Treasury direct bonds and notes rates vs POYM

[mistymoney]

Most treasuries are currently paying higher than my mortgage rate.

So with the currrent uncertainty of the market, I've been thinking more seriously about paying off my mortgage for security/peace of mind/lower overhead going into retirement or pay off within the earlier years of retirement. But if securities that won't lose face value are offering a higher rate, I'm now thinking of laddering treasuries instead with the "security" money. Seems like it should offer equivalent or even more security?

Anything I'm not considering?

[bacchi]

Have you considered taxes? Treasuries pay interest every 6 months.

[mistymoney]

good point!

[Abe]

Agree, the effective yield will be Treasury interest - marginal tax rate in a non-retirement account (or Roth retirement account), but your effective payment for the mortgage is mortgage rate - marginal tax rate.

For example, for me the yield would be 3.69% - (3.69*0.35) = 2.40%, and my effective mortgage rate is 3.00% - (3.00*0.35) = 1.95%
There's a slight benefit to buying treasuries instead of paying off the mortgage, even at these small differences. Buying treasuries in my 401k would be even better (except that's not allowed for my plan. Boo!)

[wageslave23]

Agree, the effective yield will be Treasury interest - marginal tax rate in a non-retirement account (or Roth retirement account), but your effective payment for the mortgage is mortgage rate - marginal tax rate.

For example, for me the yield would be 3.69% - (3.69*0.35) = 2.40%, and my effective mortgage rate is 3.00% - (3.00*0.35) = 1.95%
There's a slight benefit to buying treasuries instead of paying off the mortgage, even at these small differences. Buying treasuries in my 401k would be even better (except that's not allowed for my plan. Boo!)

That's only if you itemize your deductions. Few married people do, especially Mustachians. 

[Shuchong]

Most treasuries are currently paying higher than my mortgage rate.

So with the currrent uncertainty of the market, I've been thinking more seriously about paying off my mortgage for security/peace of mind/lower overhead going into retirement or pay off within the earlier years of retirement. But if securities that won't lose face value are offering a higher rate, I'm now thinking of laddering treasuries instead with the "security" money. Seems like it should offer equivalent or even more security?

Anything I'm not considering?

With @Abe's caveat about calculating after-tax yield, yes, I agree that buying treasuries offers even more security, because of their liquidity.  Once you prepay the mortgage, it's hard to get that money back out of the house. (You could do a HELOC if offered, but that comes with all sorts of costs).  And if life throws a curveball at you in, say, 3 years and you can no longer make mortgage payments, earlier prepaying won't necessarily help you -- you could still lose the house if you can't pay.  With treasuries, if you have an emergency, you can sell them to cover it. 

One thing though-- your title is "Treasury Direct Bonds": I would consider buying via Vanguard or Fidelity instead, to increase liquidity even further.  My understanding is that there is no commission for buying/selling treasuries on those sites, plus you get easy access to the secondary market, and so can sell them before maturity if you need to for whatever reason.  I've never bought treasuries through Treasury Direct, but it sounds like you'd need to transfer the bonds to a brokerage to sell them before they mature.  (See https://www.bogleheads.org/forum/viewtopic.php?t=256673).