How to Buy Treasury Bills as Some Yields Reach 5%

bond investing

With yields on some Treasury bills now reaching 5%, these assets have become increasingly attractive to investors. However, there are important aspects of the purchasing process that investors should be aware of, according to experts.

Treasury bills, also known as T-bills, are short-term debt securities backed by the U.S. government that are nearly risk-free. These securities have maturities ranging from four to 52 weeks and pay interest at maturity, which is exempt from state and local taxes.

As a result of the Federal Reserve’s series of rate hikes, T-bills have emerged as a competitive option for cash investments, with some T-bills offering yields in excess of 5% as of February 24th.

According to Jeremy Keil, a certified financial planner at Keil Financial Partners in Milwaukee, it’s not possible to directly compare the rates of Treasury bills with other financial products, as T-bills are typically sold at a discount, with their full value paid at maturity.

To illustrate this point, consider a scenario where an investor purchases $1,000 of one-year T-bills at a 4% discount, resulting in a purchase price of $960. To calculate the coupon rate of the T-bill (which is 4.16%), the investor would subtract the purchase price of $960 from the $1,000 maturity value and then divide the difference by $960.

TICKER Duration YIELD(%) CHANGE
US1M
U.S. 1 Month Treasury 4.622 0.031
US3M
U.S. 3 Month Treasury 4.833 0.001
US6M
U.S. 6 Month Treasury 5.11 0.019
US1Y
U.S. 1 Year Treasury 5.046 0.017
US2Y
U.S. 2 Year Treasury 4.814 0.121
US10Y
U.S. 10 Year Treasury 3.947 0.066
US30Y
U.S. 30 Year Treasury 3.93 0.052

Jeremy Keil, a certified financial planner at Keil Financial Partners, advises that investors can access the “true yield” or “bank equivalent yield” of Treasury bills when purchasing them through TreasuryDirect, a website managed by the U.S. Department of the Treasury, or their brokerage account.

How to buy Treasury bills from TreasuryDirect?

If you’re interested in buying Treasury bills, here are the steps you can follow:

  1. Open a TreasuryDirect account: TreasuryDirect is the online portal of the U.S. Department of the Treasury where you can buy and manage your Treasury securities. You can visit the website at www.treasurydirect.gov to open an account.
  2. Fund your account: You can fund your TreasuryDirect account by linking it to your bank account and transferring funds electronically. You can also buy Treasury bills using your tax refund or by setting up a payroll savings plan.
  3. Decide on the type of Treasury bill you want to buy: Treasury bills are short-term securities with maturities ranging from a few days to a year. You can choose to buy bills with maturities of 4, 13, 26, or 52 weeks, depending on your investment goals.
  4. Place your order: Once you’ve decided on the type of bill you want to buy, you can place your order through the TreasuryDirect website. You’ll need to specify the amount you want to invest and the maturity date of the bill.
  5. Wait for the auction: Treasury bills are sold through an auction process, so you’ll need to wait for the auction to take place before you can buy your bill. The auction is usually held on Mondays, Tuesdays, or Wednesdays, and you’ll be notified of the results by email.
  6. Settle your purchase: Once you’ve successfully bought your Treasury bill, you’ll need to settle the purchase by transferring funds from your TreasuryDirect account to pay for the bill. You can then hold the bill until it matures or sell it on the secondary market if you need to liquidate your investment.

Buy T-bills through brokerage accounts for more liquidity

How to Buy Treasury Bills as Some Yields Reach 5%

To avoid potential liquidity issues, one strategy is to purchase Treasury bills through a brokerage account rather than using TreasuryDirect, according to Jeremy Keil, a certified financial planner at Keil Financial Partners. Keil notes that the primary benefit of using a brokerage account is immediate access to T-bills and knowledge of the yield to maturity, although this convenience may come at the expense of a slightly lower yield of around 0.1% or less.

George Gagliardi, a CFP and founder of Coromandel Wealth Management in Lexington, Massachusetts, also recommends buying T-bills outside of TreasuryDirect to avoid liquidity issues. He suggests that investors consider low-fee exchange-traded funds, which are available through brokerage accounts and enable investors to buy and sell T-bills before maturity.

While fees associated with exchange-traded funds may slightly reduce the interest earned on T-bills, Gagliardi notes that the convenience of purchasing and selling before maturity may outweigh this modest reduction in yield for many investors.

Several brokers to Consider

Brokerage accounts allow investors to buy and sell a variety of securities, including T-bills. Brokerage firms typically offer access to a range of government securities, including Treasury bills, through their online platforms. Investors can purchase T-bills directly from the government or through a brokerage account.

One advantage of buying Treasury bills through a brokerage account is that it can provide access to a larger pool of liquidity. Brokerage firms have access to a large network of buyers and sellers, which can make it easier to buy and sell T-bills quickly and at competitive prices.

Additionally, brokerage accounts can provide investors with access to research and analysis on T-bills, as well as other investment options. This information can help investors make informed decisions about buying and selling T-bills, and can help them identify investment opportunities that meet their financial goals and risk tolerance.

There are several brokerage firms that offer the ability to buy Treasury bills. Here are a few options to consider:

  1. Fidelity: Fidelity is a full-service brokerage firm that offers access to a range of government securities, including Treasury bills. Fidelity provides research and analysis on T-bills, as well as other investment options, and allows investors to buy T-bills online through their platform.
  2. TD Ameritrade: TD Ameritrade is another full-service brokerage firm that offers access to Treasury bills. TD Ameritrade provides investors with access to research and analysis on T-bills, as well as other investment options, and allows investors to buy T-bills online through their platform.
  3. Charles Schwab: Charles Schwab is a full-service brokerage firm that offers access to a range of government securities, including Treasury bills. Charles Schwab provides research and analysis on T-bills, as well as other investment options, and allows investors to buy T-bills online through their platform.
  4. E-Trade: E-Trade is an online brokerage firm that offers access to a range of government securities, including Treasury bills. E-Trade provides investors with access to research and analysis on T-bills, as well as other investment options, and allows investors to buy T-bills online through their platform.
  5. Interactive Brokers: Interactive Brokers is a brokerage firm that provides access to a range of government securities, including Treasury bills. Interactive Brokers provides research and analysis on T-bills, as well as other investment options, and allows investors to buy T-bills online through their platform.

Conclusion

In conclusion, Treasury bills can be an attractive option for investors seeking a low-risk, short-term investment. With some T-bills now offering yields of over 5%, they may be a compelling alternative to other cash investments. However, investors should be aware of the nuances of purchasing T-bills, including the fact that they are typically sold at a discount and may have liquidity issues if bought through TreasuryDirect. By using a brokerage account and considering low-fee exchange-traded funds, investors can mitigate some of these challenges and enjoy the benefits of investing in Treasury bills. With careful consideration and a clear understanding of the process, T-bills can be a valuable addition to any investor’s portfolio.

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