Treasury Direct T-bill Reinvestment/Maturity

[JHZR2]

Maybe this is a really dumb question. I think it must be.

I never bought treasury bills on Treasury Direct before. They were doing away with my payroll CoI so I was in the site and I decided to try it for kicks.

I bought a 4-week bill at 4.334%.

I told them to reinvest 7 times.

The detail shows issue date as 12/31/24 (auction date I believe). The maturity date is 1/28/25.

That’s where I’m confused. 7x4=28; a half year. But now I don’t have a half year maturity. Why? Is it because of maturity and auctions date alignments?

Am I missing something?

It’s no big deal with the money tied up, it’s just odd. I thought I was setting it up to give me the money back as summer cash…

 

[Nukeman7]

I'm no expert at T-bills, but isn't the maturity date tied to the terms of the bill?

In this case, you purchased a 4-week bill; therefore it will mature on 1/28/25 as indicated. They will take the amount and reinvest it in a new T-bill which will mature four weeks after it is issued (January auction date).

Rinse and repeat for 6 more cycles.

 

[Vil_Riker]

isn't 1/28 four weeks after 12/31 or am I missing something.

You will be buying new 4 week t-bills seven times. Each time it matures, the interest will be deposited in your bank account, only the principal amount gets reinvested in a new t-bill. So if you want the interest to be invested as well, you have to buy new t-bills with that money.

 

[SC Maintenance]

There is an auction date - and an issue date. The 4 weeks is from the issue date.

So you buy at auction on Tuesday - but that is just a commitment to buy. It might not get issued till Friday which is when they take your money. For example:

When I do auto roll on fidelity, I am never out of the bill. Its somehow timed that Fidelity buys at auction, and then on the issue date the treasury pays me the money from the old one, and it rolled into the new one. I would assume Treasury direct is the same - but can't say for sure.

 

[Al]

I purchased I bonds 20 years ago from local bank and still have them. I may need to start selling some of them

 

[b_b]

I purchased some I bonds during when the interest rates skyrocketed. haven't looked at them in at least three years. need to check up on that.

 

[JHZR2]

I'm no expert at T-bills, but isn't the maturity date tied to the terms of the bill?

In this case, you purchased a 4-week bill; therefore it will mature on 1/28/25 as indicated. They will take the amount and reinvest it in a new T-bill which will mature four weeks after it is issued (January auction date).

Rinse and repeat for 6 more cycles.

isn't 1/28 four weeks after 12/31 or am I missing something.

You will be buying new 4 week t-bills seven times. Each time it matures, the interest will be deposited in your bank account, only the principal amount gets reinvested in a new t-bill. So if you want the interest to be invested as well, you have to buy new t-bills with that money.

Yes, but given automatic repurchase isn’t the maturity really at the end of the 7x4?

And the other thing I just don’t know what to expect, is do they pay the interest accrued to my bank account, or does the full amount get used in the next auction? Does it compound?

 

[JHZR2]

I purchased I bonds 20 years ago from local bank and still have them. I may need to start selling some of them

I still have a few paper ee bonds from the early 80s. I’ve kept them for historic interest.

I should check maturity on my other ee and I bonds… maybe I never mature actually?

 

[Vil_Riker]

Yes, but given automatic repurchase isn’t the maturity really at the end of the 7x4?

And the other thing I just don’t know what to expect, is do they pay the interest accrued to my bank account, or does the full amount get used in the next auction? Does it compound?

Each t-bill is treated separately. So you are buying t-bills seven times. You can actually change how many times you want it reinvested so giving you the final date would be helpful but not very firm.

The Treasury will deposit [purchase price of the new t-bill] - [face/par value of the matured t-bill] at the end of maturity for reinvested t-bills. So there is no compounding.

 

[spackard]

T bills are also weird in that you purchase not the face value of the bill but the bill cost less the interest it will accrue.
So a 26 week $10,000 T bill will actually cost you around $9800 assuming a 4.2% interest.

I guess they do that so if you keep rolling T bills it looks like they’re paying dividends.

 

[SC Maintenance]

T bills are also weird in that you purchase not the face value of the bill but the bill cost less the interest it will accrue.
So a 26 week $10,000 T bill will actually cost you around $9800 assuming a 4.2% interest.

I guess they do that so if you keep rolling T bills it looks like they’re paying dividends.

Yes, bond math is weird. I am convinced bankers did it to make average folks fearful - making the math more complex than needed.

T-bills can be from 4 weeks to 52 weeks. It would make no sense to pay a coupon on something that short, so they simply roll the interest rate into the final cash out payment. They could in theory bid the rate, and then tack it on at the end, but I guess its just easier to have the auction bid the price of the bond rather than bidding a percentage and then they pay you face value at maturity, so you always know what your getting.

On anything 2+ years its still a bid of price, and you don't pay face either. Say for example a 2 year was going at auction with a 4% yield, so it would pay 4% per year, paid out every 6 months. When it goes to auction it might sell for more or less than its face. For example if on auction day the market decides the correct yield is 4.1%, you would pay approximately 998.00 per $1000 face value, representing the extra 0.1% per year ($1 per year x 2 years). However your coupon yield payment would still be $40 per year - per the original agreement, so again you know ahead of time exactly what the coupon will be, and you get the full $1000 back at maturity.

 

[JHZR2]

T bills are also weird in that you purchase not the face value of the bill but the bill cost less the interest it will accrue.
So a 26 week $10,000 T bill will actually cost you around $9800 assuming a 4.2% interest.

I guess they do that so if you keep rolling T bills it looks like they’re paying dividends.

But that was the basis of my question about compounding at the rollover.

First purchase, sure, it’s $9800 for a $10k bill. But at maturity I have a 10k bill. So does it roll into a ~$10.2k bill I buy at $10k, or do I buy another $10k bill for $9800 or whatever the current rate requires, and the delta is put back in my bank account?

I’d prefer the former, but as I now understand it. I’ll get the latter.

 

[SC Maintenance]

But that was the basis of my question about compounding at the rollover.

First purchase, sure, it’s $9800 for a $10k bill. But at maturity I have a 10k bill. So does it roll into a ~$10.2k bill I buy at $10k, or do I buy another $10k bill for $9800 or whatever the current rate requires, and the delta is put back in my bank account?

I’d prefer the former, but as I now understand it. I’ll get the latter.

No compounding.

Lets say you pay $999.00 for the first bill. It will then pay out $1000.

The next bill might be $999.01. So you would still have $0.99 left in your account.

Bills are always priced in even multiples of face value, and you pay less than face. I believe Treasury direct is only $100, so in theory if you got $100 extra you could put that back into another bill.

 

[JHZR2]

No compounding.

Lets say you pay $999.00 for the first bill. It will then pay out $1000.

The next bill might be $999.01. So you would still have $0.99 left in your account.

Bills are always priced in even multiples of face value, and you pay less than face. I believe Treasury direct is only $100, so in theory if you got $100 extra you could put that back into another bill.

But they leave it in your account, not send it back to your bank? They’re doing away with the 0% certificate of indebtedness, which is how they hold uninvested money. So that’s why it’s all confusing to me…

 

[spackard]

In the past they’ve transferred it back to my bank account. Automatically.

 

[R_W_M]

But that was the basis of my question about compounding at the rollover.

First purchase, sure, it’s $9800 for a $10k bill. But at maturity I have a 10k bill. So does it roll into a ~$10.2k bill I buy at $10k, or do I buy another $10k bill for $9800 or whatever the current rate requires, and the delta is put back in my bank account?

I’d prefer the former, but as I now understand it. I’ll get the latter.

Yes, the latter is exactly how my account works. In your example, when it rolls over, you would buy a new $10K bill for $9800 and the $200 interest will be deposited into your bank account.