US govt bonds

[ocs_woodlands]

I don't think I can buy US govt bonds directly.

But 10 year bond yields are at 3.16% - to me a very attractive rate for the long term.

Is there a way for me to enjoy the 3.16% 10 year yield?

 

[final1]

Charles Schwab SG. Free purchase and free holding. There is no tax holding treasuries.
Minimim us$25k to open account.

 

[ocs_woodlands]

Charles Schwab SG. Free purchase and free holding. There is no tax holding treasuries.
Minimim us$25k to open account.

When you say "free purchase", I am assuming you mean no restriction regarding who cam purchase, right?

 

[Shiny Things]

I don't think I can buy US govt bonds directly.

But 10 year bond yields are at 3.16% - to me a very attractive rate for the long term.

Is there a way for me to enjoy the 3.16% 10 year yield?

Well hey, there's a couple of things going on here. Let's talk about foreign government bonds.

Firstly, don't forget, that 3.16% comes with currency risk! A 10-year Singapore government bond yields about 2.6%, so you're only earning an extra 0.66% per year; if USDSGD drops to 1.3340 (where it was as recently as June!), that wipes out five years of your excess interest.

Secondly, is there a reason you're looking at the 10s in particular? I tend to think the short end's a better bet at the moment: the curve's relatively flat despite yesterday's enthusiastic bear-steepening, and short-end yields are relatively high, so they've got a lot of insulation against adverse price moves. If you're absolutely hellbent on doing the trade, I reckon you're better off in the 3-5yr sector (and, money where my mouth is, that's about where my bond portfolio duration is at the moment).

So I don't think US government bonds are a good idea for you at the moment, and I don't think the 10s are a particularly great point on the curve. But if you're hellbent on doing this, there are ways:

1) You can open a Schwab account, and buy them there. Don't forget that you'll pay about 0.5% each way in FX spread, which will wipe out two years of the excess interest.

2) If you've got a big lump to do (over 100k), you can buy them on Interactive Brokers, and get a much tighter FX spread; or,

3) You can buy a US government bond ETF, which should (I'll defer to BBCW here) not have any adverse dividend tax treatment, especially if you buy a UK listing. IEF (US listing) or IBTM (UK listing) have the 7-10 year part of the curve that you're after. BBCW: what's your take on whether IEF (US-listed US govvy bond ETF) would have any weird div tax treatment?

So the upshot is: yes, there are ways to buy US government bonds, either directly or through ETFs, but I think it's a pretty bad idea at this point.

 

[BBCWatcher]

1) You can open a Schwab account, and buy them there. Don't forget that you'll pay about 0.5% each way in FX spread, which will wipe out two years of the excess interest.

It’ll be more like 0.3% each way, probably. And that’s only if you’re converting Singapore dollars. If you’re already holding U.S. dollars, in a U.S. bank or U.S. credit union account for example, then there’s no cost to get them to Schwab.

3) You can buy a US government bond ETF, which should (I'll defer to BBCW here) not have any adverse dividend tax treatment, especially if you buy a UK listing. IEF (US listing) or IBTM (UK listing) have the 7-10 year part of the curve that you're after. BBCW: what's your take on whether IEF (US-listed US govvy bond ETF) would have any weird div tax treatment?

It really depends on the fund, and you have to dig into the prospectus to see whether the fund manager is reporting qualified interest income in the correct way for the benefit of foreign (non-U.S.) fund shareholders. BIL looks OK to me, but TLT is definitely not, to pick a couple examples.

As I understand it, those U.S. domiciled bond funds will still be subject to the U.S. estate tax, if that matters.

There are some short-term U.S. municipal government bond funds, such as Vanguard’s VWSTX (and its twin VWSUX), which are U.S. federal income tax free for everyone, including foreign investors. That’s not a recommendation, though.

 

[Shiny Things]

It’ll be more like 0.3% each way, probably. And that’s only if you’re converting Singapore dollars. If you’re already holding U.S. dollars, in a U.S. bank or U.S. credit union account for example, then there’s no cost to get them to Schwab.

Very true.

It really depends on the fund, and you have to dig into the prospectus to see whether the fund manager is reporting qualified interest income in the correct way for the benefit of foreign (non-U.S.) fund shareholders. BIL looks OK to me, but TLT is definitely not, to pick a couple examples.

IEF's from the same house (iShares) as TLT, so I'm going to guess it's not appropriate; that would point to IBTM as the right option.

There are some short-term U.S. municipal government bond funds, such as Vanguard’s VWSTX (and its twin VWSUX), which are U.S. federal income tax free for everyone, including foreign investors. That’s not a recommendation, though.

Because, to flesh this point out a bit: the trade-off for "muni bonds are tax free for everyone!" is that muni bonds have a notably lower yield than taxable bonds. So you get lower dividends and not much to show for it. (If you're a US taxpayer, muni bonds can be great, and I use them myself for my bond allocation except when I'm chucking it around in short-end-cross-currency-basis jiggery-pokery.)

 

[final1]

When you say "free purchase", I am assuming you mean no restriction regarding who cam purchase, right?

Free purchase means there is no fee charged by Charles Schwab SG for purchasing US treasuries.

 

[ocs_woodlands]

Free purchase means there is no fee charged by Charles Schwab SG for purchasing US treasuries.

Ok understand. So they earn from the spread.. Thanks

 

[BBCWatcher]

Ok understand. So they earn from the spread..

Probably not, because they supposedly fill the orders exactly at the public auction clearing price. They might earn a little bit when you have idle cash sitting in your Schwab account pre-/post-Treasury holding. But mainly they do this as a courtesy, to be a "one stop shop" for U.S. oriented investors.