Ask Terry Questions How Do I “ladder” Treasury Bills

How Do I “ladder” Treasury Bills

By Terry Savage on May 16, 2018 | Chicken Money

How do I set up a Treasury (short term) ladder for staggering maturities. Pls give an example. Also, if the interest rate is 2% for example, is this for one year? If I purchase a 6 month Treasury Bill, will my interest be half of that, or 1%?

Terry Says

Okay, some clarification is in order.  Interest rates are set every week at a huge multi-trillion dollar auction for U.S. Treasury bills.  You can find the current rates on Treasury securities here.  This is the bond section of the website.  The yields change daily in the trading marketplace -- giving a preview of what they are likely to be at the next weekly auction.  Typically -- but not always -- rates are a bit higher as the maturity lengthens.  Thus, as I write this on Wednesday afternoon, the 3 month t-bill yields 1.91%, while the 2 year is yielding 2.58%.  The "spread" between yields varies all the time; there is no set differential. The way to "stagger" or "ladder" maturities is to buy some 3 month T-bills, some 6 month (26 week) T-bills and some one-year T-bills.  As they mature, you can set them to automatically roll over and accept the rate at the next monthly auction.   And if you stagger these purchases over a period of 6-weeks, you will have a "rolling" portfolio of Treasury securities maturing almost weekly! But remember, you can only take the money out at maturity.  So you have to cancel the next rollover (or never elect to rollover) and then the money will automatically be returned to your checking account or money market deposit account from which you made your original purchase.



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