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One-Year Treasury Constant Maturity T bill 4.14
September 25, 2022 at
03:59 PM
in
Finance
(4)
Deal Details
Last Edited by BeAuMaN | Staff September 25, 2022 at 09:22 PM
I don't know that much about this. Sharing here to get some feedback. It seems it is highr than CD
Treasury Bills
Treasury bills, or T-bills, are sold in terms ranging from a few days to 52 weeks. Bills are typically sold at a discount from the par amount (par amount is also called face value); rarely, they have sold at a price equal to the par amount.
When a bill matures, you are paid its par amount. If the par amount is greater than the purchase price, the difference is your interest.
You can buy bills from us in TreasuryDirect. You can also buy them through a bank or broker. (We no longer sell bills in Legacy Treasury Direct, which we are phasing out.)
You can hold a bill until it matures or sell it before it matures.
Learn more in "Treasury Bills in Depth"
Buy T-Bills in TreasuryDirect
Use Treasury bills to:
Diversify your investment portfolio
Participate in a secure, short-term investment
More about Treasury bills in the Research Center
at a glance
Original Issue Rate: The discount rate determined at auction.
See rates in recent auctions
Minimum Purchase: $100
Maximum Purchase
(in a single auction): Noncompetitive - $10 million
Competitive - 35% of offering amount
(See types of bidding in "Auctions in Depth")
Investment Increment: Multiples of $100
Issue Method: Electronic
Rates & Terms
Treasury bills are issued for terms of 4, 8, 13, 26, and 52 weeks. Another type of Treasury bill, the cash management bill, is issued in variable terms.
4-week, 8-week, 13-week, 26-week, and 52-week bills are auctioned on a regular schedule.
Cash management bills aren't auctioned on a regular schedule.
More about Treasury Bills rates and terms in the Research Center
Redemption Information
Minimum Term of Ownership: In TreasuryDirect, 45 days
Interest-Earning Period: To maturity
More about Treasury Bills redemption in the Research Center
Tax Considerations
Interest income is exempt from state and local income taxes.
Interest income is subject to federal income tax.
More about Treasury Bills tax considerations in the Research Center
https://www.treasurydir
https://home.treasury.g
Treasury Bills
Treasury bills, or T-bills, are sold in terms ranging from a few days to 52 weeks. Bills are typically sold at a discount from the par amount (par amount is also called face value); rarely, they have sold at a price equal to the par amount.
When a bill matures, you are paid its par amount. If the par amount is greater than the purchase price, the difference is your interest.
You can buy bills from us in TreasuryDirect. You can also buy them through a bank or broker. (We no longer sell bills in Legacy Treasury Direct, which we are phasing out.)
You can hold a bill until it matures or sell it before it matures.
Learn more in "Treasury Bills in Depth"
Buy T-Bills in TreasuryDirect
Use Treasury bills to:
Diversify your investment portfolio
Participate in a secure, short-term investment
More about Treasury bills in the Research Center
at a glance
Original Issue Rate: The discount rate determined at auction.
See rates in recent auctions
Minimum Purchase: $100
Maximum Purchase
(in a single auction): Noncompetitive - $10 million
Competitive - 35% of offering amount
(See types of bidding in "Auctions in Depth")
Investment Increment: Multiples of $100
Issue Method: Electronic
Rates & Terms
Treasury bills are issued for terms of 4, 8, 13, 26, and 52 weeks. Another type of Treasury bill, the cash management bill, is issued in variable terms.
4-week, 8-week, 13-week, 26-week, and 52-week bills are auctioned on a regular schedule.
Cash management bills aren't auctioned on a regular schedule.
More about Treasury Bills rates and terms in the Research Center
Redemption Information
Minimum Term of Ownership: In TreasuryDirect, 45 days
Interest-Earning Period: To maturity
More about Treasury Bills redemption in the Research Center
Tax Considerations
Interest income is exempt from state and local income taxes.
Interest income is subject to federal income tax.
More about Treasury Bills tax considerations in the Research Center
https://www.treasurydir
https://home.treasury.g
112 Comments
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Now, that expected increase may be priced into the current offering (ie, the discount off par) - Fed Funds Rate is currently 3.25% and current online yield info shows a one year T Bill yielding 4.15% (1 bps higher than OP's post). So, a 1 yr Bill is trading at 90 bps over Fed Funds Rate. That's high… but, again, rates are almost guaranteed to increase another 75 bps at the next Fed meeting, which is Nov 1/2. The next Fed meeting after that, is Dec 13/14. Soooo, if you lock in for a year at 4.14%, and the Fed increases rates 75 bps in Nov and another 50-75 bps in Dec, then in just 3 months Fed Funds Rate could be as much as 4.75% before 2022 is even over.
If the Fed Funds Rate is 4.75%, then even a small spread on the T Bill yield vs Fed Rate could be 25 bps *if* the market believes big Fed Rate Increases are over and inflation stabilizes (possibly due to a recession)… meaning a T Bill could yield 5% +, easily, as early as late Dec 2022, this year. So, again, just food for thought… 4.14 or 4.15% is a good rate for right now, but this is only on a 1 yr Bill, and depending on the economy and inflation, who knows how high rates could go by Sept 2023 when a 1 yr T Bill bought today would finally mature. By then, even $1 par Money Market Bank Accounts could be paying 5% +.
So, all of the above is not to say that if you have a lot of spare change that you should NOT park it in a T Bill… it's just to say, maybe consider taking a lower yield on a shorter term Bill (vs a 1 yr) and then looking at buying in sometime in late Dec 2022 or early 1st quarter 2023. It just doesn't seem to me that a 4.14% return is great in market conditions where inflation is 8% + a month, and the Fed has all but telegraphed future rate increases that will likely be 100 bps (1%) or more.
My 2 pennies….
If the Fed cared about inflation they would unwind their balance sheet (sell off the treasuries they hold) - this would sop up the liquidity they injected into the market - there's been $5T of QE since the pandemic began, March 2020 had $4T alone - reducing the excess liquidity would control spending and allow effective interest rates (not the Fed funds rate) to normalize while giving the Fed room to print more when they need to
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There is also a way to put in more than 10k by using tax return to purchase, you can fill out a form (bureaucracy, yuck) to "overpay" your taxes and us it to buy an additional 5k iirc.
If the interest rate has gone down enough that you want to cash them in then that three months of interest will be negligible.
What's the deal with getting family members to gift you and gift them back? Does it have to be spouses and children? Or can siblings do it?
B. You buy additional 10K bonds as gifts for others now (to lock in the current rate), and then gift it to them next year. The 10k annual limit per individual includes bonds purchased and gifts received in a year
Now, that expected increase may be priced into the current offering (ie, the discount off par) - Fed Funds Rate is currently 3.25% and current online yield info shows a one year T Bill yielding 4.15% (1 bps higher than OP's post). So, a 1 yr Bill is trading at 90 bps over Fed Funds Rate. That's high… but, again, rates are almost guaranteed to increase another 75 bps at the next Fed meeting, which is Nov 1/2. The next Fed meeting after that, is Dec 13/14. Soooo, if you lock in for a year at 4.14%, and the Fed increases rates 75 bps in Nov and another 50-75 bps in Dec, then in just 3 months Fed Funds Rate could be as much as 4.75% before 2022 is even over.
If the Fed Funds Rate is 4.75%, then even a small spread on the T Bill yield vs Fed Rate could be 25 bps *if* the market believes big Fed Rate Increases are over and inflation stabilizes (possibly due to a recession)… meaning a T Bill could yield 5% +, easily, as early as late Dec 2022, this year. So, again, just food for thought… 4.14 or 4.15% is a good rate for right now, but this is only on a 1 yr Bill, and depending on the economy and inflation, who knows how high rates could go by Sept 2023 when a 1 yr T Bill bought today would finally mature. By then, even $1 par Money Market Bank Accounts could be paying 5% +.
So, all of the above is not to say that if you have a lot of spare change that you should NOT park it in a T Bill… it's just to say, maybe consider taking a lower yield on a shorter term Bill (vs a 1 yr) and then looking at buying in sometime in late Dec 2022 or early 1st quarter 2023. It just doesn't seem to me that a 4.14% return is great in market conditions where inflation is 8% + a month, and the Fed has all but telegraphed future rate increases that will likely be 100 bps (1%) or more.
My 2 pennies….
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