Treasurys for Sale

Discussion of the Bond portion of the Permanent Portfolio

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dualstow
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Treasurys for Sale

Post by dualstow » Fri Nov 22, 2019 9:20 am

Auction, Vanguard, Friday, November 22, 2019
treasury auction this morning
treasury auction this morning
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Re: Treasurys for Sale

Post by mukramesh » Fri Nov 22, 2019 12:22 pm

Is there any advantage to buying at auction rather than the secondary market?
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Re: Treasurys for Sale

Post by dualstow » Fri Nov 22, 2019 12:28 pm

mukramesh wrote:
Fri Nov 22, 2019 12:22 pm
Is there any advantage to buying at auction rather than the secondary market?
This has come up once or twice. The first time it ended with someone writing, "I guess some people just like that new bond smell."
The second time, I think someone said there may be a slight bargain in it over time.
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Re: Treasurys for Sale

Post by Tortoise » Mon Nov 25, 2019 1:17 am

The Treasury market is very liquid, so I doubt there’s much of an advantage of auction over secondary market.

If such an advantage existed, it would quickly get arbitraged away by big financial institutions.
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Re: Treasurys for Sale

Post by Kbg » Mon Nov 25, 2019 9:26 am

Main disadvantage...a small spread you will pay both ways and potentially a commission to pay

Main advantage...you can sell them before they mature
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Re: Treasurys for Sale

Post by dualstow » Mon Nov 25, 2019 12:12 pm

Kbg wrote:
Mon Nov 25, 2019 9:26 am
Main disadvantage...a small spread you will pay both ways and potentially a commission to pay

Main advantage...you can sell them before they mature
I don't understand. What treasuries can you not sell before they mature?
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Re: Treasurys for Sale

Post by Kbg » Mon Nov 25, 2019 1:53 pm

Secondary market you can buy and sell at will. So while you can buy on the primary market via your broker or TDirect, you can only sell early via the secondary market with a spread/and maybe a commission before maturity. If you buy on TD you have to wait until maturity or transfer the bills/notes to another account (brokerage) and then sell on the secondary market.
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Re: Treasurys for Sale

Post by dualstow » Mon Nov 25, 2019 3:11 pm

Weird. I've sold at Vanguard a few times for free. If anything the price may be affected by the very small number of notes that I hold (opposite of a volume discount), but no fees. Sold at Fidelity, too.

I hold most to maturity and only plan to sell long bonds early, per Harry's and now Craig's instructions.
So far so good.
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Re: Treasurys for Sale

Post by Kbg » Mon Nov 25, 2019 6:04 pm

I can guarantee you, if you are selling a bond before maturity you are paying a spread even if it is not visible to you. For those with larger accounts, commissions are usually not your largest cost of trade.
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Re: Treasurys for Sale

Post by dualstow » Mon Nov 25, 2019 7:10 pm

Kbg wrote:
Mon Nov 25, 2019 6:04 pm
I can guarantee you, if you are selling a bond before maturity you are paying a spread even if it is not visible to you. For those with larger accounts, commissions are usually not your largest cost of trade.
Why would that be dictated by whether you bought at auction or on the secondary market?
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Re: Treasurys for Sale

Post by Kbg » Mon Nov 25, 2019 9:40 pm

I'll leave the googling/self-education up to you. It's easy enough to find.
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Re: Treasurys for Sale

Post by dualstow » Tue Nov 26, 2019 9:01 am

Kbg wrote:
Mon Nov 25, 2019 9:40 pm
I'll leave the googling/self-education up to you. It's easy enough to find.
Hmm, so far I see this obvious part,
some website wrote:When you sell a bond before maturity, you may get more or less than you paid for it. If interest rates have risen since the bond was purchased, its value will have declined. If rates have declined, the bond’s value will have increased.
but I'll keep digging.

...
I see this - https://investor.vanguard.com/investing ... ary-market
which says there's no bid-ask spread for buying in the primary market (yup)

but nothing about selling a bond before maturity that was bought at auction vs one that was already used when you bought it.

Well, I'm not going to worry about it.
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Re: Treasurys for Sale

Post by Kbg » Tue Nov 26, 2019 10:58 am

I wouldn’t worry anymore than you would worry about a spread when selling an ETF.
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Re: Treasurys for Sale

Post by dualstow » Tue Nov 26, 2019 11:50 am

Kbg wrote:
Tue Nov 26, 2019 10:58 am
I wouldn’t worry anymore than you would worry about a spread when selling an ETF.
😱 When selling a what now?

Just kidding.
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Re: Treasurys for Sale

Post by Kbg » Tue Nov 26, 2019 12:51 pm

LOL
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Re: Treasurys for Sale

Post by Kriegsspiel » Tue Nov 26, 2019 5:04 pm

dualstow wrote:
Tue Nov 26, 2019 9:01 am
which says there's no bid-ask spread for buying in the primary market (yup)

but nothing about selling a bond before maturity that was bought at auction vs one that was already used when you bought it.

Well, I'm not going to worry about it.
Since KGB wasn't very helpful, I'll offer a wild guess! I wonder if Vanguard uses a wider spread to get a bond from the primary purchaser into the secondary market to recoup higher associated costs. Then when they broker secondary market trades, their spread is smaller. That's how they make money without charging commission.
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Re: Treasurys for Sale

Post by dualstow » Tue Nov 26, 2019 5:16 pm

hmm, makes sense.Maybe that’s it.
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Re: Treasurys for Sale

Post by Kbg » Tue Nov 26, 2019 5:59 pm

Details of how this is done at your brokerage should be available from them via a disclosure. It may take some digging.
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Re: Treasurys for Sale

Post by Kbg » Tue Nov 26, 2019 6:03 pm

Details of how this is done at your brokerage should be available from them via a disclosure. Finding it may take some digging.

The main point to all of this is that bonds also have bid/ask spreads just like stocks, ETFs, futures, options etc. Some brokerages are more transparent about it.
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Re: Treasurys for Sale

Post by Tortoise » Wed Nov 27, 2019 3:26 pm

On the secondary market, I’ve noticed that sometimes smaller trades or odd-sized trades have higher spreads than the large trades involving nice, round numbers. Whereas at auction, I believe the size of your purchase makes no difference.

But for a PP investor who is trading bonds only a couple of times a year at the most, the secondary market spreads are negligible when viewed as an annualized “expense ratio.” Lower than most Treasury ETFs, I would think.
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