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Well off topic, but I imagine I'm not the only one with a wee cash balance at the moment.
I use Interactive Brokers, and I've been buying T-bills.

They sent me a remarkably helpful message this morning. Never pass up a free lunch.

Your account U**** holds USD [xxx] of US Treasuries maturing on 02/20/2025.
If you plan to replace your position on Maturity Date, you may forego one (1) or more days of interest yield, estimated at USD [12.19 per million], due to US Treasury trades settling on the next business day.*
You may use your current US Treasury buying power of USD [xxx] to replace that amount of your position one (1) business day before maturity, 02/19/2025. Buying new US Treasuries on 02/19/2025 will enable you to start earning interest day(s) earlier, on 02/20/2025 instead of 02/21/2025.

You are being notified of your buying power (excess margin capacity) as a courtesy. Your account will not incur any additional fees as a result of purchasing on 02/19/2025.
Please find additional information regarding US Treasuries here: How Can I Trade US Treasuries?
For your convenience, this table shows US Treasury Bills with maturities nearest to 30, 60 and 90 days from today. This is not a recommendation to buy.

 Name                                  Maturity Date    Identifier  Estimated Yield to Maturity
 United States Treasury B 03/20/25	 03/20/2025	 912797KJ5	 4.27
 United States Treasury B 04/22/25	 04/22/2025	 912797PA9	 4.26
 United States Treasury B 05/20/25	 05/20/2025	 912797PJ0	 4.26

Jim

PS, speaking of T-bills, I will bravely suggest that Berkshire will not be the choice with the highest pre-tax total return among the following choices in the next 12-18 months:

* T-bills (About 4.25% if you simply bought 12-18 month bills right now)
* Kraft Heinz stock (closed $29.32)
* Berkshire Hathaway stock (closed $482.82)

The KHC is a bit of a wild card. Is it "so bad it's good" yet? Dividend yield is 5.46%, and forward retained earnings probably similar to that, so potentially a useful cash cow at these prices if they can keep 'er steady. There's always an "if".

Berkshire is about 20% more expensive than its 17 year average (since the credit crunch).

Jim

I've been looking at following WEB (and now you ) as well, but those are way better than what I'm lookingat at Fidelity...

Schwab Money Market with total liquidity is at 4.18%.

https://www.schwab.com/money-market-funds

I will bravely suggest that Berkshire will not be the choice with the highest pre-tax total return among the following choices

Maybe not. But, what if you trade Berkshire in combination with other tools that are derivative of Berkshire? Basically what we've been discussing here for the last week or two. If Berkshire pops for a period of time and becomes "overvalued" based on your own metric, you sell a call (or buy a put, whichever flavor you prefer). Later, if it becomes "undervalued" based on your own metric, you buy a call (or sell a put, whichever flavor you prefer). The combination of those trades may very well outperform the other two choices on this list.

Or you could use the other technique discussed, buy LEAPS for leverage when undervalued, buy stock for safety when fairly valued, etc.

I'm curious about your choice to use T-Bills over simply earning interest on cash balance at IBRK. Looks like T-Bills earn about 0.5% more (~4.25% vs. 3.75%, so I guess if you're sitting on a lot of cash, that can be significant. But is that the only reason you go through the hassle and complexity of buying and rolling T-Bills? Is there a meaningful difference in risk? Always thanks for sharing and enlightening us.

https://www.interactivebrokers.com/en/accounts/fee...

For a US resident:

Tax treatment of Treasury bills (T-bills):
Federal tax: Income earned from T-bills is taxed federally by the Internal Revenue Service.
State tax: T-bill income is not subject to state tax.
Local tax: T-bill income is not subject to local income taxes.
Overall: T-bill income is partially but not entirely tax-exempt.

T-bills can have an advantage over money market funds, depending on where you live, etc.

My money market earns the same as 12 month t-bills right now.

Do we think interest rates are going to fall in the US in the next few months? Is a recession coming? Seems pretty likely I guess.

T-Bills over simply earning interest on cash balance at IBRK....Is there a meaningful difference in risk?

T-Bills are guaranteed by the US, cash with a broker by the broker.
(Please correct me if wrong)

I'm curious about your choice to use T-Bills over simply earning interest on cash balance at IBRK. Looks like T-Bills earn about 0.5% more

No, you've probably read that backwards. T-bills pay about 0.5% more than deposit interest. (specifically, IB pays 0.5% less than the policy rate)

Interest at IB on USD cash balances (for Pro accounts like mine) is 3.830% at the moment.
My April T-bills have a remaining yield of about 4.30%.

I'm thinking of buying some Bank of England bills in pounds sterling. However I can't for the life of me find out the appropriate ticker at IB for short term (couponless) notes. (neither can the support person I called). Maybe IB doesn't trade them, or I've been misinformed about their existence.

Jim

I'm curious about your choice to use T-Bills over simply earning interest on cash balance at IBRK. Looks like T-Bills earn about 0.5% more (~4.25% vs. 3.75%, so I guess if you're sitting on a lot of cash, that can be significant. But is that the only reason you go through the hassle and complexity of buying and rolling T-Bills?


Interactive has good rates but there's no interest on the first $10,000. It looks like they are currently paying 3.83% on amounts over $10,000, presuming you have net asset value over $100,000. So for a cash balance of $100,000, you would get a blended 3.45% in interest. For short periods of time, it's probably not worth bothering with T-bills for the difference, but if you're waiting for a big market drop, it might end up being a long time you're getting almost 1% less in interest.

Another alternative that I have been using, for the same purpose, is a bond ETF (HSUV), which you can buy on Interactive Brokers, although I don't know whether this particular product is available outside Canada. It invests in high-interest U.S. dollar deposit accounts with Canadian chartered banks, and accumulates the interest, effectively converting what would be interest income into a capital gain for the holder of the ETF. Current gross yield is 4.13%, from which you have to subtract the 0.2% management fee, so 3.913%, but with the advantage of this not being income for tax purposes. SGOV is another ETF that looks like it is similar, investing in treasuries of less than 3 months' duration, with a yield of 4.23% (after deducting its low expense fees (0.09%).

Another alternative that I have been using, for the same purpose, is a bond ETF (HSUV), which you can buy on Interactive Brokers...

The "conversion to capital gain" wheeze is pretty nifty, if it works for you. I just thought I'd mention that SGOV by contrast simply pays out the coupons.

Jim

Vanguard also just came out with a 0-3 month T-Bill ETF trading under the symbol VBIL. Expense ratio 0.07%.
If you want to go out a little longer on the curve, they also launched Vanguard Ultra-Short Treasury ETF (VGUS) also with 0.07% ER.

I've bought a ton of treasuries including some TIPS and buying them is rather trivial. That is on both Fidelity and Schwab.

The "conversion to capital gain" wheeze is pretty nifty, if it works for you. I just thought I'd mention that SGOV by contrast simply pays out the coupons.


Yes, that's correct.

The HSUV ETF increases in value as it accumulates interest, in the same way a company might increase in value if it just held interest-generating assets, but at least the tax man would hit the company with corporate tax. I suspect that if Revenue Canada ever cared to claim that a gain represented income and not capital gains, they would have logic on their side, and might prevail, but I think this is unlikely to ever happen. For Revenue Canada, HSUV is just another ticker, and given the small amounts in play, they are unlikely to care enough to actually dig in to see why that ticker went from $110 to $115 in a year.

The fund itself uses guarded language: "HSUV.U is not expected to make taxable distributions, which could enhance the after-tax performance of HSUV.U versus other cash savings vehicles." The key word being 'could'...

Etrade does not show any "HSUV" symbol. From that I would assume that you can't buy it in the US.

Further, I remember a few years ago that we had a great oil-related Canadian ETF(?)that paid a good dividend.

Then one day the Canadian government said, "We decided that it is not that" and the stock cratered. Showing that it is not safe to invest in an ETF that is playing word games.

I remember a few years ago that we had a great oil-related Canadian ETF(?)that paid a good dividend.

Then one day the Canadian government said, "We decided that it is not that" and the stock cratered. Showing that it is not safe to invest in an ETF that is playing word games.


It's hard to say what might have happened there, without more details, but I think it's unlikely that a bond fund would collapse because of how the government thinks its income should be taxed. If there were to be a sell-off, one would expect a pretty quick recovery as investors swoop in to take advantage of very liquid 80c dollars.

The 'word games' in question involve the tax treatment of gains. If the increase in value is just undistributed interest piling up from the bond assets held, then it is conceivable that the government would want those gains taxed as income and not as capital gains. It wouldn't make a huge difference to me anyways, for what I expect to be a short hold. And as Jim pointed out, many bond funds like SGOV just distribute the interest as income and you don't have that opportunity of hoping the income will be taxed as a capital gain on the ETF. But its a feature of some bond funds that is worth considering.

I'm curious about your choice to use T-Bills over simply earning interest on cash balance at IBRK. Looks like T-Bills earn about 0.5% more (~4.25% vs. 3.75%, so I guess if you're sitting on a lot of cash, that can be significant. But is that the only reason you go through the hassle and complexity of buying and rolling T-Bills? Is there a meaningful difference in risk? Always thanks for sharing and enlightening us.

There are two things to account for:
1. Even if you only keep $100,000 in cash, a 1/2% difference is $500 a year. That's a very nice bottle of scotch, or a rather fancy dinner out. Why give that away for no reason at all?
2. Even if you keep minimal cash, but have various cash balances as the year progresses due to buys/sells of other stuff, that cash should still be invested efficiently whenever possible.

As far as hassle/complexity, well I'm used to it by now. It takes me 30 to 60 seconds every Tuesday and every Thursday because I roll all the T-bills, and I roll them all manually because I often roll different amounts due to variable expenses each week/month. In the end, I have a somewhat higher average yield than if I just keep it in the money market fund. I'm probably getting 4.33% (T-bills) right now instead of 4.02% (money market).

Well, I have to disagree somewhat. If you shop around, you can get some decent T-Bill equivalent yields in simple funds or ETF's that are hands off without a lot of ongoing weekly maintenance. I'm getting 4.24% right now in SCOXX, in my tax-deferred 401k. I also have a chunk of cash in FZEXX in my taxable account that is earmarked for an upcoming real estate purchase. I need every tax break I can get, so this fund gives me a Tax Equivalent yield of 4.45%, based on the current 7 day yield of 3.03%. TEY = TX/(1-t), where TEY is tax equivalent yield, TX is tax exempt yield, and t is taxable bracket. 4.45% = 3.03%/(1 -.32). And this is in my no income tax state of NH. The TEY would be even higher in a state like NY, Cali, or Mass, maybe something over 5%, I'd guess?

Another interesting cash alternative with unique taxa advantages is the relatively-new BOXX ETF by Alpha Architect (I know the CEO, Wes Gray. He's a good dude).

It uses a "box spreads" options strategy to generate returns similar to short-term Treasury bills, creating synthetic bills-like returns. Expense ratio is 0.19%.

Taxation Benefits:
Tax Deferral: aims to defer tax liabilities until shareholders sell their ETF shares, unlike traditional Treasury bills that generate taxable interest income annually. Big advantage if you plan on a long-term hold.

Capital Gains Treatment: When investors sell BOXX shares, the gains are intended to be taxed as capital gains rather than ordinary income, qualifying for lower long-term capital gains tax rates if held > 1 year.

https://funds.alphaarchitect.com/boxetf/

Just a reminder that a discussion of T-bills worked its way through bill funds, broker deposits with counterparty risk, all the way to derivative funds.

Here are some cliches to live by, following the usual assumption that a T-bill is as good as a dollar bill:
Only cash is cash
Never reach for yield
Never put your money into something that is only "good till reached for"

If you want a return, invest the money.
If you want access to cash on short notice later, hold cash. Hold it in a way that gets you the full yield if you can, but don't go for an alternative that isn't the same thing.

Jim

JIm had suggested 1 yr treasury bills, I have been buying 3 Month treasury bills.

Jim and others what is the opinions on 3 month vs 1 yr treasury bills, and the advantages?

Only cash is cash
Never reach for yield

This made me think of something I wrote on another forum 3-4 years ago:

Ipse Dixit

Latin for, “Just sayin’ it don’t make it so”. (Or, as Abraham Licoln put it: “How many legs does a dog have if you call the tail a leg?”)

I had a fair amount of my ‘fixed-income’ money - essentially, living expenses to tide over when the market crunched for 6, 8, 10 years - in a couple of no-load, very low-fee “short-term investment-grade” funds offered by a very large US brokerage house.

One cold dark mid-February weekend I did a deep dive into what the largest of these funds – marketed as about 24% of a mixture of US govt obligations, and the rest investment-grade corporate bonds - actually owned. What maturities? Who were the guarantors?

Took awhile to dig through the layers, but a multi-hundred page semiannual SEC filing ultimately gave me what I was looking for. It was six months old, but good enough.

First, the 24% US govt “short-term” obligations. This was divided into 11% US-backed securities – with maturities as far out as 2030 – plus 8% asset-backed securities, mostly mortgage & auto. The remaining 5% or so was a variety of arcane mumblemumble – like call swaps.

So, let’s set aside that only around half of the 24% was actually what a layperson like me would consider US-backed obligations…and that even that half – call it the hyper-safe tranche – had (in mid-2021) significant obligations out to 2028. (I dug around as to the industry definition of “short-term” and found there wasn’t a uniformly agreed-upon definition…but an “average” of 5 yrs or less was the most typical. Still, let me suggest that including 7-year obligations in a short-term fund is, uh, disingenuous)

But, let’s be charitable and assume that all of this 24% was indeed super-safe (even the call swaps), and would be safe from default or price collapse in the event of a substantial market shock.

What about the other 76%, the corporate “high-grade” bond holdings that comprise this rainy-day store of value?

These corporate notes were of course in a number of sectors: Communications, Industrials, Utilities, Technology, and Financial.

But when you dive down, a full 49%** of all of the money this fund has in these “high-grade corporate bonds” are in the “other” wastebasket, composed entirely of instruments that are subject to the specific footnote that they are "exempt from registration under Rule 144A of the Securities Act of 1933. Such securities may be sold in transactions exempt from registration, normally to qualified institutional buyers"

• If this was 2008, I would be thinking: tranches of mortgage-backed securities, which after a highly-questionable risk rating have themselves been chopped up, redistributed, renamed and resold multiple times to the degree that no one knows who owns what, but are obviously safe because a) they’re rated by (corrupt, Moody’s/S&P) rating houses; b) insured by an (insolvent, AIG) insurer, and c) everyone else is doing it.

• Except this isn’t 2008…so until shown otherwise, I need to regard them as corporate IOUs of undiscoverable provenance and dubious respectability, which have packaged into bundles, sold, renamed, divided, resold, repeat. And their defaults will have nowhere to go but up once the Fed changes interest rates. As Charlie Munger succinctly, memorably, appropriately put it a few years back in a very similar circumstance (his language, not mine): “If you mix raisins with tvrds, they’re still tvrds”

• In the event, “short-term" won’t help. Heck, the individual maturities of these things aren’t even listed as they’re lumped by category. (Although, eyeballing, they’ll cluster around the fund average)

• (**OK, one concession: although the raw sum of the “others” is 49%, the fine print goes on to say that as of the filing date the actual total is (12.4% net assets/76.1% bonds = ) “only” 16.3% of the bonds are opaque/unknown instruments.)

Executive summary:

• I have a very hard time buying that this “Short-term investment-grade fund” is all raisins, even though that’s how they represent it.

• In particular, I have to assume that a minimum of 12.4%, and possibly up to 40+ percent, of my capital in this fund is at risk of partial or total loss in the event of a significant market shock…or even in the event of the Fed having a more rapid increase in interest rates forced upon them by worsening inflation in the CPI

• For a portfolio as a whole, that may be acceptable. But a substantial proportion of our rainy-day money is in this fund, and at this point I became convinced that it was a reach for yield, disguised by pretty words

Off to plain old short-term Treasuries I went (yes, we’ve bought our I-Bonds for the year)

Anyone want to convince me that this was unreasonable paranoia?

–sutton
still filing paper statements in binders, too

Jim and others what is the opinions on 3 month vs 1 yr treasury bills, and the advantages?

Your risk of loss is low either way.
Worst case with a one year, there is a big change in interest rate expectations (higher) shortly after you buy them, and the market price goes down a bit, AND you change your mind and decide you need the money just then, so you realize a small loss. In round numbers, the percentage you lose equals the rise in prevailing interest rates. A quarter of a percent, maybe up to one percent? Sudden big interest rises are very rare.

I don't think anyone here has any idea about what's likely to happen to interest rates or expectations any more than the global consensus, so don't worry about there being a "smart" strategy, there isn't one. That being said, if you have a hunch about an upcoming interest rate change, for example the current rates look decently high to you and you think there's a good chance of a cut some time soon, going a bit longer isn't crazy: you lock in the higher rate a bit longer.

A few possible strategies spring to mind:
(a) just always go 3 months out. (or 6, or whatever).
(b) pick 3 month or 1 year, whichever is the higher rate the day you are buying.
(c) either of the above, but staggered maturities with subsets of your cash

Jim

I had a fair amount of my ‘fixed-income’ money in a couple of no-load, very low-fee “short-term investment-grade” funds offered by a very large US brokerage house.

I think hard about what Jim said, "Only cash is cash."
Bond funds are not cash. US government MM funds and FDIC insured savings accounts are the closest things I consider as cash.


It appears that many of these treasury/government MM funds are heavy in Repurchase Agreements. Isn't there a bit of counterparty risk?
For sure they are not 100% state tax exempt like actual Treasuries.


SPAXX - Fidelity Government Money Market Fund
yield - 4.00%
U.S. Government Repurchase Agreements 36.43%
U.S. Treasury Bills 34.10%
Agency Floating-Rate Securities 22.67%
Agency Fixed-Rate Securities 5.25%
U.S. Treasury Coupons 4.50%

FDLXX - Fidelity Treasury Only Money Market Fund
Yield: 3.91%
U.S. Treasury Bills 100.35%
U.S. Treasury Coupons 8.43%



The Vanguard funds are similar, but higher yield because of lower E/R.

VMFXX - Vanguard Federal Money Market Fund
Yield: 4.25%
Repurchase Agreements 32.90%
U.S. Govt. Obligations 33.80%
U.S. Treasury Bills 32.80%
Yankee/Foreign 0.50%

VUSXX - Vanguard Treasury Money Market Fund
Yield: 4.27%
U.S. Treasury Bills 97.90%
U.S. Govt. Obligations 2.10%

Sutton,

That’s very interesting. I have some of my cash in T-bills, but the bulk of it is in the Vanguard federal money market fund.

Now I’m wondering if that’s safe enough?

“I think hard about what Jim said, "Only cash is cash."
Bond funds are not cash. US government MM funds and FDIC insured savings accounts are the closest things I consider as cash.”

I hear ya. FSIXX (Fidelity® Investments Money Market Treasury Only Class I) is what I use thru my self-managed Merrill account- 4.20% yield, 93.5% T-bills, 8.5% T-coupons.

Wow, sutton’s commentary and sleuthing was eye opening and revealing why WEB loves the security of old fashioned T bills!

Is there risk associated with repurchase agreements? It would appear that in holding the treasury note as collateral, ensures at a minimum, recovery of the loaned amount.

I actually bought some brk after one of your bottom calls in December 2018. I did not add to my khc holding after this post, but looking at it now…

1m smallest allowable purchase FSIXX...pretty concentrated position...

I'm loaded to the gills with short term treasuries and a few CLO's, etc. I'm probably in the minority but I see budget deficits going up with a vengeance rather than down. I'm also in the camp that eventually "some" of the longer higher rate treasuries have some chance of being "restructured" - meaning the rate will be cut. In my view all the norms and standards of the past are on the chopping block.

That’s very interesting. I have some of my cash in T-bills, but the bulk of it is in the Vanguard federal money market fund.
Now I’m wondering if that’s safe enough?

I'd rephrase the question a bit. Is the extra yield you're getting commensurate with the extra systemic risk you're taking?
If they are holding T-bills then truthfully you're *probably* OK, as your risk is limited to things like major financial meltdowns causing a freeze to one of the intermediaries, or fraud at the fund manager. Or hidden risks in the fund because they're getting fancy with derivatives to boost yield a few bps. Still, if you have the ability to buy T-bills, and you want to be as sure as a financial instrument can be, then do that.

Berkshire head office doesn't buy money market funds, they buy T-bills. They like to be sure.

I use two brokers in based in two different jurisdictions, as that's another level of being sure.

Jim

"I'd rephrase the question a bit. Is the extra yield you're getting commensurate with the extra systemic risk you're taking?...Berkshire head office doesn't buy money market funds, they buy T-bills. They like to be sure."

This whole discussion reminds me of the 1992 Berkshire letter: ""If options aren't a form of compensation, what are they? If compensation isn't an expense, what is it? And, if expenses shouldn't go into the calculation of earnings, where in the world should they go?"

...which in this case might be paraphrased, "If the [EFT, bond fund, investment grade yada] aren't all T-bills, what are they? And if they're not, what, exactly is the added risk? And, how much am I getting paid for that risk?"

--sutton
who is nowhere as sophisticated as Jim, but is deep down a bit of a catastrophist, so net/net

The MM rate is LESS than 1-3-6 month treasuries. So apparently I’m taking more risk and not getting paid for it.

It was just laziness I suppose. Vanguard actually has an easy way to buy treasuries, and I’ve done it, but it’s more clunky than just leaving it in the MM fund.

I will fix that on Monday. Thanks.

hbird, fyi-we found there to be no minimum purchase for FSIXX purchased within the Merrill account.

Merrill did offer a few other similar Treasury only MM funds, but FSIXX yield & fees were as good as any, plus we have been very comfortable with Fidelity over the decades.

there to be no minimum purchase for FSIXX purchased within the Merrill account.

Weird.
Fidelity says $1,000,000 minimum.
Merrill says $1 minimum.
E*TRADE: "This fund is not available for purchase through E*TRADE Securities."

ML must have either a special relationship or some such.

But anyway, VUSXX has slightly higher yield.

I had a fair amount of my ‘fixed-income’ money - essentially, living expenses to tide over when the market crunched for 6, 8, 10 years - in a couple of no-load, very low-fee “short-term investment-grade” funds offered by a very large US brokerage house...

Thanks hugely for that great post.

The digging part reminds me of when my father-in-law put his money into the hands of a reputable financial advisor in Canada, to create a portfolio suitable for his retirement. I delved down through the layers of funds and commissions, which as you note is quite the exercise, and discovered that
(a) it was almost entirely in fixed income with yields so low there was no real return or very close to it, with preposterous diversification among things largely equivalent, and
(b) the layers of fees added up to quite a bit more than the weighted average look-through yield: i.e., as a whole the portfolio was by construction guaranteed to lose money over time, with benefit to nobody but the fund managers. Any any middlemen getting kickbacks for selling them.

Jim

I was going to post this because I hadn't yet seen the word 'prospectus' in this thread, maybe it's still worth posting after Jim's post:

Read the prospectus!
Look for red flag words like "up to X% of the fund invested in SAFE STUFF", and "at the manager's discretion, the fund may invest up to Y% in LONG LIST INCLUDING SWAPSetc".

I once bought an investment grade bond fund (many years ago) that was receiving a lot of press because it was actively managed by a well-know person, was doing well, and had low fees.

What could go wrong?

It started not to do well.

I then looked at the holdings -- he was shorting the S&P. In a bond fund.
I then looked carefully at the prospectus, and saw words similar to the earlier quotes about "manager's discretion".

Learned two lessons (1) don't reach for yield (2) read the prospectus

Thanks ! I'll query that .. meantime, thanks to the erudite discussions on here, I am moving a chunk from SPAXX to FDLXX at the moment. Thanks to all.

this is probably worth listing, as the ~15 day maturity seems more cash like than some others. plus, the tax-free part, but more effort at 1040 time.

VMSXX
Vanguard Municipal Money Market Fun

Number of holdings 943
Average maturity 15.0 days
Weighted average life —
Alternative minimum tax (AMT)* 17.2%
Fund total net assets as of 01/31/2025 $17.8 B
fees 0.11%

VMSXX Vanguard Municipal Money Market Fun

7 day SEC yield: 2.92%

Tax equivalent yield: 2.92 / (1-.22) = 3.74%

You'd have to be in a very high tax bracket for this to be a good deal.
There are many savings accounts that pay more than 4%.

It's not unreasonable. After some bond funds doing less-that-what-I-expected-of-them, when I laddered my first five years of retirement loot to live by in the last month, I bought government securities via Schwab (maybe the auction would have been better, but I just wanted to get it done, and not gain or lose a few basis points), no complex array of "is this any good or not" and I'm holding them to maturity.

Interestingly, for the latter years of the ladder, annuities were better than the 5 or 10 year treasuries, so that's what I did. Sure, high surrender fees, but I'll concede that for 0.9% above what treasuries maturing at the same time presented. These were NY Life and/or USAA, I forget, but not Big Al's Discount Annuities.

tl;dr Bills are not tradeable, you want strips. Perhaps no suitable strips on retail market, but I think someone with your buying power could access the full market where there should be loads of choice.


Long version, written while I was working out the answer:

I guess you might be looking for gilt "strips" if you really want no coupons. (Didn't remember that jargon at first.)

Edit: ah, I see there are now UK Treasury Bills, up to 1 year, no coupon. A new innovation at some point that I didn't notice! A search (which I have now closed! d'oh!) said they are held to maturity, so that implies that you can't trade them. Brave search confirms that. So you want strips then, or low coupon gilts (maybe linkers?) where most of the return is capital - quite a few of those to choose from.

I did a search and looked at a couple of sites and this one lists a few strips up to 9 years out (2025/27/29/34):
https://www.hl.co.uk/shares/corporate-bonds-gilts/...
So none of these really fit the maturity you want.

I think this list is limited by trading via thing*, but given the amounts of money you would be using, I would guess IB could access the "proper" bond market for you, but that's beyond my ken! I only trade small amounts :-) Presumably the full range of strips would be available there, I think there should be *loads* to choose from. This web page has [err ... no it doesn't] a link to the current full list a couple of paragraphs down:
https://www.dmo.gov.uk/responsibilities/gilt-marke...
Ah, doesn't seem to list strips :-(

Maybe this link has something useful if you register: https://www.tradeweb.com/our-markets/data-analytic...
Yes! https://www.dmo.gov.uk/help/faqs/ gives this tradeweb link as well and says it includes strips.

(I worked at a bank on settlement systems for gilts and bonds for a while, 2-3 decades ago, but I don't know anything about trading them, only that the sizes are HUUUGEE in the institutional market. One time I had to re-code some C program using long doubles just so that we had enough precision to store the numbers. And the Tokyo systems we interfaced with insisted on calculations being accurate to 1 Yen!)

I find it hard to believe this is of any help to you (and IB), but since you've been so good to the BRK board for so long, I thought I could make a small effort. UK gilts and the FTSE 250 trackers (UK mid-caps, more like small-caps in the US market) look ok/good to me just now, a decent expected return (maybe growth 2-4% above inflation, plus the divi??) and a useful yield while waiting. And based in GBP, which doesn't seem over-valued, maybe even under-valued :-)

SA

* I forget the name, the retail-oriented gilt trading platform that the brokers use in the background

If you shop around, you can get some decent T-Bill equivalent yields in simple funds or ETF's that are hands off without a lot of ongoing weekly maintenance.

This is absolutely true. Up to about 5 years ago, I used funds for my cash and never bought T-bills individually. BUT, what I found was that invariably, the fund I chose would begin to flag and then other funds had better yields, or T-bills had better yields. It didn't bother me so much when my balances were relatively low, but now that I am retired, ALL my current spending comes from interest, dividends, and capital gains, so I really, and literally, can use any of the extra yield. So the choice is to "chase" funds for the better yield, or simply buy the "source material" directly (T-bills).

I'm getting 4.24% right now in SCOXX

The minimum in SCOXX is $1M, so on $1M, a difference of 0.11% (my T-bills are now about 4.33%) comes to $1,100 a year. That's $1,100 more (minutes taxes) that I can spend.

I also have a chunk of cash in FZEXX

I should probably look into tax exempt money markets a bit. I think I was in the 32% bracket in 2024, add the 3.8% NIIT to that and the effective rate is 35.8% (I think some tax exempt interest isn't subject to NIIT, but I'm not sure which). I'm also in a no income tax state.

Right now FZEXX has a yield of 2.91%, divide that by (1 - 0.358) and you get an equivalent yield of 4.53%. That's higher than the T-bill yield of 4.33% so it ought to be considered. However, I plan on 2025 being a lower income year (this is a year I am trying to take only short-term capital gains and balance them against al sorts of old capital losses that remain to be taken), so I may be able to stay in the 24%, or mostly stay in it, so the decision can wait till the end of 2025.

A few possible strategies spring to mind:
(a) just always go 3 months out. (or 6, or whatever).
(b) pick 3 month or 1 year, whichever is the higher rate the day you are buying.
(c) either of the above, but staggered maturities with subsets of your cash

Instead I do:

(d) Buy all of them. Yes, I really buy every T-bill in various amounts. I also buy some 2-year notes, and some TIPS periodically.

This has a few advantages. The first advantage is time diversity. Every single week, twice a week, I have T-bills that mature, and every single week, twice a week, I buy new T-bills. That way, in any week that I have additional expenses, I simply invest a little less which leaves money to be used to pay those additional expenses (for example, one of my kids got married a few weeks ago, so for a few weeks there were substantial additional expenses and less money was put into T-bills, while more money went out to pay for wedding stuff. Another advantage is interest rate diversity. When rates change, I always end up owning some of the higher rate stuff, even if I also own some of the lower rate stuff. This gives a pretty reasonable average overall. For example, look at the 52-week T-bills recently - All the 2024 maturities yielded over 5% except for the last one, the 12/26/24 maturity yielded only 4.8%. The 2025 maturities began at around 4.8%, but then climbed over 5% for March through July, and then returned to the low 4's and even 3.9% for October, and now back up to the low 4's, the last one was 2.24%. A third advantage is that I can buy the "odd bills", they call them "Cash management bills" and they usually have slightly less demand and thus slightly more interest. For example, a few weeks ago there was this odd 33-day T-bill offered, and I bought a bunch of it, yield was 4.341%, and it is maturing on Tuesday. That yield was slightly higher than the 4-week T-bill and the 42-day (now they call it 6-week) T-bill with similar maturity date.

Is buying "all of them" overkill? Probably. But it's turned into a kind of hobby that takes 30-60 seconds twice each week. At first I started simply by buying only the 8-week T-bill and just rolling over automatically at Treasurydirect each week. But then TreasuryDirect really messed me up. One time I was unable to log in, and for some ridiculous reason, once you can't log in, they simply CANCEL all your reinvestments and allow the funds to mature into cash with zero interest. Since I had set it on autopilot (12 automatic reinvestments at 8 weeks each time means that I don't have to look at it for 12 x 8 weeks, or nearly 2 years. So I didn't worry about it. Ha! I should have known that anything operated by government or government related will end up screwing something up. Probably 11 or 12 months later, I finally managed to log in and to my horror discovered what they had done. Bastards. And they send ZERO communication via email and ZERO communication via US Mail. The only thing they send is a a notification that you have a message in your TD inbox, but I get those every week anyway for various things in the TD account. So there was no way at all to know that they stopped my automatic reinvestments randomly like that. Now I do the vast bulk of my T-bill buying in my brokerage account. TreasuryDirect also has literally the worst formatting of their 1099 that I've ever seen. And they alone don't have a requirement to send out paper 1099s to me each year. I have to log in, show their pizz poor 1099 on my screen, and then save it to pdf myself, and it still remains so ridiculously badly formatted. Any normal financial institution would be laughed out of the room if they presented a 1099 that way.

Berkshire head office doesn't buy money market funds, they buy T-bills. They like to be sure.

Not just "sure".

1. You own your own T-bills so you can decide on your own immediately what to do with them.
2. Why pay someone else 0.03% to buy T-bills for you? 0.03% of $334B is about $100 million. Why give $100M away when you can keep it for yourself? Even if they were to pay only 0.01%, it's still over $30M!
3. It's easier to use your own T-bills as margin. If Berkshire wants to make a huge, let's say $100B purchase, they can do it easily. There's more than enough margin to do so and then eliminate it as the T-bills come due. The margin allowed for money market fund is different.
4. If you want to own T-bills, buy T-bills. Because money market funds own mostly T-bills but not all T-bills, they also own various other commercial paper, swaps, and other weird things that goose yields somewhat, sometimes.
5. When you have $334 billion in cash, you are bound to overwhelm any money market fund, so if you do indeed suddenly need $100B for a big purchase, you will surely cause some disruption.

not the top tax bracket, but maybe top 3 or 4.
have moved muni money market discussion to other board :
https://www.shrewdm.com/MB?pid=642569383

(yes, we’ve bought our I-Bonds for the year)

Right now, I-bonds have much lower yields than TIPS, so for that portion of your portfolio, TIPS are the better choice for now. This is true even after accounting for the taxes on the "phantom yield" of TIPS.

Newbie here.
Questions for Jim and others:

1. Jim says buy at least 3 month duration. What’s wrong with buying the one month ones? I will get the money back sooner and can then redecide what to do with it.

2. Is there any friction cost (fees, spread) buying tbills on IBKR?

3. A lot of options on ibkr when I try to get a quote.. there are strips and many not very clearly understandable names. Which one you guys buy?

4. Say I bought a 1 year bill, and then I decided I need the money (to buy stocks). Do u sell it or get into margin debt?

1. Jim says buy at least 3 month duration. What’s wrong with buying the one month ones? I will get the money back sooner and can then redecide what to do with it.
Nothing wrong, just more work for no benefit : )
The yields are usually pretty much identical except when a rate change is expected to be imminent.

2. Is there any friction cost (fees, spread) buying tbills on IBKR?
Commissions are low, if your order is biggish. 0.0012% to 0.0020% of face value? $10 on half a mil?
The problem is that the bid/ask shown is effective only for large trades. When buying a small-to-medium amount your order (probably) won't fill even if you bid at the asking price.
I don't know how much gets their attention, maybe 750k??

3. A lot of options on ibkr when I try to get a quote.. there are strips and many not very clearly understandable names. Which one you guys buy?
Yeah, took me a while to figure it out.
I buy bills.
If you want T-bills, once you have picked the right thing from the pop up menu, the financial instrument should say something like "US-T GOVT Bill Jun 12'25 912797LN5"

4. Say I bought a 1 year bill, and then I decided I need the money (to buy stocks). Do u sell it or get into margin debt?
You could. But you'd be paying half a percent more interest on your margin loan than you'd be earning on the bill.
Personally I would just sell the bill. The bid/ask is tiny, and the value rises as smoothly as you can imagine, so just sell it on the open market. That's why they are considered a substitute for cash. Rather, that's why when people say USD "cash" they really mean T-bills. The market depth is astronomical. Sell a billion without batting an eye.

Jim

What’s wrong with buying the one month ones? I will get the money back sooner and can then redecide what to do with it.

Nothing "wrong" with it. It's just important to be informed what exactly it means. For example, on 11/19/24, you could have bought a 4-week T-bill with a yield of 4.609%, or you could have bought a 13-week T-bill on 11/21/24 with a yield of 4.526%. But had you bought the 13-week one, you would have received 4.526% for the entire ~3 month period. The 4-week T-bill would have to be reinvested a few times. You would have bought another 4-week T-bill on 12/24/24 at a yield of 4.334%, and then again on 1/21/25 at a yield of 4.339%. You can see that when rates drop, it is sometimes better to lock in a slightly lower yield for a longer period rather than take an initial higher yield, but then have lower yields upon reinvestment.

Is there any friction cost (fees, spread) buying tbills on IBKR?

Usually when you buy "new issues" (i.e. buy directly from the treasury via you broker), there are no fees, so your yield is exactly the yield that results at the auction. But when you buy T-bills that are traded on the open market, there are spreads and sometimes fees.

there are strips and many not very clearly understandable names. Which one you guys buy?

In general, if you want a treasury instrument, they are pretty much all equally rated (equally safe), so you pick your maturity date, and you buy the one closest to that maturity date that has the highest yield AFTER fees and spreads. Lately I almost always buy new issues with no fees or spreads.

Say I bought a 1 year bill, and then I decided I need the money (to buy stocks). Do u sell it or get into margin debt?

Yes. You can choose either one, sell it, or use it for margin. The margin on US Treasury securities is VERY high. In my experience, it is rarely worth actually going into margin debt for these kinds of things because the margin interest rates are substantially higher than what you are earning on the treasury debt.

Thanks Jim.
Maybe i shall buy IBKR’s stock because they are making it so easy for people to save— much better than a bank. PE is high though. I had an account with IBKR in 2005, and was amazed how many thing I could trade.

Thanks Mark.
How do you buy new issue/direct from treasury through the broker? Does ibkr let u do it?

I do have a treasurydirect account and i thinj i can buy there and then transfer it out.

Thanks Mark. You said you are buying the bills at brokerage account. But isn’t buying through auctions treasury direct is commission free and no spread cost, and thus should be better to go?

You said you are buying the bills at brokerage account. But isn’t buying through auctions treasury direct is commission free and no spread cost, and thus should be better to go?

Buying new issues at my broker (I use Fidelity for most of my fixed income trades) has no fees and no spread. I used to use TreasuryDirect, but I explained earlier why I don't anymore.

Off to plain old short-term Treasuries I went (yes, we’ve bought our I-Bonds for the year)

Anyone want to convince me that this was unreasonable paranoia?

–sutton

Maybe not sufficiently paranoid? How safe are treasuries in the current environment? Trump was recently quoted saying:

“We’re even looking at Treasuries. There could be a problem … It could be that a lot of those things don’t count. In other words, that some of that stuff that we’re finding is very fraudulent, therefore maybe we have less debt than we thought.”

Add to that a fiscal and tax policy that is likely to balloon the deficit and you have a recipe for default, or at least the reasonable fear of default.

In this environment I’m wondering if foreign government bonds shouldn’t be part of a conservative portfolio?

Which foreign governments/bonds will be impacted the least by the current US insanity?

Which foreign governments/bonds will be impacted the least by the current US insanity?

Several economies may be adversely affected by recent US policy developments. But it's likely that the debt of major economies is still good anyway.

The thing to watch is that G7-type economies issue debt in their own currencies. This means they essentially never default, but you do have currency exposure. The US dollar is quite strong right now providing a potential tailwind if it doesn't last. But who knows?

The places that are forced to issue bonds in currencies other than their own (US dollars or euros, usually) are often the ones most likely to default, so don't imagine that insisting on US dollar bonds is doing yourself a favour : )

Jim

I've been using SWVXX at Schwab, didn't want the roll hassle.
Maybe holding real bills would be better - the amount I have in 'cash' is getting significant.
Schwab has an automatic roll feature if they're bought at auction, i.e. they roll into the same duration, no roll hassle, no transaction fee.
Anyone familiar with this at Schwab or a different brokerage?

Which foreign governments/bonds will be impacted the least by the current US insanity?

Not that it's really relevant, and definitely not an investment recommendation, but today I've been switching some USD cash and T-bills to GBP cash deposits.
Earning 3.98% at IB until I get around to buying one year gilts which are currently at 4.41%.
Bought GBP at 1.2617.

Note, the UK does not fall into the category of happy economies these days. It's not a pretty sight, though the problem is not (currently) anything emanating from the US.

Jim

I use Schwab's SWVXX for my cash also.

Tom

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