On Sep 18, 11:48 am, bondguy1824 <bondguy1...[at]gmail.com> wrote:
- quote -

I think you hit at the heart of the matter, as did Mark above. The
treasury rate is, for lack of a better term, the national average for
T-bills. The CDs that they are being compared to most likely are not.
They're outliers, so to speak. For every 5.45% CD there's probably a
4% one too. I saw a local bank offering 3.85% just yesterday. On that
alone should I start an inverse thread of this one?

The microeconomies of local regions, the unknown business models of
specific banks, variances in state taxation, etc, etc, will all affect
the rate at a particular bank. As Mark sposted above, if we choose to
trust bankrate's average then T-bills have NOT dropped below cd rates
ON AVERAGE once taxes are taken into account.

If the Fed takes action today, you may see T-bill rates normalize
with respect to other money market instruments, including CDs, CP,
BAs, etc. For now, certain CDs are providing a higher return than T-
bills. Spread your money around to different banks, either via a
brokered CD progam mentioned above, the internet (make sure of the
FDIC insurance, or on your own. Different markets have different
rates. For example, Chase is offering a 7 month CD with a 5.45% yield
in the New York area, but not nationally.

Avrum Lapin <avrum223[at]verizon.net> writes:

- quote -

Same is true for all the marketable treasury securities.
The exception is treasury savings bonds (ie. series I and EE),
but they aren't marketable. They may be cashed in like a CD,
sometimes with a penalty, but unlike marketable securities,
if interest rates go down, they don't go up in value in the
secondary (since it doesn't exist) market.

The annual taxation of the not-in-your-pocket inflation
adjustments of TIPS is one of the reasons one ought normally
not own them in taxable accounts.

--
Plain Bread alone for e-mail, thanks. The rest gets trashed.
No HTML in E-Mail! -- http://www.expita.com/nomime.html
Are you posting responses that are easy for others to follow?
http://www.greenend.org.uk/rjk/2000/06/14/quoting

Avrum Lapin <avrum223[at]verizon.net> writes:

- quote -

Not if you buy a less-than-one-year CD that pays all its
interest at maturity at the quoted APY rate. And they
do exist (usually found through brokers, though).

--
Rich Carreiro rlc-news[at]rlcarr.com

In article <e8BGi.34168$RX.7328[at]newssvr11.news.prodigy.net> ,
"Mark Freeland" <BnetOnewsX[at]sbcglobal.net> wrote:

- quote -

I can't prove it but I think that the 1-3 mo penalty may be larger than
the transaction costs if large amounts are involved

- quote -

The quoted rates assume compounding. Buy a 6 mo CD in November and you
will pay taxes before you get the compounded interest back.
- quote -

My recollection of the S&L crisis was that the FDIC (the S&Ls had a
different agency) or the successor institution often "called" the CD's
as of the S&L's failure.

As you point out, buyer's perception may be part of the reason. Note
that in most cases it is not your neighborhood bank or the large banks
which offer the high rates

"Avrum Lapin" <avrum223[at]verizon.net> wrote in message
news:avrum223-F6761F.09314314092007[at]news.verizon.net...
- quote -

Interesting ideas, but like most thoughts, have more than one side:

- quote -

Liquidity doesn't exist in a vacuum. Almost anything is immediately liquid
if you're willing to take enough of a loss on it. CDs under 1 year (to be
comparable with T-Bills) are typically redeemable with 1-3 months loss of
interest. T-bills, on the other hand, have to be sold on the open market,
with its accompanying price uncertainty and its transaction costs.
http://banking.about.com/od/cds/a/cdpenalty.htm (asserts 1-3 month penalties
common)

- quote -

Again, since we're talking about T-bills, we're talking about CDs under a
year. For those CDs, one can defer interest until the CD matures - you
don't get it in your pocket, and it isn't taxable until you do. And unlike
T-bills, you often have a choice of whether to get the interest in hand, or
have it compound within the CD.

- quote -

Also an interesting thought. Mitigated by the fact that we are talking
about short term instruments, but the advantage here goes to the T-bill.

There are other factors that one could imagine, but I don't know which (if
any) explains the phenomenon. Treasuries may be sold at auction, but are
bid on primarily by large investors who might not be using a bank with its
"mere" $100K insurance. There is a psychological factor of people thinking
that Treasuries are more secure (as sound as the dollar - wait, let me
rephrase that :-).

There is a single market rate for T-bills (of a given maturity) at any time,
while CD rates vary. The average CD rate could still comparable to the
T-bill rate (often the promotion rates you see are for new money only).
According to Bloomberg, 6 month T-bill yield is 4.21%. According to
bankrate.com, the average 6 month CD rate is 4.58%, similar once one
considers state taxes.

Mark Freeland
BnetOnewsX[at]sbcglobal.net

- quote -

even after considering that T Bill interest is not taxable by states a
factor in CA and elsewhere

My reasons for the CD premium is that
a) CDs are not as liquid as T-Bills
b) Accrued interest is taxable annually even though you didn't get it in
your pocket
c) if the issuing bank fails, the FDIC can "call" your CD before it is
due

On Sep 13, 10:55 am, w...[at]talisys.com wrote:


- quote -

Agree with that part.

- quote -

Disagree. Mortgage demand is still high despite slowdown.
However non-bank source of money have all but dried up.
Banks are borrowing to Fed, paying high interest, etc. to
satisfy mortgage demand

On Sep 13, 1:19 pm, w...[at]talisys.com wrote:
- quote -

Oh, I knew that. Klunk! Just testing you <wink> . Seriously,
thanks. I didn't think I was feeling the stress of some recent
personal events. But I think this brain fart proves I am <sigh> .

On Sep 13, 11:51 am, joeu2004 <joeu2...[at]hotmail.com> wrote:
- quote -

Nope, new Treasury issues go out via auction.

joeu2004 wrote:

- quote -

The price is set at auction. Thus the yield reflect market demand.
For a longer term note with a coupon (i.e. an interest payment) the
treasury has to decide what coupon they will offer. If they are about to
sell five year notes, they can see what the market rate is for that
point on the yield curve and set the coupon accordingly, to have a goal
of 100 for the auction price. A price above or below would result in a
YTM (yield to maturity) higher or lower than originally targeted.
JOE

On Sep 13, 9:55 am, w...[at]talisys.com wrote:
- quote -

That's the explanation my Schwab broker gave me. But I still do not
fully understand. That is, I would understand that theory for normal
bonds. Why offer a high yield when people are willing to buy even at
a lower yield? But I did not think that the rates on T-bills and T-
notes were set by market demand. I thought their rates were set by a
formula based on some Federal Reserve rate.

zxcvbob wrote:

- quote -

Looking at Schwab's brokered CD offering, I see 6mo at 5.33%, 1yr at
5.15%. The yield falls going further out (to below 5%).
It would stand to reason that a 1 yr t-bill will be close to a one year
CD, adjusting a bit for the difference in state tax. (yes, there is a
minor liquidity issue with the CDs, which for 1 year or less I find
irrelevant)
I am shifting new money to the CDs from T-bill coming due. Keep in mind
the $100K FDIC limit, discussed here ad nauseum recently.
JOE
www.joetaxpayer.com

On Sep 13, 6:31 am, zxcvbob <zxcv...[at]charter.net> wrote:
- quote -

A consequence of the mortgage market blowup. Banks are offering higher
rates because many of the are desparate for more money. If they can't
get it via bonds or commercial paper, they'll try to get it from
retail bank customers. Because if they don't, they may not meet the
minimum reserve requirements and have to liquidate holdings at market
prices (which would mark their book prices down causing a cascade of
decreasing reserves). Meanwhile, investors are fleeing from mortgages
and corporate bonds going into Treasuries forcing yields to go down.

Will this continue? My opinion is yes. We're no where near the end of
the bad news yet from the mortgage market. As bad as it has been for
mortgages, we'll have more resets Q1 2008 than all of this year. It
will be a total bloodbath.

have dropped well below bank CD's. The 26-week T-bill I got today is
only paying 4.172. The bank is offering 6 month CD's at 5.1% (that's
higher than it was last week for 6 months) . Is this just an anomaly,
or should I plan on moving all my T-bill money back to the bank as they
mature?

Bob