How Do I Buy Bonds From the Treasury?

Did you watch the Masters this weekend and wonder how there are only three commercials seemingly once an hour? Well, the Masters controls everything. From the flowers around hole #12 to what the announcers say, the Masters is truly, the Masters of it all. You can read more about the broadcasting deal here.

Last week, Mike politely but firmly let me know that as a 29 year old investor, I have “no business touching bonds.” Well, it’s not entirely my fault that I did. Let me take you back in time. It was a stormy day in January of this year. Due to the threat of snow, the south (as the south does) shut everything down. I was “working” from home, which meant I was just looking into various different investments and financial things.

I am sure it won’t surprise you to find out that every social media algorithm feeds me a heavy dose of personal finance content. Along stumbled a reel telling me that buying bonds from the Treasury is easy. That was all it took. I then decided to do it myself and write a letter about it. This was also the same day I bought an ounce of gold, but that’s a different story. So, in reality, I did it for this newsletter. I did it for you. You’re welcome.

Before we talk about how, let me first answer why. I really have no better reason other than I was curious, and I wanted to. Like Mike explained last week, bonds provide security but sacrifice returns. They allow you to plan for retirement spending without worrying about the fluctuation of stocks. I don’t need this security right now. I am not planning to retire anytime soon. So I have no good reason other than curiosity killed the cat.

So now let’s talk how!

1. Make an account at TreasuryDirect.gov.

You know it’s legit because it’s a .gov. My one complaint about this account is that you get sent a one time password first. Then, you put in your actual password. It’s the reverse of most two-factor authentication systems and always throws me for a loop.

2. Determine what you want to buy.

You can buy:

• Bills - 4, 8, 13, 17, 26, or 52 week

• Notes - 2, 3, 5, 7, and 10 year

• Bonds - 20 and 30 year

• Treasury Inflation Protected Securities (TIPS) - 5, 10, and 30 year

• Floating Rate Notes (FRN) - 2 year

• Savings Bonds - Fixed Interest and Variable - Up to 30 years

The savings bonds are what your grandma gave you for your birthday. That’s boring. I wanted the exciting Marketable Securities.

For each option, you won’t know what interest rate you will get until the auction. You can look at previous auctions to get an idea. Here is an example:

The shorter term bills have a higher interest rate than the longer term notes and bonds.

3. Choose when and how much you want to buy.

The Treasury issues Bonds of all types on different dates. They have an auction to sell the bonds, then the Treasury issues the bond on a later date. Bill auctions, pictured above, happen way more often than Bond and Note auctions. The shorter nature requires it.

You input how much you want to buy (increments of $100), an account to take the money from, and an account to deposit the interest into. 

Click Submit, and that’s it! Once your auction happens, you will be able to see what interest rate you got. On the issue date, the funds will be withdrawn from your account.

Some fun things I learned:

1. The Treasury doesn’t withdraw the entire purchase amount.

The purchase amount will be the face value of the bond, but the face value includes the interest earned. That means the Treasury will withdraw the face value subtracted by the amount of interest you will earn on the maturity date.

For example, I bought a 4-week bill with a $1,000 face value. $995.89 was withdrawn from my account, and four weeks later, $1,000 was deposited.

2. Interest on bonds over 6 months are paid every 6 months.

In addition to a 4 week bill, I bought a $1,000 face value, 20 year bond. Every six months, I will receive $22.50 in interest. Mike, how does that not get you excited? 

The face value of that bond is $1,000. On the issue date, $989.37 was withdrawn from my account. On the maturity date (if I still have it and any of this still matters), the Treasury will deposit $1,000. I will earn over $900 in interest total… which on the surface sounds cool. If I put that same $1,000 in an S&P 500 ETF ($VOO), it could be worth over $5,000… I guess Mike has a point.

Now, here is where things get interesting. If the Fed cuts rates over the next couple years, I could sell this 20 year bond and get a portion of the interest I would have earned much sooner. I haven’t done that yet, but don’t worry, when I do, I will write a newsletter about it.

Call to Action

Mike is right, if you have a long time until retirement, Bonds are probably not necessary for you. However, your emergency fund could be kept somewhere earning interest. Review where your cash is stored. A bond fund? High yield savings account? Normal savings account? You could be missing out on some small but not insignificant earnings.

What We’re Reading/Listening To:

WSJ What’s News: Extreme Inflation from A to Z. This podcast series is exploring some countries with massive (I am talking +80%) inflation and how they got there.

Debrief on Deck

Next week, Mike will talk about the Military’s pension. The Old System and the New System face off in an epic battle. One systems gives a few a lot, and the other gives everyone a little. Did that confuse you? Mike will explain next week.

As always, please reach out to us with any questions or comments you have. You can reply directly to this email or find us on social media (X (formerly Twitter) and Instagram).

Until then, stay the course.

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