How to Buy Treasury Bonds on Fidelity

Have you heard? Bonds are cool again! Now that fixed income instruments actually have a decent yield, bonds are all the rage again. While most get their bond exposure through bond funds, there’s another easy way to get bond exposure; treasury bonds! Not everyone know how easy it is to buy bonds so I’m here to tell you that it’s actually very easy to buy treasury bonds on Fidelity. That’s why it’s one of my preferred places to buy new treasury issues.

While the government has different names for their treasuries based on maturity(bills are short term, notes are medium term and bonds are long term), for the sake of simplicity and the fact that they all fall under the bond window in fidelity, I’ll call them all bonds here and dive into the differences later.

Treasury bonds can be an excellent low risk investment and are exempt from both state and local income taxes unlike CDs or savings accounts. On top of that, current treasury bond yields are higher than most CDs(perhaps outside of brokered CDs) and savings accounts as well.

The obvious negative of both CDs and treasuries versus a savings accounts is the longer term nature of the former so it’s important to keep that in mind. However, if you want to invest some money that can be locked up for a bit of time but don’t want to risk the volatility of the stock market, treasury bills, notes or bonds can be a viable investment option.

They are backed by the full faith of the U.S. government and are thus considered risk-free assets(unless you believe in imminent government collapse). In other words, if you hold these bonds to maturity, you are guaranteed to get your principal or initial investment back on top of the yield.

While you can trade treasuries on the secondary market, that’s not something I’d recommend for most novice investors. However, it does allow for some liquidity in the event that you absolutely need the money although it adds some additional risk because prices can go up and down on the secondary market.

Naturally, you can buy treasury bonds on the treasury direct website but I actually find the process of buying bonds on Fidelity much easier and user friendly. However, it seems like a lot of people don’t know that you can actually do that on Fidelity or don’t know the process so I figure I’d make a quick post on how to buy treasury bonds on Fidelity. You can buy a variety of other bonds there as well plus brokered CDs and other items but that’s a story for another post.

One important thing to note is that bonds on Fidelity and other brokerage sites come in $1,000 denominations so you have to at least invest that amount and multiples of that amount if you want multiple bonds. The best part is that buying treasury bonds on Fidelity is free if you do it online so let’s get started and see how to do just that.

Once you’re actually logged in, you can get started by either clicking trade on the upper left side.

Or you can hit trade in the accounts and trade dropdown as seen below.

Either way you’ll be taken to a trade window that defaults to stocks or ETFs. You want to hit that dropdown and select Fixed Income instead.

Once you do that, you’ll be taken to another page that asks you to enter the CUSIP of the bond you want to trade. Given that I generally have no idea what that would be, you want to hit search inventory on this page.

Once you do that, you’ll be taken to this other page that lists all the available fixed income instruments.

This page can be a bit overwhelming.

On it, you can search through a ton of bonds on the secondary market. These include not only treasuries, but also CDs, municipal bonds, corporate bonds and more. You can certainly click around and see what’s available but that’s not really what we’re looking for. This is all about buying new issue treasury bonds and for that you want to hit New Issues to the right of the default Bonds selection.

Once you do that, you can click the plus button near the treasury listing to open the list of available treasury bonds. The offerings here will vary depending on when you access the site.

As of 11/6/2022, there are five bonds available to trade. There are two zero coupon bills(13 week and 26 week), two coupon notes(3 year and 10 year) and one 30 year bond.

The government has different names for bonds depending on the length and type it is which is a bit confusing. They’re all still fixed income instruments at the end of the day and I generally just call them all bonds.

Still, for the sake of clarity, bills are offerings that mature in 52 weeks or less. These are sold at a discount and pay no coupon with all interest and the principal paid at maturity(meaning you may pay $977 for a $1,000 face value bond and get $1,000 back at maturity in place of your interest).

Notes are between 2 and 10 years, are sold at face value and pay interest semi-annually with the principal paid back at maturity.

Finally, the bond is either 20 or 30 year maturity, sold at face value with interest paid semi-annually and principal paid back at maturity. You can see the breakdown below.

In any case, you can see when the bond matures and what the expected yield is on the bond.

Note that this is an estimate and not guaranteed since the actual yield is set at auction so you won’t know exactly what it is until that auction happens but Fidelity makes sure you get the best yield offered. I generally find that the estimate is pretty close to what you actually get but day to day changes in yield do happen.

I mentioned that what you see will depend on the day you access the site. That’s because you’re buying treasury bonds on the primary market directly from the government via auction and that means what you see when you log on to purchase bonds will differ based on what’s actively being auctioned when you access this page.

These auctions happen regularly and are based on a schedule issued by the U.S. Treasury. You can find the schedule here and it will show you what will be available when you access the website. I generally check a page like this one to get an idea of yields, figure out what I’m interested in buying then check the schedule to see when it will be available for auction.

Reading the schedule is pretty simple.

For example as I look at the schedule on 11/6/2022, I see the below.

There are three key dates, the announcement date, the auction date and the settlement date.

The announcement date is when the treasury tells the brokers(like Fidelity) that the auction is happening and is the date that new issue treasury bonds will show up for purchase.

The auction date is when the auction happens(when the orders you placed will be filled) and the settlement is when the orders will settle in your account.

Bonds should show up on the afternoon of the announcement date and they will cease to be offered the night of the auction date once the auction actually happens. In essence, if you want to place an order of the bond, log on after the announcement date but before the auction date and you should see the treasury bond under new issues.

For example, you can see that there are 5 bonds that have an announcement date prior to 11/6/2022 and an auction date after which is why five bonds are available to me to trade as of 11/6/2022. If I were to log on 11/8/2022, I’d see a different set of bonds because the auction date for a few had passed and three new bonds were announced. You can see that sometimes, especially with the shorter bills, the announcement date and auction date are very tight so they might not be listed under new issues for too long.

If you’re looking for a specific length for your bond, make sure to check the announcement dates in the schedule and place your order before the auction date. If I wanted to buy the 20-year bond, I’d make sure to log on after 11/10/2022 and place my order before 11/16/2022.

Once you figure out what you want to purchase, it’s very easy to actually buy treasury bonds on fidelity. Just select the bond you want and hit the trade button.

In this case I’ll be buying the 26 week bill which will mature 5/11/2023 and has an expected yield of 4.266%. Since it’s a bill, it will not pay out a coupon but will be bought at a discount and pay out the principal once it matures.

Once I hit trade, I get taken to a trade page which allows me to select my account and shows the cash I have available to trade along with the bond CUSIP and the expected yield for said bond.

Bonds here come in $1,000 denominations as mentioned before so a quantity of 1 means I will commit to purchase $1,000 of this fixed income instrument. Since this is a bill, it will be purchased at a slight discount as mentioned above and will return the full $1,000 upon maturity to yield that expected 4.266%. Remember that the yield is on an annual basis so it’s not as simple as a 4.266% discount since this is not a full year bond.

If it was a note or bond, the purchase price would be that full $1,000 face value and it would deliver that yield via the semi-annual interest payments.

Unfortunately, you cannot buy fractional bonds so it has to be a full number. 1 = $1,000, 2 = $2,000 and so on.

Fidelity has an auto-roll feature for offers of 5 years or less which when turned on will automatically re-invested your proceeds into a similar instrument. I generally turn this off so I can pick where I want my money to go but the choice is up to you. You can read about it here. It is something you can turn off and on for each bond order you place and it does seem like you have to place a call to turn it off if you change your mind which is a bit annoying.

Note that if you do have auto-roll turned on and don’t have any additional funds in your account when it comes time for the auto-roll to happen, you may get a message from Fidelity that you don’t have enough funds to cover the cost of the next purchase due to the timing of how Fidelity bids for the next set of bonds. However, that’s just a timing issue, and not something to worry about. Just a warning in case you get a scary message from Fidelity.

Once you’re read to place that order, just hit preview order to get this confirmation window.

This will place an order to buy 1 bond with a face value of $1,000 with a trade date of 11/07/2022 and a settlement date of 11/10/2022, both driven by the calendar we talked about above.

Once you’re good to go, just hit place order and the trade will be placed. You can always cancel up until the auction date.

That’s it, it’s really as simple as that and makes owning treasury bonds directly from the government very easy.

Buying treasury bonds via Fidelity also has the added benefit of easy liquidity since you have access to the secondary market. In general, treasury bonds are very liquid. If you’re the type to hold treasuries through maturity(and I am) then you don’t have to do anything else but you can also sell these treasury online at any time via the secondary market. However, do note, as mentioned above, that you’re only guaranteed to get your money back with that guaranteed yield if you hold it through maturity and selling on the secondary market means you’re getting market price which may be higher or lower than face value.

For most investors, that shouldn’t be an issue as the idea behind these is to keep your money safe and collect that interest rate while you do so but the need for cash can arise and the option can be there.

As with most things, you do have to pay federal taxes on any gains just like you would on anything else but you do get the benefit of avoiding local and state taxes. Luckily, Fidelity will send you your tax forms at years end which includes all of that information. Taxes can be avoided if you’re buying these in a Roth IRA or IRA or any type of tax-advantaged account you may have with Fidelity(HSA or BrokerageLink in your 401k or other).

Overall, while bonds are not for everyone, as you get older they can be an excellent place for money as you seek to avoid the volatility that comes with stocks. That’s certainly relevant at a time like today especially as bonds get more attractive due to rising rates. Buying bonds directly like this will mean you are guaranteed to get your principal back and can enjoy the yield through the years.

Hopefully this gives you a good idea of how to buy treasury bonds on Fidelity. However, if anything isn’t clear please let me know or ask any questions about how to buy treasury bonds on Fidelity below!

Disclosure : I am not a financial advisor and am doing this for entertainment purposes only. Please make sure to talk to a qualified financial advisor before making any financial decisions as they all come with risk of loss due to error or mistake.