T-Bill Yield Question

Discussion of the Cash portion of the Permanent Portfolio

Moderator: Global Moderator

User avatar
dualstow
Executive Member
Executive Member
Posts: 10752
Joined: Wed Oct 27, 2010 10:18 am
Contact:

T-Bill Yield Question

Post by dualstow » Wed May 31, 2017 9:11 am

Having mostly bought 2- and 3- year treasury notes in the past, I haven't yet seen any instrument shorter than one year come to maturity.

Right now, I see 1-Year T-Bill yields at 1.153% (src: http://quotes.wsj.com/bond/BX/TMUBMUSD01Y )
and 1-Month bills at 0.857% (src: http://quotes.wsj.com/bond/BX/TMUBMUSD01M )

Yield curve craziness aside, you don't really get 0.857% from 1-month bills, right? Do I need to divide that by 12 to determine the true yield, and divide 26-week t-bill yields by 2, and so on? Is that how instruments shorter than a year work?

Or are those numbers above useless but for a very different reason?
RIP R B G
in NE Syria, a Russian armored vehicle deliberately rammed an American military viehicle, leaving 7 US service members with concussions — the week
User avatar
dualstow
Executive Member
Executive Member
Posts: 10752
Joined: Wed Oct 27, 2010 10:18 am
Contact:

Re: T-Bill Yield Question

Post by dualstow » Wed May 31, 2017 9:48 am

I do own a 26-week bill and for that, I simply subtract cost from par value and divide by cost. (0.27%)
I just don't understand how the WSJ is getting those numbers above.
RIP R B G
in NE Syria, a Russian armored vehicle deliberately rammed an American military viehicle, leaving 7 US service members with concussions — the week
User avatar
Tyler
Executive Member
Executive Member
Posts: 1927
Joined: Sat Nov 12, 2011 3:23 pm
Contact:

Re: T-Bill Yield Question

Post by Tyler » Wed May 31, 2017 10:31 am

dualstow wrote: Yield curve craziness aside, you don't really get 0.857% from 1-month bills, right? Do I need to divide that by 12 to determine the true yield, and divide 26-week t-bill yields by 2, and so on? Is that how instruments shorter than a year work?
Correct. When reporting yields for periods less than a year, the standard procedure is to list the annualized rate. The return you'll actually receive for a 1-month T-Bill is the annualized rate divided by 12.

I agree that it's kinda unintuitive. I suspect they do it that way to make it easier to compare investments, as annual returns is the standard most people look for.
Mechanical engineer, history buff, treasure manager... totally not Ben Gates
User avatar
dualstow
Executive Member
Executive Member
Posts: 10752
Joined: Wed Oct 27, 2010 10:18 am
Contact:

Re: T-Bill Yield Question

Post by dualstow » Wed May 31, 2017 10:33 am

Many thanks, Tyler. It is indeed unintuitive, although more intuitive than the notion that I could turn 10K into 11K after a year of 4-wk tBills. :-) Glad to know that I can do *something* with those WSJ numbers, then.
RIP R B G
in NE Syria, a Russian armored vehicle deliberately rammed an American military viehicle, leaving 7 US service members with concussions — the week
Pet Hog
Executive Member
Executive Member
Posts: 218
Joined: Tue May 28, 2013 4:08 pm

Re: T-Bill Yield Question

Post by Pet Hog » Wed May 31, 2017 11:04 am

Not to be nitpicky, but I think it would be more accurate to divide the "one-month" annualized yield by 13, not 12, since the bills have a four-week term.
User avatar
dualstow
Executive Member
Executive Member
Posts: 10752
Joined: Wed Oct 27, 2010 10:18 am
Contact:

Re: T-Bill Yield Question

Post by dualstow » Wed May 31, 2017 11:06 am

Nitpicky is good in this case. We want precision. 52÷4
Thanks!
RIP R B G
in NE Syria, a Russian armored vehicle deliberately rammed an American military viehicle, leaving 7 US service members with concussions — the week
User avatar
sophie
Executive Member
Executive Member
Posts: 3858
Joined: Mon Apr 23, 2012 7:15 pm

Re: T-Bill Yield Question

Post by sophie » Thu Jun 01, 2017 7:34 am

Holy flattening yield curve, Batman.

https://www.treasury.gov/resource-cente ... data=yield

Yes, confirm what Tyler said, the yield for all bills/bonds is reported as annual returns. i.e., you would get 0.86% interest if a) Treasury rates were frozen for a year, b) you put a fixed amount into 4 week Tbills and turned on autoroll, and c) you hold the proceeds in a zero interest rate account and totaled them up at the end of the year. If you reinvest the interest, that would give you an effective rate.
User avatar
dualstow
Executive Member
Executive Member
Posts: 10752
Joined: Wed Oct 27, 2010 10:18 am
Contact:

Re: T-Bill Yield Question

Post by dualstow » Thu Jun 01, 2017 8:27 am

The six-month bills actually look pretty decent, don't they, Sophie.
Every time stocks go up I sigh when I think of cash, but ... I think expanding my total pp should begin with cash.
And no more messing around with 3-year notes.
RIP R B G
in NE Syria, a Russian armored vehicle deliberately rammed an American military viehicle, leaving 7 US service members with concussions — the week
User avatar
sophie
Executive Member
Executive Member
Posts: 3858
Joined: Mon Apr 23, 2012 7:15 pm

Re: T-Bill Yield Question

Post by sophie » Fri Jun 02, 2017 7:24 am

You practically invented the short term treasury note ladder for deep cash! I still remember your posts on this.

Between the Fed's interest rate plans and the flattening yield curve, this seems like the time to stick with short term T bills. Out of sheer laziness (or busy-ness) I haven't moved the cash out of my online savings account like I was going to, but this latest hike in interest rates is a good motivator.
User avatar
dualstow
Executive Member
Executive Member
Posts: 10752
Joined: Wed Oct 27, 2010 10:18 am
Contact:

Re: T-Bill Yield Question

Post by dualstow » Fri Jun 02, 2017 7:30 am

I can't take any credit for that. Adopted the idea from others (Moda?) and I've been very happy with it. I'm moving to 6- & 12-month bills for much of it this year. My calendar will remind me to reread Tyler's article every 3 months.
RIP R B G
in NE Syria, a Russian armored vehicle deliberately rammed an American military viehicle, leaving 7 US service members with concussions — the week
Jeffreyalan
Full Member
Full Member
Posts: 83
Joined: Sat Sep 10, 2016 1:50 pm

Re: T-Bill Yield Question

Post by Jeffreyalan » Mon Jun 05, 2017 8:49 pm

You need to share the links to those old rolling treasury bill posts!
User avatar
dualstow
Executive Member
Executive Member
Posts: 10752
Joined: Wed Oct 27, 2010 10:18 am
Contact:

Re: T-Bill Yield Question

Post by dualstow » Mon Jun 05, 2017 8:53 pm

Jeffreyalan wrote:You need to share the links to those old rolling treasury bill posts!
Nothing particularly earth shattering in those. O0 There's a post from rickb that's not too old, detailing what he did.

EDIT:
viewtopic.php?f=1&t=8883&p=157845&hilit ... ar#p157845
RIP R B G
in NE Syria, a Russian armored vehicle deliberately rammed an American military viehicle, leaving 7 US service members with concussions — the week
Post Reply