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I have been following your discussions on Treasures with renewed interest and took to heart the warning from Junkman to check the numbers carefully on after market bond purchases. I did and found something that may be of interest about T-bills from Scottade.

The price (per $100) on the offering list will very once you click on the line item and get to the “calculator” screen. The calculator requires only one entry and that is the number of $1,000 bonds you wish to purchase. The minimum is 10. Also the entry box is pre loaded with 100 as the default. If you select less than 100, the price per 100 goes up. Conversely if you select more than 100 the price goes down. I was not aware that price per 100 varied with quantity ordered. (I learned it the hard way, Read expensive way).

Here is the hard data from today 7/03/2006 at 2:15 EST. (This is not the test bill I bought. I've been looking more days than I want to admit to find what went wrong).

6 mo t-bill Cusip 912795YL9 Settlement Date 07/05/2006| Date mature 12/28/2006|
Actual days 176| Dated date 06/29/2006 this refers to auction date,not the date of purchase.
10 bonds: Price 98.029| Disc 4.032| YTM 4.170.
100 bonds: Price 97.579|Disc 4.952| YTM 5.145.
200 bonds: Price 97.559| Disc 4.993| YTM 5.189.

Is this practice the same at Vanguard and other retail brokers? If yes it behooves anyone making a purchase of less than $100,000 to use T-Direct.

Please check your broker and see if the same marketing ploy exists. They claim there is no commission for buying treasures…and I agree there was no commission listed, but they make it up on nicking you on price. How original! <grin>

My second Concern is safety and security. Do any of you have a T-Direct account and would you be completely comfortable with over one third of your total portfolio in it with not much of a paper trail to prove it's yours should something go wrong? Would a Legacy T-Direct be a better choice?

I have been reading this board for a month or more and I feel like I have gotten to know many of you. It's time I came out of the dark and contributed something.

Thank You,
Alfred4
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Alfred4,

Paper statements are a huge comfort, and even a convenience. The downside of dealing with Legacy TD is its hours (M-F, 9-9, or something like that versus the Electronic's 24/7), and you can't buy 4-week T-Bills in Legacy.

Happy compromise? Use Legacy for the bulk of your money, which will probably be held in longer maturites than 4-weeks. Use TD Electronic for 4-week bills only.

Yeah, brokers can be tricky, if not deceptive, about how they quote yields and fees before you enter the order and after you enter it. But there's a preview process. So if you don't like what you see, back away. Also, if Scottrade isn't meeting your needs, shop around. Lots of brokers sell bonds. But be forewarned that they are all mostly terribly compared to what the stock guys get in terms of low costs and good service. TD is the shining exception. Well run, easy to do business with, cheap to execute at. Too bad they didn't sell Agencies, corporates, and munis as well.

Charlie
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Welcome Aboard, Alfred!

I haven't tried Vanguard brokerage for auctions, yet, and I'm not sure if others have. I know there are some Fidelity customers who have done auctions through them.

What Vanguard says is you get auctions for no commission if you are a Voyageur or Flagship customer:

https://flagship4.vanguard.com/VGApp/hnw/content/AccountServ/Brokerage/ATSIntegrityValueContent.jsp

I forget the rules for what makes you Voyageur or Flagship (I'm one, other, or both). Your numbers certainly look like commissions being taken out, so I'm wondering if you aren't Voyageur or Flagship (They list the fee as $10, but I don't know per what). If not, I have no idea why there seems to be a charge. Are you sure it is showing an auction bid, not an existing purchase?
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Alfred4,

There's a difference between buying Treasuries at auction and buying them in the secondary market. When you buy at auction, you should get the auction price. When you buy in the secondary market, which is what the ones you listed were, you will pay the ask price which includes the spread. The size of the purchase matters.

I just bought some Treasuries at auction through Schwab and there was no commission. (They just changed their policy. Yay!) Schwab also sells pre-owned Treasuries with the usual bond pricing.

I don't know if you can buy pre-owned Treasuries through Treasury Direct or Legacy Treasury Direct. I know you can buy with non-competitive bids at the auctions.

Vickifool

The price (per $100) on the offering list will very once you click on the line item and get to the “calculator” screen. The calculator requires only one entry and that is the number of $1,000 bonds you wish to purchase. The minimum is 10. Also the entry box is pre loaded with 100 as the default. If you select less than 100, the price per 100 goes up. Conversely if you select more than 100 the price goes down. I was not aware that price per 100 varied with quantity ordered. (I learned it the hard way, Read expensive way).

Here is the hard data from today 7/03/2006 at 2:15 EST. (This is not the test bill I bought. I've been looking more days than I want to admit to find what went wrong).

6 mo t-bill Cusip 912795YL9 Settlement Date 07/05/2006| Date mature 12/28/2006|
Actual days 176| Dated date 06/29/2006 this refers to auction date,not the date of purchase.
10 bonds: Price 98.029| Disc 4.032| YTM 4.170.
100 bonds: Price 97.579|Disc 4.952| YTM 5.145.
200 bonds: Price 97.559| Disc 4.993| YTM 5.189.

Is this practice the same at Vanguard and other retail brokers? If yes it behooves anyone making a purchase of less than $100,000 to use T-Direct.
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Alfred4 wrote:
Is this practice the same at Vanguard and other retail brokers?

I can confirm this for E*Trade and TD Ameritrade. (I used to be a TD Waterhouse customer until they were purchased, not particularly enamored with the change.)

The commission lists that the bonds are traded on a "net-yield basis" which I think is downright deceptive as they don't provide any other information about what you actually pay. This means that they charge you a commission which you don't really see, the yield is simply lower.

But, as Vickifool pointed out, if you buy at auction it is a flat rate commission ($50 at TD Ameritrade! Ouch!!!) and you get the full yield.

Stupid brokers rape the uninitiated (and everyone else for that matter) whenever and wherever they get the chance. Bah!

Jason
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I misread the original post (running through): thought it was about Vanguard, not Scottrade. Anyway, you can't expect deep discount brokers to give no commission auction trades on Treasuries. Vanguard does it as a service for good customers.
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I appreciate the welcome to your board and the replies to my concerns. You have increased my understanding of how the treasury market really works.

I Thank each of you,

Alfred4
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But, as Vickifool pointed out, if you buy at auction it is a flat rate commission ($50 at TD Ameritrade! Ouch!!!) and you get the full yield.

Actually, they lowered it to $25. Still not free like Fidility & Vanguard, but better than it used to be.

The commission lists that the bonds are traded on a "net-yield basis" which I think is downright deceptive as they don't provide any other information about what you actually pay.

It appears that this, too, has changed at TDA. It now shows a fee of $5/bond, with a minimum commission of $40.

I have yet to compare prices in realtime to verify this, but I would guess that they STILL do also charge a hidden markup on top of the commission by raising the ask and lowering the bid. I usually buy in lots of 12-15 (I'm referring to TIPS here). In my experience, that hidden markup generally adds another $50 - $100 in costs to the trade.

OTOH, this time I was waiting for the auction in July, rather than buying in the secondary market. In the meantime, prices have risen so much that any savings I would have seen from buying at auction have been more than wiped out.

Stupid brokers rape the uninitiated (and everyone else for that matter) whenever and wherever they get the chance.

I wish I could rec that twice.

Ken
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Stupid brokers rape the uninitiated (and everyone else for that matter) whenever and wherever they get the chance.

When the bubble burst in 2000, it was clearly revealed to everyone paying attention who didn't know already that brokers and brokerages are not professionals with a code of ethics of putting the client first. They sell themselves as client oriented professionals, like doctors, lawyers, accountants, teachers, etc. (where, when ethical lapses happen, even with lawyers, they are defined as malpractice and, in principle, the unethical are punished not given bonuses), but their real job is to make money for themselves and their business and, if what is best for the client is not their best way to make money, the client does not take precedent, at least as an industry standard (obviously, there are individual brokers and, perhaps, even brokerages, such as Vanguard, who do choose to behave in the best interest of clients).

Nonetheless, charging a commission on Treasuries, even if other brokerages choose not to, is not an ethical lapse, unless the cost is hidden from the customer. I don't expect deep discount brokerages, who make their money from frequent traders, to provide extra services to good customers, which is what Vanguard and Fidelity, where most clients hold funds and use the brokerage services for convenience, choose to do with Treasury auctions.

I'm frankly surprised that Treasury Direct allow small customers to buy at auction for no charge, because the politicians usually treat this kind of stuff as unfair competition with the big boys who pay their bribes.
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