Gyroscopic Investing

Since rates are only at 2.8%, I'll hesitate from my usual lecture about not placing LTT's in a taxable account if you can avoid it .

Indeed. I'm still very new to the PP process. I initially started off in active mutual funds (YAFFX) a little less than a year ago. And I have gotten "smarter" since. I then purchased PRPFX soon after YAFFX which slowly took me on the long road towards PP and all of you people.

All of my stuff currently is in taxable accounts and since I can only put in $5000 a year into a Roth IRA (plus the money I'll be able to put into my Roth TSP starting in July), I will still have a bulk of my money initially in taxable accounts. Over time, I'm hoping that I can have this start sliding the other way.

hoost wrote: 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.

Sorry, I meant to say *at auction*, where Vanguard shows a minimum of ten. Fidelity lets me pick whatever number I want, so far.

dualstow wrote:

hoost wrote: 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.

Sorry, I meant to say *at auction*, where Vanguard shows a minimum of ten. Fidelity lets me pick whatever number I want, so far.

Ah, I haven't tried to buy any at auction, so I'll take your word for it.

hoost wrote:

dualstow wrote:

hoost wrote: 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.

Sorry, I meant to say *at auction*, where Vanguard shows a minimum of ten. Fidelity lets me pick whatever number I want, so far.

Ah, I haven't tried to buy any at auction, so I'll take your word for it.

I think I read somewhere on this forum that you get a tiny discount if you buy at auction, but I don't know if it's even true. But, the offerings come frequently enough- more frequently than any new cash coming in,  ;) so I tend to use the auctions.

Are you speaking about purchasing the treasuries at auction from a broker or from TreasuryDirect? From a broker if that meant a discount then that would be good knowledge to have. If from TreasuryDirect, I remember reading about some sort of fee to have them transfer your bond to a brokerage account so you can sell it. If it's only a form however that's not as bad, just a hassle.

1NV3ST0R wrote: Are you speaking about purchasing the treasuries at auction from a broker or from TreasuryDirect?

From a broker: specifically Fidelity. Treasuries are traded there with no fee whatsoever, so the "discount" has nothing to do with fees. I'll try to find the thread and post tomorrow.

Gumby wrote: For those interested in owning your own Treasury bonds directly*, I've put together a series of 5 screenshots to show you how easy it is to buy Treasury Bonds at Fidelity. I

This is so very helpful to me. I've never been able to make heads or tails of these screens until now. Thank you!

The second Harry Browne radio link in the FAQ really helped me understand the whole "buying your own LTTs," but I just wanted to make sure I had my thoughts in order:

I'm using Vanguard.

1.  So, the yields aren't really important, because it'll even out in that you'll pay more for a higher yielding bond with the same maturity date than you would for one with a lower yield, so at maturity, you'd have the same amount of money?

2.  You can only buy long term treasuries in batches of $1000?  So if the "min quantity bid" was 1, at a price of 95.824, you would be paying $958.24 for that bond?

3.  Then, once you have the bonds, they show up in your brokerage account (mine is in my Roth) like stocks would.  And you can either sell them if you need to rebalance because interest rates dropped and maybe that one you bought at 95.824 is now worth 99.000 or whatever.  OR, you sell them after they've matured 10 years.  So if you bought a bond with 29 years left, you sell it 9 years later, if you've never had to rebalance and sell it prior to that?

Kriegsspiel wrote:1.  So, the yields aren't really important, because it'll even out in that you'll pay more for a higher yielding bond with the same maturity date than you would for one with a lower yield, so at maturity, you'd have the same amount of money?

Yes, in a matter of speaking. Though, you won't see different coupon rates for the exact same maturity date. You might see different coupon rates for Treasuries with slightly different maturity dates and in that case it shouldn't matter which one you purchase (tax considerations aside) since the pricing takes the differences into account. Basically, when buying 30-year bonds, you're looking for a long duration, not coupon.

Kriegsspiel wrote:2.  You can only buy long term treasuries in batches of $1000?  So if the "min quantity bid" was 1, at a price of 95.824, you would be paying $958.24 for that bond?

It seems like you're only buying 1 single $1000 bond, but in reality you're buying a basket of 10 bonds, because the Treasury officially issues 30-year bonds in $100 increments. It's confusing, I know. Call your brokerage if you have questions on this.

Kriegsspiel wrote:3.  Then, once you have the bonds, they show up in your brokerage account (mine is in my Roth) like stocks would.  And you can either sell them if you need to rebalance because interest rates dropped and maybe that one you bought at 95.824 is now worth 99.000 or whatever.  OR, you sell them after they've matured 10 years.  So if you bought a bond with 29 years left, you sell it 9 years later, if you've never had to rebalance and sell it prior to that?

Right.

Gumby wrote:

Kriegsspiel wrote:2.  You can only buy long term treasuries in batches of $1000?  So if the "min quantity bid" was 1, at a price of 95.824, you would be paying $958.24 for that bond?

It seems like you're only buying 1 single $1000 bond, but in reality you're buying a basket of 10 bonds, because the Treasury officially issues 30-year bonds in $100 increments. It's confusing, I know. Call your brokerage if you have questions on this.

Right, I remember seeing that on here.  I did talk to Vanguard and while they didn't say that I would be buying 10 bonds, they did say the minimum buy quantity was... the minimum.  I did forget to ask them, is the minimum sell quantity 10 bonds also?

Just did it, it was very easy!  Thanks guys.

Perhaps I'm somehow missing it but does Vanguard sell STRIPS? I know Fidelity does but I haven't found them on Vanguard yet.

Great thread! 4 questions:
1. Looks like I can buy LTTs directly at TDAmeritrade. Has anyone done that?
2. One should ladder different years and sell 10% (the shortest duration) each year, right? Or do you buy all 2042's and sell 10%/yr, eventually ending up with 10 yr ladder?
3. If the former, there is a gap in LTTs between 2031-36, right in the beginning of my 10 year ladder! Just buy 2036-42?
4. In talking to the bond desk at TDA, it seems that trades are "free." The commission is from slight mark-up price which the person estimated to be about 3/8% on a 10k trade. If so, it takes about 2.5 years for the ER of TLT to equal the same. Does this sound right?

BearBones wrote: Great thread! 4 questions:
1. Looks like I can buy LTTs directly at TDAmeritrade. Has anyone done that?

I don't know.  Maybe someone else can answer that one.

2. One should ladder different years and sell 10% (the shortest duration) each year, right? Or do you buy all 2042's and sell 10%/yr, eventually ending up with 10 yr ladder?

Neither.  I would say buy all 2042's and in 2022 sell them all (you may have some other bonds that you bought along the way when you rebalanced) and buy 2052's.

3. If the former, there is a gap in LTTs between 2031-36, right in the beginning of my 10 year ladder! Just buy 2036-42?

Why are you talking about a 10 year ladder in the context of the LT bond part of the PP?  I may have missed it somewhere up-thread.

4. In talking to the bond desk at TDA, it seems that trades are "free." The commission is from slight mark-up price which the person estimated to be about 3/8% on a 10k trade. If so, it takes about 2.5 years for the ER of TLT to equal the same. Does this sound right?

I wouldn't think that the spread would be anything like 3/8%, but I haven't bought individual bonds in quite a while, so no, it doesn't sound right to me.  I would think it would be quite a bit less, but in any case I don't know that it would matter since you won't be selling most of them for at least 10 years. 

It sounds like you are asking the LT treasury bond equivalent of: "Should I buy gold krugs at $15 over spot price if they are currently buying them back for $10 under spot price if the spread per shares on GLD is tighter?"

1NV35T0R (Greg) wrote: Perhaps I'm somehow missing it but does Vanguard sell STRIPS? I know Fidelity does but I haven't found them on Vanguard yet.

Yes, one option to get there is:

Buy & Sell > View and trade bonds or CDs > Treasuries > Treasury type > Strips

BearBones wrote: ...

4. In talking to the bond desk at TDA, it seems that trades are "free." The commission is from slight mark-up price which the person estimated to be about 3/8% on a 10k trade. If so, it takes about 2.5 years for the ER of TLT to equal the same. Does this sound right?

That seems relatively high.  I have a TDA account, but I haven't used it to buy/sell treasuries.  I found the ask price easily, but unfortunately, I couldn't find the bid price.  I assume the 3/8% is from the bid/ask spread, but I couldn't find the data to recalculate it.  In my experience at Vanguard, the bid/ask spread is about 0.08% on minimum-1 orders, and about 0.03% on minimum-25 orders.  There shouldn't be any other 'fees'.

jimbojones wrote:

BearBones wrote: ...
4. In talking to the bond desk at TDA, it seems that trades are "free." The commission is from slight mark-up price which the person estimated to be about 3/8% on a 10k trade. If so, it takes about 2.5 years for the ER of TLT to equal the same. Does this sound right?

That seems relatively high.  I have a TDA account, but I haven't used it to buy/sell treasuries.  I found the ask price easily, but unfortunately, I couldn't find the bid price.  I assume the 3/8% is from the bid/ask spread, but I couldn't find the data to recalculate it... There shouldn't be any other 'fees'.

Here is the info from TDA indicating how compensation is achieved. This seems to be a hidden commission rather than bid/ask spread, right? I am interpreting the former being fixed by the brokerage and the latter variable, dictated by the market.

"TD Ameritrade may act as principal on any fixed-income transaction. When acting as principal and receiving compensation on a net yield basis, we will add a markup to any purchase, and subtract a markdown from every sale. The markup or markdown will be included in the price and yield quoted to you."

[quote="Gumby"]
[quote="foglifter"]
However, I would definitely recommend that you use a limit order when selling your bonds. That way you get the price that you want.

Gumby or anyone:

I tried to sell the bonds using limit orders at Fidelity. First I set the price a bit higher than Ask price (real time quote at lower right hand), Fidelity cancelled it after a min. Then I set the price exactly at Ask price, Fidelity cancelled again. It won't let me do limit order any more because "too many attempts". So I tried to sell at Market and I got the price much less than Bid price. e.g. bid price at 99.875, market order got me at 99.828.

So have anyone successfully sell a limit order at Fidelity? if so, what did I do wrong and how would I get the price I want?

Thanks

BearBones wrote:

jimbojones wrote:

BearBones wrote: ...
4. In talking to the bond desk at TDA, it seems that trades are "free." The commission is from slight mark-up price which the person estimated to be about 3/8% on a 10k trade. If so, it takes about 2.5 years for the ER of TLT to equal the same. Does this sound right?

That seems relatively high.  I have a TDA account, but I haven't used it to buy/sell treasuries.  I found the ask price easily, but unfortunately, I couldn't find the bid price.  I assume the 3/8% is from the bid/ask spread, but I couldn't find the data to recalculate it... There shouldn't be any other 'fees'.

Here is the info from TDA indicating how compensation is achieved. This seems to be a hidden commission rather than bid/ask spread, right? I am interpreting the former being fixed by the brokerage and the latter variable, dictated by the market.

"TD Ameritrade may act as principal on any fixed-income transaction. When acting as principal and receiving compensation on a net yield basis, we will add a markup to any purchase, and subtract a markdown from every sale. The markup or markdown will be included in the price and yield quoted to you."

Lately I have been looking at a PP-like account at TDA, looking to rebalance.  I got to wondering how many things I did wrong.  One thing that stuck out is that I bought Treasuries from the secondary market through TDA, with little thought that there might be a markup in the price.  I feel stupid now, even though it's been over two years.

I just called the help number, which transferred me to the fixed income group.  The guy there told me there was no markup, and that prices reflect only the spread, typically 0.25 to 0.75 percent.  I see in the TDA literature that there may be a markup, but maybe they don't really do this?  Either that or he lied to me straight up.

Is there an equivalent tutorial for buying Federal Bonds in Canada? I've searched google and it puzzles me that I can't find a single guide in this regard.

blue_ruin17 wrote:Is there an equivalent tutorial for buying Federal Bonds in Canada? I've searched google and it puzzles me that I can't find a single guide in this regard.

Quote from a friend in Calgary:

"Not available to public through auction (primary market). Can buy 100% Fed bonds through ETFs from BMO: ZFL, ZFM, ZFS (traded on TSX) or on the secondary market through broker. Unless they are buying over $100,000 it's best to stick with ETF option. Other government bond ETFs are available but have provincial or agencies paper adding to the risk."

ochotona wrote:

blue_ruin17 wrote:Is there an equivalent tutorial for buying Federal Bonds in Canada? I've searched google and it puzzles me that I can't find a single guide in this regard.

Quote from a friend in Calgary:

"Not available to public through auction (primary market). Can buy 100% Fed bonds through ETFs from BMO: ZFL, ZFM, ZFS (traded on TSX) or on the secondary market through broker. Unless they are buying over $100,000 it's best to stick with ETF option. Other government bond ETFs are available but have provincial or agencies paper adding to the risk."

Ahh, I see. Thank you...

I will call my Brokerage and ask them if they sell Long Federal Bonds on the secondary market.

If not, ZFL seems like the best Long Bond ETF for Canadians. But holding them directly is obviously preferable.

Hi,

I am still learning how to play with bonds. Am I correct in assuming that selling them is as easy as buying? I will keep the earnings for the period of holding them, right?

Thanks,

Selling Treasuries can be a bit complicated and it depends on where you're holding them.

Treasury Direct: you can't sell them on the site. You have to transfer them to a brokerage account and then sell. I've never tried to do this as I only use this account for savings bonds.

Fidelity: Very easy! Expand the bond in the "positions" view and hit the "sell" button. There is no fee to buy or sell, but be aware that there is a bid-ask spread, so there is a cost involved. If you own, say, 10 $1000 bonds and want to sell 5 of them, take care to enter "50" in the sell amount as bonds values are calculated in $100 lots.

Other brokerages (Vanguard, Schwab) charge a fee to sell a bond. Especially beware of Ally Bank's TradeKing investment account, where the fees can be as high as $50 a bond (not the advertised $1) and apply to buying and selling.

Some brokers (Ally Bank's TradeKing) do not allow you to sell a bond online, only by phone. Vanguard and Schwab used to, but both now allow you to sell bonds through the website (per their website; I haven't tried it).