Can T-bills trade at a premium?

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technovelist
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Can T-bills trade at a premium?

Post by technovelist » Mon Mar 23, 2020 8:56 am

Right now my 5/12/2020 maturity T-Bills are trading at 99.999, so going over 100 doesn't seem unlikely.
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Re: Can T-bills trade at a premium?

Post by D1984 » Mon Mar 23, 2020 9:56 am

Theoretically can they or likely will they as of right now? Yes to the former (imagine buying a 6-month, 9-month, or 1 year bill in August or September of 1981; within a few months as rates fall from almost 17 percent to around 11.9 or 12 percent and your 1 year Treasury is now a 6 or 7 months left until maturity Treasury and it is yielding 5+ percent more than currently issued six months Treasuries; I'd imagine it'd have to trade at a slight premium if the market was efficient, unregulated as far as rate caps/floors go, deep, and liquid--which was indeed the case for the T-bill market in the early 80s.). "Not very likely" to the latter; I think rates would have to fall several points--i..e negative rates on short-term Treasury paper--before you'd see a premium on T-bills...and even then 90-day bills and less would likely trade at little or no premium anyway since they are so close to maturity.

EDIT: Yes, I am aware T-bills are discount securities (essentially zero coupon bonds) but the above effect would still be the same...by "yielding" I meant yield to maturity and not paid-out-as-interest yield.
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Re: Can T-bills trade at a premium?

Post by technovelist » Mon Mar 23, 2020 10:06 am

D1984 wrote:
Mon Mar 23, 2020 9:56 am
Theoretically can they or likely will they as of right now? Yes to the former (imagine buying a 6-month, 9-month, or 1 year bill in August or September of 1981; within a few months as rates fall from almost 17 percent to around 11.9 or 12 percent and your 1 year Treasury is now a 6 or 7 months left until maturity Treasury and it is yielding 5+ percent more than currently issued six months Treasuries; I'd imagine it'd have to trade at a slight premium if the market was efficient, unregulated as far as rate caps/floors go, deep, and liquid--which was indeed the case for the T-bill market in the early 80s.). "Not very likely" to the latter; I think rates would have to fall several points--i..e negative rates on short-term Treasury paper--before you'd see a premium on T-bills...and even then 90-day bills and less would likely trade at little or no premium anyway since they are so close to maturity.

EDIT: Yes, I am aware T-bills are discount securities (essentially zero coupon bonds) but the above effect would still be the same...by "yielding" I meant yield to maturity and not paid-out-as-interest yield.
This is different because a t-bill trading above par means that you are guaranteed to lose money in nominal terms if you buy it.
It should be interesting to see what happens to the auto-roll feature at Fidelity if t-bills are trading above par.
I saw that Schwab already canceled auto-roll in preparation for this possibility.
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Re: Can T-bills trade at a premium?

Post by D1984 » Mon Mar 23, 2020 10:16 am

technovelist wrote:
Mon Mar 23, 2020 10:06 am
D1984 wrote:
Mon Mar 23, 2020 9:56 am
Theoretically can they or likely will they as of right now? Yes to the former (imagine buying a 6-month, 9-month, or 1 year bill in August or September of 1981; within a few months as rates fall from almost 17 percent to around 11.9 or 12 percent and your 1 year Treasury is now a 6 or 7 months left until maturity Treasury and it is yielding 5+ percent more than currently issued six months Treasuries; I'd imagine it'd have to trade at a slight premium if the market was efficient, unregulated as far as rate caps/floors go, deep, and liquid--which was indeed the case for the T-bill market in the early 80s.). "Not very likely" to the latter; I think rates would have to fall several points--i..e negative rates on short-term Treasury paper--before you'd see a premium on T-bills...and even then 90-day bills and less would likely trade at little or no premium anyway since they are so close to maturity.

EDIT: Yes, I am aware T-bills are discount securities (essentially zero coupon bonds) but the above effect would still be the same...by "yielding" I meant yield to maturity and not paid-out-as-interest yield.
This is different because a t-bill trading above par means that you are guaranteed to lose money in nominal terms if you buy it.
It should be interesting to see what happens to the auto-roll feature at Fidelity if t-bills are trading above par.
I saw that Schwab already canceled auto-roll in preparation for this possibility.
Oops...my bad. Sorry about that. I was thinking in terms of "premium above what you originally paid for it when you bought it" rather than "premium to par". That's what I get for posting after about three hours sleep last night LOL.
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Re: Can T-bills trade at a premium?

Post by technovelist » Mon Mar 23, 2020 10:22 am

D1984 wrote:
Mon Mar 23, 2020 10:16 am
technovelist wrote:
Mon Mar 23, 2020 10:06 am
D1984 wrote:
Mon Mar 23, 2020 9:56 am
Theoretically can they or likely will they as of right now? Yes to the former (imagine buying a 6-month, 9-month, or 1 year bill in August or September of 1981; within a few months as rates fall from almost 17 percent to around 11.9 or 12 percent and your 1 year Treasury is now a 6 or 7 months left until maturity Treasury and it is yielding 5+ percent more than currently issued six months Treasuries; I'd imagine it'd have to trade at a slight premium if the market was efficient, unregulated as far as rate caps/floors go, deep, and liquid--which was indeed the case for the T-bill market in the early 80s.). "Not very likely" to the latter; I think rates would have to fall several points--i..e negative rates on short-term Treasury paper--before you'd see a premium on T-bills...and even then 90-day bills and less would likely trade at little or no premium anyway since they are so close to maturity.

EDIT: Yes, I am aware T-bills are discount securities (essentially zero coupon bonds) but the above effect would still be the same...by "yielding" I meant yield to maturity and not paid-out-as-interest yield.
This is different because a t-bill trading above par means that you are guaranteed to lose money in nominal terms if you buy it.
It should be interesting to see what happens to the auto-roll feature at Fidelity if t-bills are trading above par.
I saw that Schwab already canceled auto-roll in preparation for this possibility.
Oops...my bad. Sorry about that. I was thinking in terms of "premium above what you originally paid for it when you bought it" rather than "premium to par". That's what I get for posting after about three hours sleep last night LOL.
Sure, no problem. I'm sure that's pretty common these days.
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Re: Can T-bills trade at a premium?

Post by jhogue » Mon Mar 23, 2020 11:33 am

Fidelity fixed income page shows the following:

US Treasury CUSIP # 9128285Q9, maturity 11/30/20, yield 0.313, bid 101.667, ask 101.871, yield to maturity 0.021.
Depth of book shows recent transactions (more sells than buys).

Yes, some T-bills can (and do) trade at a premium in the secondary market right now.
“Groucho Marx wrote:
A stock trader asked him, "Groucho, where do you put all your money?" Groucho was said to have replied, "In Treasury bonds", and the trader said, "You can't make much money on those." Groucho said, "You can if you have enough of them!"
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Re: Can T-bills trade at a premium?

Post by vnatale » Mon Mar 23, 2020 11:46 am

jhogue wrote:
Mon Mar 23, 2020 11:33 am
Fidelity fixed income page shows the following:

US Treasury CUSIP # 9128285Q9, maturity 11/30/20, yield 0.313, bid 101.667, ask 101.871, yield to maturity 0.021.
Depth of book shows recent transactions (more sells than buys).

Yes, some T-bills can (and do) trade at a premium in the secondary market right now.
Yes, when I had the extended call with Vanguard brokerage person this morning he quoted me a March 26th Treasury Bill that had a negative yield.

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Re: Can T-bills trade at a premium?

Post by technovelist » Thu Mar 26, 2020 8:43 am

All my t-bills are above par.
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Re: Can T-bills trade at a premium?

Post by pmward » Thu Mar 26, 2020 11:18 am

Yeah I have some T-Bills expiring in April and May and both are all above par by ~10-15 cents right now as well.
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Re: Can T-bills trade at a premium?

Post by dualstow » Fri Mar 27, 2020 5:42 pm

Mine all are. Then again, so are all all of my Lake Wobegon notes.
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