Rolling over my T-bills

I purchased a small quantity of U.S. Treasury 28-day T-bills using the TreasuryDirect online system early in July. Four weeks later, they have matured and now I'll roll them over into the next month.

Actually, T-bills are issued every week, so I will really be participating in the fourth auction since my prior purchase.

I placed my first order on Monday, July 3, 2006 for the auction on Wednesday, July 5, 2006 for issuance on Thursday, July 6, 2006, and maturity on Thursday, August 3, 2006. Normally the Auction is on Tuesday, but July 4 was of course a holiday.

The next auction is on Tuesday, August 1, 2006 for issuance on Thursday, August 3, 2006.

The proceeds from my maturing T-bills will be credited to my bank checking account sometime on Thursday or Friday, or whenever. I've never done this before, so I simply do not know the precise timing.

The discount payment for the new T-bills (the face amount minus the interest that will accrue over the term of the T-bill) will be due on Thursday, August 3, 2006 and debited from my bank checking account sometime on Thursday.

The open question is whether the credit and debit will hit on the same day and balance each other out (netting a small balance to my bank checking account), or whether I might have to eat the debit for a day or two while my bank clears the credit. Luckily I have enough cash on hand so that I can "swing the gap", but it would be comforting to know if the standard procedure is for the credit and debit to "cross" on the same day so that I don't need the extra cash.

The alternative would be to tell TreasuryDirect to credit the maturing T-bill proceeds to the "C of I" account associated with my TreasuryDirect account where it is immediately available to pay for the new purchase, and then manually transfer the net gain (accrued interest) back to my bank checking account for final disposition, but that's extra effort. C of I is short for Certificate of Indebtedness, which is short for Zero Percent Certificate of Indebtedness, which means that the U.S. Treasury keeps your money and agrees to pay it back to you any time you want, but pays you Zero percent interest on it. It's only value is as a convenience and to act as a staging area for purchasing new Treasuries and holding the proceeds of maturing Treasuries.

The other unknown is the exact interest rate that my new T-bills will return. It will probably be around 5.07%, but depend on supply and demand. Note that the Fed FOMC meets next week, so the Fed funds target interest rate will be going up, but the interest rate on 28-day and 3-month T-bills is lagging behind. Last week the new 28-day T-bill had an effective interest rate of 5.01% and the week before it was 4.95%.

-- Jack Krupansky