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Jul
18th
Jul

How do I participate in Treasury auctions with my millions of dollars?





Note: I do not actually have millions of dollars, but seemed like a good question.

Let's say you had $10 million dollars in cash in your bank account and you needed it to be a) safe b) liquid and c) invested in a solid investment.

E*Trade Adds Easy Bond Laddering Tool – Consumerist

18 Nov 2009 ... E*Trade added a few tools to its bond resource center, the most useful of which ...
Personally I don't like E*Trade because it feels like the site is ...
http://consumerist.com/2009/11/18/etrade-adds-easy-bond-laddering-tool/

  • First problem: you'd be getting the crappiest interest rate ever right now for your bank account.
  • Second problem: your money is not FDIC insured over $200k or so
  • Third problem: you can't put it into a CD because you need the money to be liquid (or at least available in a week). 1-week CD rates are abysmal.

With that much money, it would seem the smartest investment would be T-bills directly from TreasuryDirect, but you have to buy them at an auction (and shortest term is 13 weeks, so you'd have to stagger your investment).

Has anyone ever participated in an auction? How does it work? (I know the treasurydirect.gov site tries to do a good job of explaining things, but it seems complicated). What problems might happen?

united states - How do I participate in Treasury auctions with my ...

You can always just buy the Treasuries on the secondary market. ... like E-Trade
and Charles Schwab let you trade Treasury bonds for free...
http://money.stackexchange.com/questions/2886/how-do-i-participate-in-treasury-auctions-with-my-millions-of-dollars

article I wrote with a little more detail on the auction process. I've included my sources at the end of the article.

As for treasuries being a "safe" investment? I'm not so sure. Right now the yield on 10 years is around 2.5%. Who, in their right mind, would lend money to the government for 10 years at 2.5%? Not me.

I'd advise you to use a broker. Even a discount broker like Charles Schwab would do.

First, they would do the "trades" purchase/sale, on your behalf, using parameters you specify (and also tell you where the "market" is at any given time).

Second, they may sell you bills of a desirable term (e.g. six weeks) of out their own inventory.

Third, they will lend you money (50% or more) against your holdings, so you'll have some money when you need it, and the balance when the bills mature.

If all of the money needs to be liquid, T-Bills from a broker are the way to go. Treasury Direct is a little onerous -- I'm not sure that you could actually get money out of there in a week.

If you can sacrifice some liquidity, I'd recommend a mix of treasury, brokered CDs, agency and municipal securities.

The government has implicitly guaranteed that "too big to fail" entities are going to be backed by the faith & credit of the United States, so investments in general obligation bonds from big states like New York, California and Florida and cities like New York City will yield you better returns, come with significant tax benefits, and represent only marginal additional short-term risk.







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12th
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