Buying Treasury bills - great choice for cash reserves

[QuarterMillionMan]

At 4% for 4 months, does that translate to 12% a year (if all things were constant and not going up or down)?

[disneysteve]

At 4% for 4 months, does that translate to 12% a year (if all things were constant and not going up or down)?

No. The rate quoted is the annual rate.

[QuarterMillionMan]

On 8/9/22 bought $4927 US Treasury bill which matured on 2/2/23 at $5000. It matured automatically and I didn't need to "sell."

[QuarterMillionMan]

For tax purposes I'm guessing this would need to be reported on my 2023 tax return and not my 2022 tax return?

[disneysteve]

On 8/9/22 bought $4927 US Treasury bill which matured on 2/2/23 at $5000. It matured automatically and I didn't need to "sell."

Correct, because you held it until maturity. The only time you'd have to sell a bond is if you wanted to get out before maturity.

[disneysteve]

For tax purposes I'm guessing this would need to be reported on my 2023 tax return and not my 2022 tax return?

Yes, interest is taxable in the year in which it is paid.

[disneysteve]

I had a Federal Home Loan Bank bond called a few days ago. Maturity was 5/2024 but they called it. It was paying 5.180% so I'm not surprised but I was hoping they'd let it run longer. Oh well, time to go shopping again. We also have 2 T bills maturing this week. I'll wait until those settle and then look for new ones to buy.

[QuarterMillionMan]

I had a Federal Home Loan Bank bond called a few days ago. Maturity was 5/2024 but they called it. It was paying 5.180% so I'm not surprised but I was hoping they'd let it run longer. Oh well, time to go shopping again. We also have 2 T bills maturing this week. I'll wait until those settle and then look for new ones to buy.

Did they give an explanation as to why it was called? Seems unfair that they can pull the rug from under you at a moment's notice.

[disneysteve]

Did they give an explanation as to why it was called? Seems unfair that they can pull the rug from under you at a moment's notice.

Not unfair at all. The call date is clearly listed when you buy it. I knew it would probably get called since long term rates have been dropping.

[QuarterMillionMan]

This is why I'm rethinking buying about not buying anymore. Let's say I buy a 6 month maturity bond and 3 months into it and they call it back, I wasted 3 months where if I just left it in Ally bank I would get the 3.40% for that 3 months.

[disneysteve]

This is why I'm rethinking buying about not buying anymore. Let's say I buy a 6 month maturity bond and 3 months into it and they call it back, I wasted 3 months where if I just left it in Ally bank I would get the 3.40% for that 3 months.

Don’t buy callable bonds if you’re concerned. But even if you do, you’d still come out ahead. I bought this bond in October so I’ve earned 5.18% since then.

[disneysteve]

T bills are not callable.

[james.hendrickson]

This is why I'm rethinking buying about not buying anymore. Let's say I buy a 6 month maturity bond and 3 months into it and they call it back, I wasted 3 months where if I just left it in Ally bank I would get the 3.40% for that 3 months.

QMM - Disneysteve is right. Bond callability is a feature of some bonds. It's perfectly legitimate. You can just check the prospectus of any bond you buy to see if it's callable.

[QuarterMillionMan]

I see that I misunderstood how callables paid out, disneysteve explained it for me. I checked the history of a JP Morgan callable bond that I have that has a maurity date of 5/2/23 which has not been called but they are paying the interest on it. I thought the interest would only be paid upon maturity and if called prior to maturity no interest would be paid but I see that I stand corrected.

[QuarterMillionMan]

With higher bond yields the old 80/20 ratio of stocks to bonds might need to be revisited to maybe 70/30, 60/40, etc.