Portfolio Management as of 8/3/18

When playing a small ball investment game substantially tilted toward capital preservation and secondarily to income generation, it is important to get the most bang for the buck. 

I have discussed ways to lower commissions in prior posts. Every dollar paid to a broker in commission or to a fund in expenses eats into income and total returns. With the exception of my Vanguard accounts, where I have to pay $7 per stock trade in a brokerage commission, I have either eliminated my commissions for transactions in exchange traded securities or have reduced the commission to $1 per 100 share trade using Interactive Brokers. 

Most of my individual corporate bond trades are made through Fidelity and Interactive Brokers where I am charged a $1 per bond commission. I will occasionally buy corporate bonds in my Vanguard accounts where the commission is $2 per bond.

Schwab, Vanguard and Fidelity do not charge a commission to participate in treasury auctions or to make trades online in the secondary market. 

Investing Costs and Pricing | Charles Schwab

Trading Commissions and Margin Rates - Fidelity

Vanguard Brokerage trading fees & commissions | Vanguard

I have been discussing the purchases of treasuries in the secondary market, almost entirely in 1 bond lots which provide the most unfavorable pricing. Those purchases were made to fill maturity holes in my short term bond ladder and/or to increase the dollar amount maturing in a particular month.   

I am going to emphasize more going forward, as I receive proceeds from maturing securities, the purchase of treasuries at auction through my brokerage accounts and through my treasury direct account to a lesser extent. I am able to control reinvestments easier through my treasury direct account and the investment minimum is lower. 

Mostly the treasury direct account will be used, as in the past, to purchase 4 week and 13 week bills with surplus funds in a checking account that earns almost zero interest.  

The security for Treasury Direct is tight. The first login page requires an account number. The next page will direct a security number to the pre-established email account which then has to be entered into a box. Once that is done, then the investor is directed to the password page, where the password is entered by clicking numbers, letters and/or symbols. 

While I was in the account, I placed an order to invest $1K in a 13 week treasury bill that will be auctioned on Monday and set up one reinvestment option. The minimum purchase of a treasury security using Treasury Direct is $100. 

Treasury Direct Information: 

Open an Account: Individual - TreasuryDirect

Individual - Auctions

Individual - Treasury Securities & Programs

Individual - Treasury Bills: Tax Considerations

Tentative Treasury Auction Schedule.pdf

Individual - Series I Savings Bonds

The treasury bills are sold at a discount to par value. The difference between the discount and par value is the interest. Individual - Treasury Bills

In the past, and I really haven't paid much attention when I participated in recent 4 week and 13 week treasury auctions through treasury direct where I had set up 1 or more reinvestments, the interest is paid into my bank checking account on the Thursday after the Monday auction. Individual-Treasury Bills: FAQs 

When there are no reinvestments left at the time of an auction, the treasury will not send the interest payment to the investor's bank on the Thursday after the Monday auction but will instead pay the par amount at maturity. That is my memory. I have not been paying attention recently since my treasury direct reinvestments are so small. 

The settlement of the purchase will occur on Thursday. The Treasury will take the funds out of my bank checking account to pay for the 13 bill that I ordered today. The amount that will be deducted will be established at the auction and will be less than the $1K face amount. Treasury Marketable Securities Offering Announcement Press Releases

The last 13 week bill auction was on 7/24/18. The auction resulted in a 99.494444 price per $100 face amount. Auction Results.pdf If I had bought $1000 at that auction using treasury direct, the treasury would have deducted from my checking $994.94. The interest for 13 weeks on that $1K would be 2%.  

Vanguard, Fidelity and Schwab require a minimum 1 bond purchase ($1K par value) when participating in a treasury auction.  

Schwab does not allow me to schedule reinvestments. I tried this morning when I placed an order to buy one 26 week bill which will also be auctioned next Monday. The last 26 week bill auction was at 98.908 which resulted in a 2.214% interest rate over that period. 26 Week Auction Result 7/26/18.pdf  

Fidelity does have the reinvestment option. That broker does not allow me to set initially the number of reinvestments, so I did not set up a roll when I ordered last night one $1K par value 13 week bill.  

I have not done rollovers for either CDs or treasury bills in a brokerage account. I want to receive the proceeds at maturity and then decide what to do with the money. 

The reasons for relying more on auction purchases rather than purchases of 1 bond lots in the secondary market is the slight yield advantage in favor of the auction. 

While I do not know now what the auction result will be on Monday, the 3 month treasury bill is currently trading at a 2% yield. U.S. 3 Month Treasury Bill-MarketWatch  The six month T Bill is currently at 2.214% as of Aug 3, 2018 at 10:18 a.m. EDT. U.S. 6 Month Treasury Bill-MarketWatch

I would anticipate that the auction rates on Monday will be close to those yields.

If I bought a 1 treasury maturing on 11/15/18, the closest date to the 11/8 maturity of the 13 week T Bill to be auctioned on Monday, I would receive a YTM of 1.875%: 

If I was willing to buy 100 bonds ($100K in principal amount), I could get 1.948%. I would prefer to buy 1 bond and receive 2%. It does not make much difference in yield except when the dollars amounts pile up over a long period of time. (.125% on $1M would be $1,250 per year). 

Most of the CDs maturing in November are between 1.8% to 1.85% except for Bank of China's offer of 1.9%: 

  

I will also use Treasury Direct to buy inflation protected IBonds. I discussed that security here: Buying IBonds Through Treasury Direct - South Gent | Seeking Alpha