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Increased Liquidity when buying at Treasury Direct?

Posted: Sat Jan 19, 2019 3:37 pm
by KodoCastle
Hello, does anyone know if buying/selling T-bills through Treasury Direct provides more liquidity, in terms of the speed one can convert T-bills into money in a linked account, when compared to buying through the brokerages at Vanguard or Fidelity?

If it doesn't provide more liquidity, what are some reasons to buy T-bills through TD? I'm not against the idea, but the limited infrastructure in terms of reporting makes it seem like more work to keep proper records. <<< If I'm over-blowing that problem please let me know, but a few threads on bogglehead forum made it seem like tacking / proving T-bill ladders was a bigger pain than it was worth.

Re: Increased Liquidity when buying at Treasury Direct?

Posted: Sat Jan 19, 2019 5:06 pm
by Kbg
There is no liquidity. You get your money back when the bill/bond matures. The shortest bill is 4 weeks but they are issued weekly so you could have all your money out in a 4 week cycle...for a small fee you can get your money same day with an etf.

Cost vs. convenience.

Records are the same for taxes.

Re: Increased Liquidity when buying at Treasury Direct?

Posted: Sat Jan 19, 2019 7:30 pm
by KodoCastle
Hmmmm, okay. I guess you could also transfer T-bills out of TD to a brokerage and try to sell them, but that'd likely incur costs that cut into any marginal profits I'd make off of them.

But if the difference in yield is 0.2% between 4-week T-bills @ 2.37% and my HSY account @ 2.17%, I'm not sure if it's worth the hassle to use T-bills. Using 52-week T-bills would get me a ~0.35% increase in yield, but then decreases my liquidity even further. But, going down this road seems wrong, as the whole point of the cash portion is to be liquid and safe, not to chase yield.

I'm left wondering why all the love for T-bills in the PP, or rather, why so little love for HSY accounts? Do T-bills rates change more in-line with the market, or are they more inflation-proof somehow?

Re: Increased Liquidity when buying at Treasury Direct?

Posted: Sat Jan 19, 2019 10:12 pm
by jhogue
1. There is no cost to transfer funds from maturing T bills in a TreasuryDirect account into a linked bank or brokerage account.
https://www.treasurydirect.gov/indiv/pr ... glance.htm

2. There is no cost to buy/sell/hold T bills held in major brokerage accounts like Fidelity.

3. Unlike a TreasuryDirect account, brokerage accounts not only buy/sell at auction, but also buy/sell on the secondary market, also with no cost. https://www.fidelity.com/fixed-income-b ... sury-bonds


Note that the PP holds short term Treasuries for safety, stability, and liquidity—not yield or inflation proofing.

Re: Increased Liquidity when buying at Treasury Direct?

Posted: Sat Jan 19, 2019 10:31 pm
by KodoCastle
jhogue wrote:
Sat Jan 19, 2019 10:12 pm
1. There is no cost to transfer funds from maturing T bills in a TreasuryDirect account into a linked bank or brokerage account.
https://www.treasurydirect.gov/indiv/pr ... glance.htm

2. There is no cost to buy/sell/hold T bills held in major brokerage accounts like Fidelity.

3. Unlike a TreasuryDirect account, brokerage accounts not only buy/sell at auction, but also buy/sell on the secondary market, also with no cost.
Okay, do you have experience with these processes, and how long they take to settle?

Re: Increased Liquidity when buying at Treasury Direct?

Posted: Sat Jan 19, 2019 10:48 pm
by Kbg
#2 is incorrect. If sold in the secondary market you are paying the bid-ask spread.

Re: Increased Liquidity when buying at Treasury Direct?

Posted: Sat Jan 19, 2019 10:55 pm
by Stillwaters
KodoCastle wrote:
Sat Jan 19, 2019 10:31 pm
jhogue wrote:
Sat Jan 19, 2019 10:12 pm
1. There is no cost to transfer funds from maturing T bills in a TreasuryDirect account into a linked bank or brokerage account.
https://www.treasurydirect.gov/indiv/pr ... glance.htm

2. There is no cost to buy/sell/hold T bills held in major brokerage accounts like Fidelity.

3. Unlike a TreasuryDirect account, brokerage accounts not only buy/sell at auction, but also buy/sell on the secondary market, also with no cost.
Okay, do you have experience with these two processes, and how long they take to settle?
I recently cashed in EE bonds at Treasury Direct and the funds arrived in my Schwab Account next day. No Commissions, No Fees.

Off topic but still related to Treasury Direct. As you are relatively new to PP investing don’t forget to maximize your I-Bond allocation each year…if you have the available funds. This forum has several discussions on this topic you can search on. I-Bonds are better than sliced bread when it comes to the CASH component.

Maximum Investment/yr: $10,000 (another $10,000 for spouse)
Must hold one year before you can cash in. After one year you only lose 3 months interest should you need the cash (very reasonable)
After five years no interest penalty.
30 year maturity.

So, after one year and especially after five years you have secured:
Relative high yielding cash instrument (current yield 2.83%)
Safety (as safe as any US Gov’t Treasury instrument)
Liquidity as funds deposit next day in linked account with minimal interest penalty and no fees or commissions.

In my view:
First establish six months to one year ready cash (savings/checking/MMF account, short term T-bills, or T-Bill ETF’s like SHV, BIL)
Then next fill the I-Bond space each and every year.
For longer term cash play around with Automatic T-Bill rolls (i.e. Fidelity), 12-24 month CD’s, Treasury ETF’s (SHY, VGSH) and the like.

Re: Increased Liquidity when buying at Treasury Direct?

Posted: Sun Jan 20, 2019 6:17 am
by flyingpylon
I recently sold T bills in my Fidelity account. It took one day for the cash to be available to withdraw and then one more day for the EFT to my checking account at another bank. Pretty quick and easy.

Re: Increased Liquidity when buying at Treasury Direct?

Posted: Sun Jan 20, 2019 9:33 am
by jhogue
Kbg wrote:
Sat Jan 19, 2019 10:48 pm
#2 is incorrect. If sold in the secondary market you are paying the bid-ask spread.
Correction noted. I should have said:

There is no commission or management fee to buy/sell/ or hold Treasuries of any maturity in major brokerage accounts like Fidelity. Like any marketable security, there will be a bid/ask spread.

Creative use of limit and "fill or kill" orders may minimize the price a prudent investor actually pays. Buying and selling is a one time cost. Management fees in mutual funds and ETFs are forever. My management fee of choice is 0.00%.

Re: Increased Liquidity when buying at Treasury Direct?

Posted: Sun Jan 20, 2019 9:58 am
by sophie
Oh that's good to know. Fidelity has a nasty habit of locking up money from deposits and asset sales for at least 5 business days. It means you can't transfer it out even if it shows up as "settled". Sometimes you can use it to buy another asset, but this isn't always the case. Just to make this even more fun, it appears to be applied inconsistently and I can't for the life of me figure out exactly what triggers it, or even how long it's supposed to be - I've had money held as long as 2 weeks. There's no useful information on their website. I even called about it once and couldn't get a straight answer, because the phone rep had no idea either.

For this reason, I wouldn't rely on T bills (or any other fund) at Fidelity as an immediate source of emergency funds. I also would not ever consider using their cash management service as a primary bank account. Fidelity is great otherwise, just not for short term cash needs.

Re: Increased Liquidity when buying at Treasury Direct?

Posted: Sun Jan 20, 2019 3:14 pm
by Kbg
For no kidding immediate cash needs I’m going to use my credit card and pay it off in full next billing cycle. If timing is perfect I get 31 days of free cash.

Am I missing something about having a 1-5 day lag?

Re: Increased Liquidity when buying at Treasury Direct?

Posted: Mon Jan 21, 2019 10:59 am
by sophie
Credit cards and savings account linked to checking for short term cash, yes!! And at LEAST 2% on the credit cards, I get 6% and 3% for groceries, gas and dept stores, and 5% in the rotating categories at Chase which I can never keep track of.

I can't rely on Fidelity cash management to function like a bank, until I understand completely their long-term hold on funds policy. I read a couple of threads at Bogleheads, and a few posters reported getting stuck with overdraft fees because the deposits they transferred to the cash management account to cover withdrawals were in that long-term hold. Anyway - Fidelity is fine, but my rule with them is that if I need money from the brokerage account I make sure to plan ahead 3 weeks.

Re: Increased Liquidity when buying at Treasury Direct?

Posted: Tue Jan 22, 2019 9:12 am
by jhogue
Pugchief,

I use my Fidelity brokerage account’s “available to withdraw” window much as you do, except that I replenish for major purchases from STTs I keep on auto-roll. I also like Fidelity’s no-fee credit card with the 2% rebate. It is probably the highest rate that automatically covers all purchases. In practice, I think the major risk of using this form of “ready cash” is identity theft, which is a manageable (if growing) risk, given that the credit card company effectively insures against it.

At the same time, the ultimate form of liquidity within our current financial system theoretically should be physical cash. But similar to physical gold, during “normal times” many of us are relying on physical cash less and less. Increasingly, the pile of greenbacks I keep in my local bank safe deposit box is for “abnormal times” and is a shrinking percentage of my portfolio—even in the present era of relatively low inflation. The major risks of physical cash seem to be: 1) uninsured theft, and 2) the bank could shut its doors before I can get to my safe deposit box. In “normal times” these risks seem small and remote.

I recall Uncle Harry said we should keep some physical gold and cash near by for "abnormal times," but I don’t think he was more specific about it than that. My solution has been to self-insure against these diverse risks by having some of both forms of “ready cash” available. Perhaps our greatest challenge is how to judge “abnormal times” from “normal times”?

Re: Increased Liquidity when buying at Treasury Direct?

Posted: Tue Jan 22, 2019 1:25 pm
by Kbg
jhogue wrote:
Tue Jan 22, 2019 9:12 am
Pugchief,

I use my Fidelity brokerage account’s “available to withdraw” window much as you do, except that I replenish for major purchases from STTs I keep on auto-roll. I also like Fidelity’s no-fee credit card with the 2% rebate. It is probably the highest rate that automatically covers all purchases. In practice, I think the major risk of using this form of “ready cash” is identity theft, which is a manageable (if growing) risk, given that the credit card company effectively insures against it.
So long as it isn't a debit card...my brokerage offers a pretty good card that charges the margin rate and goes on margin which is good for all kinds of tax reasons. However, wouldn't touch it with a 10 foot pole.

Re: Increased Liquidity when buying at Treasury Direct?

Posted: Tue Jan 22, 2019 1:46 pm
by jhogue
Margin loans are a form of leverage. Uncle Harry said never use leverage on PP assets. I'm with Uncle Harry on this one.

EDIT: Come to think of it, margin might be useful as a form of overdraft protection, but I still would not make a habit of it.