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Dumb Question About Buying Treasuries


BG2008
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2 Year US Treasuries is now trading at about 2% which I think is quite high and everyone who hold cash should own 2 year treasuries IMO.  If the market crashes, and somehow it trades to a 3% yield, you'll likely have a shorter duration at a lower yield.  Treasuries are large and liquid so there's no worry really.  My question really revolves around the mechanics of owning treasuries.

 

1) Has anyone bought them from IB? 

2) Any thoughts on whether to buy a zero with 2 year maturity with different coupons?

3) Is everything considered interest, price appreciation and coupons?  Has your TPA been helpful? 

4) I've heard that if you own Zeros, you still have to pay taxes even if you have not received any coupons.  Thoughts? 

 

I think it's kind of crazy that 10 years are trading at about 2.5% and 2 years are trading at 2.0%.  They say that every time the yield curve starts flattening there's a recession that comes after that.

 

https://www.treasury.gov/resource-center/data-chart-center/interest-rates/Pages/TextView.aspx?data=yield

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1) Has anyone bought them from IB? 

2) Any thoughts on whether to buy a zero with 2 year maturity with different coupons?

3) Is everything considered interest, price appreciation and coupons?  Has your TPA been helpful? 

4) I've heard that if you own Zeros, you still have to pay taxes even if you have not received any coupons.  Thoughts? 

 

#1 - yes, but I have only bought long duration zeroes... was easy though.

#2 - I think you just buy the cheapest... they are probably are within rounding, so look to the lowest spreads...

#3 - What is TPA?  bond appreciation/discount is accreted to income on 1099's I believe... so it's all interest.

#4 - Correct...

 

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Why not just buy VGSH?

 

VGSH yields 1.1%, if you buy the 2 year treasury, it yields close to 2%.  I'm more confident that I can sell my 2% 2 year treasury in case shit hits the fan than I can sell VGSH at $60 or whatever it trades at.  I'm also more confident that the 2 year treasury will trade at close to a 2% yield or even lower in case shit hits the fan. I think that the ETF could trade all over the place.

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1) Has anyone bought them from IB? 

2) Any thoughts on whether to buy a zero with 2 year maturity with different coupons?

3) Is everything considered interest, price appreciation and coupons?  Has your TPA been helpful? 

4) I've heard that if you own Zeros, you still have to pay taxes even if you have not received any coupons.  Thoughts? 

 

#1 - yes, but I have only bought long duration zeroes... was easy though.

#2 - I think you just buy the cheapest... they are probably are within rounding, so look to the lowest spreads...

#3 - What is TPA?  bond appreciation/discount is accreted to income on 1099's I believe... so it's all interest.

#4 - Correct...

 

#3 - TPA is my third party fund admin.  Does IB generate a bond appreciation/discount in the 1099?? I guess you don't have to calculate that manually?

#4 - Is the amount of taxes on the interest calculated by your broker via the 1099?  How is the interest known?

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Why not just buy VGSH?

 

VGSH yields 1.1%, if you buy the 2 year treasury, it yields close to 2%.  I'm more confident that I can sell my 2% 2 year treasury in case shit hits the fan than I can sell VGSH at $60 or whatever it trades at.  I'm also more confident that the 2 year treasury will trade at close to a 2% yield or even lower in case shit hits the fan. I think that the ETF could trade all over the place.

 

yields 1.1%? That's like the Vanguard Money Market fund. YTM and SEC Yield is 1.9%.

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Why not just buy VGSH?

 

VGSH yields 1.1%, if you buy the 2 year treasury, it yields close to 2%.  I'm more confident that I can sell my 2% 2 year treasury in case shit hits the fan than I can sell VGSH at $60 or whatever it trades at.  I'm also more confident that the 2 year treasury will trade at close to a 2% yield or even lower in case shit hits the fan. I think that the ETF could trade all over the place.

 

I looked at the vanguard website it says their SEC yield is 1.88% which is close to the 2yr rate minus management fees.  So I think if the rates stay constant for the next two years the VGSH yield is around 1.9%. and you get your principle back. But buying the bond seems safer, you get the yield and the principle back guaranteed.  Buying VGSH is not getting the principle back, the fund is forever rolling over their bonds when they mature.

 

 

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I stand corrected about the yield.  I think that the purpose of owning treasuries is that you want to own the treasuries not some ETF that can potentially trade at crazy discount/premium to NAV in a 2008/2009 scenario.  The decision is really between holding cash vs holding 2 year treasuries.  Thanks for the input everyone and I would encourage anyone who holds a substantial amount of cash to look into owning 2 year treasuries.  I think the treasuries will have substantial liquidity and will likely do their job in case we get another 08/09 situation.

 

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