Archives for November 2005

A commenter asked how do you predict rates for T-Bills, which I have been buying. I have no idea. I’ve never even taken Econ 101. I did a search and found this [pdf] article titled ‘Using Federal Funds Futures Rates to Predict Federal Reserve Actions’. If someone wants to read that and see if it helps, be my guest. From what I read, the conclusion was “yeah you can try, but not very accurately”.

Since I’m on an Excel kick right now, I found some historical data on the Fed Funds Rate and previous 4-Week Treasury Bill rates. I graphed them together, along with a trendline of the 4-Week T-Bill rates:
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I was bored, so I did some comparison of T-Bill rates vs. equivalent bank rates and actual bank account rates for various combinations of Federal and State tax brackets. Yes, I’m weird. As expected, if you don’t pay state or local taxes, T-Bills are pretty bland. However, if you are in a higher income tax bracket or in a heavily-taxed area, they can become pretty attractive.
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So I the $1,000 28-day T-Bill that I scheduled for purchase last week was issued today without a hitch. I knew the rate was 3.885% (exempt from state and local income taxes), as the auction was on Tuesday and announced on their Recent T-Bill Auction Results page. The issue date was today, and right on time today I see a debit of $997.03 from my checking account. It also showed up online in my Treasury Direct account. After 28 days, on 12/8, I will have an even $1,000. Not so exciting when you think of it as less than 3 bucks. 🙂

But if you think of it as an equivalent CD return, that’s the same return as a 4.41% 1-month bank CD, based on a 25% marginal federal tax bracket and 9% marginal state tax. (If you are in higher brackets your return is even better). I’m thinking a T-Bill ladder with 28-day T-Bill rungs…
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