There was little reason to care about before 2022. Interest rates were close to zero, so the Treasury bonds you could buy directly from this government site were unappealing.

That changed as rates started to rise. Suddenly, there was a surge of interest in buying Treasuries directly without paying any brokerage commissions or fund management fees.


So, is the site the best option for Treasury investors? The answer, like most things in life, is “it depends.” For short-term T-bills with maturities less than one year, you’ll probably find TreasuryDirect has the best deals. That’s largely because brokers either charge a commission or mark up the prices of their bond inventory, so a charge is embedded in your purchase cost.

For his own portfolio, Steve Sanders, an executive vice president at Interactive Brokers, sometimes buys from his broker’s bond inventory, but he uses TreasuryDirect for his short-term Treasuries. “I buy TreasuryDirect, because it’s an auction, and I know I’m going to get the same [price] everyone else does,” he says.

TreasuryDirect retail investors put in what are called “noncompetitive bids” for newly issued Treasuries during auctions and all get the same price. That noncompetitive bid price is the same as the best price paid with the highest yield by institutional investors.

T-bills with maturities less than one year are priced well at the site and mature quickly, so holding them is no problem. Moreover, the auction date and the settlement date—when you receive your newly issued T-bills and find out what price you paid—are close, usually two days apart on three- or six-month or one-year T-bills.

A recent auction on Dec. 18 for a three-month T-bill maturing on March 21, 2024, settled at an annualized yield of 5.42%. (Of course, since the T-bill matures in only three months, the actual yield during that period is about a quarter of that annualized rate.) The top yield for the same maturity T-bills at Charles Schwab on Dec. 19 was 5.41%—close, but the broker required a minimum purchase of $1 million worth of T-bills to get that rate, while TreasuryDirect sells T-bills for $1,000 each. Smaller purchases at Schwab had lower yields.

The situation changes as you look at Treasuries with longer maturities. A coming auction for 20-year Treasury bonds occurs on Jan. 17 but doesn’t settle until Jan. 31. Moreover, TreasuryDirect doesn’t permit you to do anything with the long-term Treasuries you bought for at least 45 days after their issue date. A lot can happen in the bond market in the interim.

Also, the price you get on a newly issued long-term Treasury may not be the best. At a brokerage firm, you can bid on previously issued Treasuries in the secondary market just like a stock, by putting in a limit order with a predetermined price. (The primary market is where investors buy new issues.) Unlike with a noncompetitive bid, you control the outcome.

Moreover, broker Treasury commissions/markups are generally cheap—Interactive Brokers charges $5—and investors can often find better prices buying secondary-market bonds. Institutional bond dealers often need to unload their Treasuries to raise cash or execute other trades. “Very often the bond dealers on the other end of the trade want to get rid of the scraps,” Sanders says. “They price [their bonds] accordingly.”

Bond fund managers also trade on the secondary market. So, despite the fact they charge a management fee, they may be able to buy bonds at better yields than new issues at TreasuryDirect. The Vanguard Long-Term Treasury exchange-traded fund has a 0.04% expense ratio.

Of course, with funds, you can’t lock in the maturity date or interest rate like an individual bond. But you’ll get more convenience and maybe even a better yield.


This Barron's article was legally licensed by AdvisorStream.