Sunday, August 06, 2006

Rolling over my 28-day T-bills for August

I only started investing in T-bills via TreasuryDirect in early July with an initial purchase of 28-day (4-week) T-bills on July 6, 2006. My plan was to roll these T-bills over every 28 days as they mature, but a number of details remained up in the air.

Last Thursday was the maturity date for my initial batch of T-bills and it was also was the issuance date for the roll-over into the second batch.

Everything went off without a hitch and it even looks like the roll-over occurs exactly as I would like it to occur, with the "payment" for the maturing bills hitting my bank checking account the same day as the debit for the new purchase of T-bills. In fact, the payment was sequenced first so that my bank checking account received the funds from the maturing T-bills before the debit hit to claim those same funds, minus the accrued interest, of course. Late Thursday evening my online bank checking account statement showed that the payment had hit, but the debit wasn't there yet. By Friday evening both the payment and debit could be seen in the online bank checking account statement, with the same date.

Unfortunately, there isn't any guarantee that such a sequencing of payment and debit will always occur in precisely the same manner, so I'll have to watch it carefully in coming months and try to make sure that I always keep sufficient funds in that bank checking account to cover the T-bills.

The good news is that the effective interest rate for the new T-bills is even better than I had expected. The discount price was $99.601778 per $100 par value. The annualized effective interest rate came to 5.19%. For my maturing T-bills from July, the annualized effective interest rate came out to 4.82%.

The issue date for this new batch of T-bills was Thursday, August 3, 2006. They will mature in 28 days, on Thursday, August 31, 2006. The auction was on Tuesday, August 1, 2006. There is an auction every Tuesday, but the next auction for me to roll over these T-bills will be Tuesday, August 29, 2006.

According to the official U.S. Treasury recent auction results, the investment interest rate on a 91-day (3-month) T-bill for Thursday, August 3, 2006 issance was 5.108% versus a rate of 5.212% for the 28-day T-bill and 5.174% on the 182-day (6-month) T-bill. It is atypical to see such a front-end T-bill inversion. I suspect that it is simply a matter of raw supply and demand, with the 3-month T-bill being the most popular T-bill, and higher demand leads to higher price which in turn leads to lower yield. It is also interesting that even the 6-month T-bill yields less than the 1-month T-bill. From a perspective of economic fundamentals, that would suggst a bet or belief that interest rates will fall over the coming month, but once again I suspect that the inversion is simply due to people needing to fill in the 6-month "rung" in their ladder, no matter what the return might be on the very short T-bill. In fact, the yield on the new-issue 6-month T-bill has fallen on each the the past three weekly auctions, suggesting rising demand. This might also be due to some people investing more money in bond funds as the stock market was looking rather dicey.

BTW, don't ask me why Treasury says that the investment interest rate for the 28-day T-bill was 5.212 which my calculation of "effective annualized interest rate" came out to 5.19%. I'll figure that out one of these days.

-- Jack Krupansky


Post a Comment

Subscribe to Post Comments [Atom]

<< Home