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I have been thinking about the same thing.

One way to reduce the transaction costs is to buy the T-notes at auction. You can do this at most brokers for a small fee (Vanguard is $25 while Schwab/Fidelity charge $50).

The problem is the transaction cost at selling. Unless it's a fraction of a percent it will eat up most of the gain from rolling down the curve.

Another problem is the spread between CD and treasury note rates. For example, 2 year notes are yielding about 3.2% but I can find 2 year CD's yielding 4.4% (

Even with the gains from rolling down the curve and California income taxes, I don't think I can beat that.

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