as you rebalance into bonds over the years. The truth is that if taxes (and simplicity) weren't a factor you're PP might actually be better off rolling over 29 year Treasuries back into 30 year Treasuries each year. But, for the sake of our sanity, we just let a natural ladder happen on its own. There are some advantages to having a naturally occurring 20-30 year ladder in your pocket. For example, if you ever have a capital gain in another asset, like your Stocks, you might be able to sell a losing 23 year Treasury — take a capital loss, for tax loss harvesting — and roll it over to a new 30-year Treasury without any wash sale issues (since the durations are so different). Of course, that's just a futuristic hypothetical situation (since a seven-year-old 2034 Treasury should be doing pretty well right now).
foglifter wrote:3. What is the difference between buying at the auction or secondary market?
In terms of the actual bond, there is no difference whatsoever — since the bonds themselves are just electronic records in your account. Some brokerage houses will charge a fee to transact with the secondary market. But, at Fidelity, they are free either way. So, it makes no difference at Fidelity or Schwab. If you want the bonds immediately, just buy them on the secondary market.

If you happen to be just a day or two away from the regularly scheduled 30 year auction, you may want to participate in the auction just for fun. Just understand that you will be entering a "non-competitive" bid at the auction — which means that you are willing to pay the market price, for that bond, at the time of auction. If the auction isn't as highly over-subscribed as it usually is, you may get a nice little discount at the auction (maybe something like $999 per bond) — which is always fun. And the level of participation in the auction will typically affect the mood of the bond market. But, it's probably not worth waiting a week or two just to participate in the auction.

So, the secondary market is where all the trading action is. The auction is where the bonds are handed out to the public for trading and holding. After the auction is complete and the accounts are settled, most of those new bonds will be trading on the secondary market anyway — and that's why the Treasury market is so liquid.

Bottom line...if your brokerage house isn't going to charge you anything to participate in the secondary market, you'll have more control in the secondary market. And, of course, remember that you can only sell your bonds on the secondary market. The auction is really for those who want to have a little fun with it.

Absolutely PACKED with useful information!


Vinny
Above provided by: Vinny, who always says: "I only regret that I have but one lap to give to my cats." AND "I'm a more-is-more person."
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Re: Treasury Bond Buying Tutorial

Post by Kriegsspiel » Thu Aug 26, 2021 1:26 pm

I recently found out something about selling individual bonds at Vanguard. When you go to sell bonds below the required amount, you have to click on the "show more" dropdown below the CUSIP and find the line with the amount of bonds you want to sell, and sell them on that line. You can't just click "sell" on the left thinking Vanguard will do that for you.

I believe this is why they failed to sell my bonds when I wanted to sell them at the top in 2020.
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Re: Treasury Bond Buying Tutorial

Post by dualstow » Thu Aug 26, 2021 1:40 pm

Kriegsspiel wrote:
Thu Aug 26, 2021 1:26 pm
I recently found out something about selling individual bonds at Vanguard. When you go to sell bonds below the required amount, you have to click on the "show more" dropdown below the CUSIP and find the line with the amount of bonds you want to sell, and sell them on that line. You can't just click "sell" on the left thinking Vanguard will do that for you.

I believe this is why they failed to sell my bonds when I wanted to sell them at the top in 2020.
Does it show a slightly worse price than what you would get if you met the minimum?
RIP Marcello Gandini
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Re: Treasury Bond Buying Tutorial

Post by Kriegsspiel » Thu Aug 26, 2021 2:33 pm

Yup.

I do want to mention, that a guy from Vanguard walked me through this on the phone, since if you try it the wrong way and Vanguard cancels your order, you can't go back and do it the right way. So I had to call like it was 1998 and talk to a human. It was actually kind of nice.
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Re: Treasury Bond Buying Tutorial

Post by vnatale » Sun Oct 17, 2021 9:27 am

Lone Wolf wrote:
Fri Oct 28, 2011 9:12 pm



Insurance may not be a bad way to spend some of your PP riches but it's not a requirement.  Storage in a safe deposit box at your local bank is cheap, often around $30-$50 per year.  If you hold even 20 ounces of gold in a $30 safe deposit box, that works out to less than 0.08% per year.


STILL doing my research and wanting as many questions answered prior to implementing...

I received these quotes from my bank...

"Extra small 3”x5”24” (3” high, 5” wide and 24” long) with an annual box rental fee of $30

Small 3”x10”24” (3” high, 10” wide and 24” long) with an annual box rental fee of $60"

How many ounces of gold would I be able to put in each of the two boxes? I assume twice as many in the second as the first?
Above provided by: Vinny, who always says: "I only regret that I have but one lap to give to my cats." AND "I'm a more-is-more person."
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Re: Treasury Bond Buying Tutorial

Post by Mark Leavy » Sun Oct 17, 2021 11:20 am

vnatale wrote:
Sun Oct 17, 2021 9:27 am

STILL doing my research and wanting as many questions answered prior to implementing...

I received these quotes from my bank...

"Extra small 3”x5”24” (3” high, 5” wide and 24” long) with an annual box rental fee of $30

Small 3”x10”24” (3” high, 10” wide and 24” long) with an annual box rental fee of $60"

How many ounces of gold would I be able to put in each of the two boxes? I assume twice as many in the second as the first?
300 ounces fits easily in the extra small box.
You will need to start eating meat before you can fill the larger box and lift it over your head.

Which is about as likely as you ever actually implementing a Permanent Portfolio.
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Re: Treasury Bond Buying Tutorial

Post by vnatale » Sun Oct 17, 2021 12:10 pm

Mark Leavy wrote:
Sun Oct 17, 2021 11:20 am

vnatale wrote:
Sun Oct 17, 2021 9:27 am


STILL doing my research and wanting as many questions answered prior to implementing...

I received these quotes from my bank...

"Extra small 3”x5”24” (3” high, 5” wide and 24” long) with an annual box rental fee of $30

Small 3”x10”24” (3” high, 10” wide and 24” long) with an annual box rental fee of $60"

How many ounces of gold would I be able to put in each of the two boxes? I assume twice as many in the second as the first?


300 ounces fits easily in the extra small box.
You will need to start eating meat before you can fill the larger box and lift it over your head.

Which is about as likely as you ever actually implementing a Permanent Portfolio.


Thanks. I now seem to have estimated ranges of 300 to 500 coins fitting in the small. Calculating the weight of 400 came out to 25 pounds.

By the way even at my age (70) and weight (145 lb) I am able to dead lift 190 lb and press 75 lbs over my head. So seems I could lift that larger box of 37.5 lbs (using your 300 amount) over my head. I do use 35 pound plates for some of my barbell exercises.
Above provided by: Vinny, who always says: "I only regret that I have but one lap to give to my cats." AND "I'm a more-is-more person."
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Re: Treasury Bond Buying Tutorial

Post by vnatale » Sun Oct 17, 2021 5:54 pm

dualstow wrote:
Tue Mar 24, 2020 9:36 pm

I think you’re right, but things have changed since then anyway. Craig mentions Vanguard’s “Bond Desk” and I don’t think they even use the term anymore. You used to have to call to order bonds, hence the desk.

There’s some good info on page 8, beginning with Krieg’s post.

I would post a tutorial if i thought I could cover everything that a new buyer of bonds would like to do.
I only know how to do what I do, which doesn’t require a tutorial because it is so limited. (For example, I almost always use the auctions, not the secondary market).
I have always just clicked my way through it. It was easy.


Why is that the case for you?

Today I read in my forum notes (from probably somewhere in this topic) someone making the case the of where buying on the secondary market was more advantageous than at auction.
Above provided by: Vinny, who always says: "I only regret that I have but one lap to give to my cats." AND "I'm a more-is-more person."
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Re: Treasury Bond Buying Tutorial

Post by vnatale » Sun Oct 17, 2021 6:19 pm

Kriegsspiel wrote:
Wed Mar 25, 2020 7:30 am

Vinny I just took some screenshots, since I'm not sure if you've tried it before... In your brokerage, click on Buy and Sell, then Trade Bonds or CDs

v1.png

Now, here it looks like Vanguard has changed it, because the quick search here used to go out to 30 years, not just 10:

v2.png

But you can just click on Treasuries from that top menu:

v3.png

v5.png
v4.png

Click the buy button, then say how many you want, and buy them. You can buy and sell less than the "min qty" but you won't get the advertised price/yield.


Many thanks for this. I finally reached a point in my process wherein I could review this in detail. I have some questions on your final comments. I attempted to answer them on my own but after I just logged into my Vanguard account it would not let me go beyond a certain point due to the markets not currently being open.

My questions are in regards to the first two columns - "Qty." and "Min qyt." I assume the that the first one is in $$? $5,000? But I cannot tell what the "250's" represent. Not $250? Not 250 bonds, as that would be $250,000 worth (if $1,000 each or $1,250,000 if in blocks of $5,000). But maybe they are. Not at all clear to me.

If you don't get the advertised price / yield for not buying or selling the minimum what do you get? How close is it to the advertised?
Above provided by: Vinny, who always says: "I only regret that I have but one lap to give to my cats." AND "I'm a more-is-more person."
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Re: Treasury Bond Buying Tutorial

Post by dualstow » Mon Oct 18, 2021 5:45 am

vnatale wrote:
Sun Oct 17, 2021 5:54 pm
dualstow wrote:
Tue Mar 24, 2020 9:36 pm
I think you’re right, but things have changed since then anyway. Craig mentions Vanguard’s “Bond Desk” and I don’t think they even use the term anymore. You used to have to call to order bonds, hence the desk.

There’s some good info on page 8, beginning with Krieg’s post.

I would post a tutorial if i thought I could cover everything that a new buyer of bonds would like to do.
I only know how to do what I do, which doesn’t require a tutorial because it is so limited. (For example, I almost always use the auctions, not the secondary market).
I have always just clicked my way through it. It was easy.
Why is that the case for you?

Today I read in my forum notes (from probably somewhere in this topic) someone making the case the of where buying on the secondary market was more advantageous than at auction.
Once when this came up, somebody wrote that some people just like that new bond smell. O0 I think that’s as good a reason as any. I’ve heard the opposite of what you’ve heard, i.e. that the auction gives a slight advantage, but that’s not why I used the auction.

(Meanwhile, outside, the pp, I used the secondary market for ten-year notes. I used the auction for notes with a 2031 maturity, but later I kept sporadically collecting more on the secondary market. I just kept seaching for the CUSIP of what I already owned, or clicking BUY next to that holding in Vanguard’s Balances and Holdings view).
RIP Marcello Gandini
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