Treasury Bond Buying Tutorial

Discussion of the Bond portion of the Permanent Portfolio

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MikeK
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No bonds listed at Vanguard?

Post by MikeK » Mon Mar 19, 2012 9:20 pm

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
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foglifter
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Re: No bonds listed at Vanguard?

Post by foglifter » Mon Mar 19, 2012 9:27 pm

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: 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...
http://gyroscopicinvesting.com/forum/ht ... ic.php?t=9
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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. 
Mechanical engineer, history buff, treasure manager... totally not Ben Gates
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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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