We are entering a "Golden Period" for fixed income investing

[Freedom56]

However, I'm sure people will be celebrating the holiday if they have that kind of dough - $2M stashed in short term T-bills alone. I think there are far many more of those people mentioned above with CDs earning low interest rates, actually losing purchasing power after taxes and inflation, than those with $2M in T-bills.

Many people own a second or third property that they rented out over the years and decided to sell their property into a strong market. They suddenly find themselves with a lot of cash. Learning to invest that cash risk free will lead to a pretty comfortable life.

Happy Fourth of July!

 

[Born2Fish]

The TD 5-year corp note, CUSIP 89114XAU7, 6.25%, 1-yr callable, payable quarterly looks pretty good.

But I can buy the Wells Fargo non-callable 2-yr CD, 5% coupon, payable monthly (5.116% YTM).

I don't NEED the cash/income in the next 2 years.

Why would someone buy the TD Corp Note instead of the CD given the risk that the Fed could begin cutting rates early next year and the Corp Bond will be called?

 

[Car-Guy]

^^^^^
I don't know. I'm not buying any callable CD's myself. I'm loving the "monthly paying" non-callable ladders I've built. The consistent upward stair step trend graphs of my portfolio over the past year are making me smile.

Why monthly paying CD's rather than those that pay quarterly or at maturity some may ask? Well because I can take the interest and re-invest it in ether MM's or more CD's. My way of compounding.

 

[Freedom56]

The TD 5-year corp note, CUSIP 89114XAU7, 6.25%, 1-yr callable, payable quarterly looks pretty good.

But I can buy the Wells Fargo non-callable 2-yr CD, 5% coupon, payable monthly (5.116% YTM).

I don't NEED the cash/income in the next 2 years.

Why would someone buy the TD Corp Note instead of the CD given the risk that the Fed could begin cutting rates early next year and the Corp Bond will be called?

By buying the TD Notes you are basically speculating that rates will continue higher or even stay level and they won't be called. A year ago many worried that 5% callable notes would be called. Now they appear safe. I have one 5% note from TD bank past its call date and a 6% note from Bank of Nova Scotia past its call date due in 2025. I'm not concerned at this point that they will get called. You are being paid the extra premium for call risk. Right now 2 year callable corporate notes are being issued at 6% vs 5% for non-callable CDs. So you have a 1% call risk spread which isn't that bad.

A year from now, we may be looking at 6% non-callable CDs and 7% callable notes. It's hard to say how this cycle will play out. What is certain, is that you earn a fixed coupon payment and your capital is returned at par at maturity or at call at which point you can decide what to do next.

 

[Freedom56]

^^^^^
I don't know. I'm not buying any callable CD's myself. I'm loving the "monthly paying" non-callable ladders I've built. The consistent upward stair step trend graphs of my portfolio over the past year are making me smile.

Why monthly paying some may ask? Well because I can take the interest and re-invest it in ether MM's or more CD's. My way of compounding.

That's a good strategy too. Although Wells Fargo appears to be one of the few monthly payers. As for corporate notes, only the one year notes pay monthly but many pay quarterly which is great as the coupon payments are compounded at higher yields in a rising rate environment. We really are slowly entering the period of "no brainer" income investing.

 

[Born2Fish]

^^^ Agree.


Income investing is a different mindset from the 4% rule. The idea is to create a growing income stream to cover expenses or save and grow your capital. With near zero interest rates since 2011, many savers have been shocked and given up on income investing. We have a neighbor in their 70's with $755K in a checking account and another $920K in a savings account literally earning next to nothing. They were just using the accounts to withdraw funds to cover expenses in excess of their SS and pension. They were freaking out after the SVB bank collapse as they exceeded FDIC limits on their accounts. They wanted the ultimate safety for their nest egg. They were not interested in brokerage accounts. I told them to move the money to a TreasuryDirect account and link it to their existing checking account and buy 1,3,6 month T-Bills with a "schedule reinvestment" option (auto roll). They set up their account and transferred $1.5M. After 2 months, they are astonished that they are earning over $6300 per month versus under $90 per month with their checking and savings accounts. I just wonder how many people people are waking up to this new reality.

Freedom56 - This is why the information that you and others provide here is so valuable. I have a close friend that retired at 56. He is single, has zero debt, and has around $600/month total expenses. He collects SS and a very nice pension and 100% employer provided healthcare.

He had been parking his cash from SS and pension in a local bank ckg acct and a credit union - both paying very little.

Thanks to you "teaching me", he is now investing in i-Bonds, CDs, and T-bills. What a difference it makes!

He will never need the money but his kids and their kids will benefit from the higher rates.

This thread benefits more than those of us who post here. There is a trickle effect.

 

[jazz4cash]

Many people own a second or third property that they rented out over the years and decided to sell their property into a strong market. They suddenly find themselves with a lot of cash. Learning to invest that cash risk free will lead to a pretty comfortable life.



Happy Fourth of July!

I have a sibling that fits that description exactly EXCEPT I think he won’t budge from the credit union. I can only hope he has figured a way to stay within the insurance limits. I’ve tried to discuss but money is a taboo topic in my family. He is prosperous and thriving so maybe no tangible benefit.

 

[Car-Guy]

That's a good strategy too. Although Wells Fargo appears to be one of the few monthly payers. As for corporate notes, only the one year notes pay monthly but many pay quarterly which is great as the coupon payments are compounded at higher yields in a rising rate environment. We really are slowly entering the period of "no brainer" income investing.

I've got 15 (brokered) CD's from 15 different banks at this time. 9 of them are paying monthly, 5 are paying semi-annually and 1 will pay at maturity. I'm now holding a good chuck of money in Schwab's MM SWVXX from previous interest payments and maturing CD's, just waiting for the next notch up in rates. Heck SWVXX has been paying 4.9x for several months now so that ain't bad while I wait.

I've been noticing that most new CD's pay at maturity but there are usually a few that pay monthly. You have to be pretty quick since they tend to sellout quickly. I can wait and watch for them which usually only takes a day or so to pop up.

But you are right, "this is so easy a cave man could do it".

 

[RetiredAndLovingIt]

This is my first year buying brokered CD's and Treasuries. Am I correct in thinking that as long as I only buy these with a pay at maturity date of next year or later they won't count as income for this year unlike my Credit Union CD's?
If so that's an unexpected bonus that I either didn't know or forgot about.

 

[Freedom56]

This is my first year buying brokered CD's and Treasuries. Am I correct in thinking that as long as I only buy these with a pay at maturity date of next year or later they won't count as income for this year unlike my Credit Union CD's?
If so that's an unexpected bonus that I either didn't know or forgot about.

"The IRS treats interest you earn on a CD as income, whether you receive the money in cash or reinvest it in a new CD. (The same treatment applies to interest credited to a CD that allows you to withdraw funds early without penalty.) The interest is taxable, the IRS says, in the year it is paid."

 

[GenXguy]

Many people own a second or third property that they rented out over the years and decided to sell their property into a strong market. They suddenly find themselves with a lot of cash. Learning to invest that cash risk free will lead to a pretty comfortable life.

Happy Fourth of July!

Well there are always winners and losers. But that's another discussion.

 

[Montecfo]

The TD 5-year corp note, CUSIP 89114XAU7, 6.25%, 1-yr callable, payable quarterly looks pretty good.



But I can buy the Wells Fargo non-callable 2-yr CD, 5% coupon, payable monthly (5.116% YTM).



I don't NEED the cash/income in the next 2 years.



Why would someone buy the TD Corp Note instead of the CD given the risk that the Fed could begin cutting rates early next year and the Corp Bond will be called?

I would argue why buy the 2 year using same logic.

 

[pb4uski]

+1. 6.25% guaranteed for a year and highly likely for the second year is better than 5.116% YTM for 2 years. Even if a year from now 1-year rates crashed to 4% and the note was called and you reinvested for a year at 4% you would still come out the same with the 6.25% callable issue vs the 2-year non-callable issue (1.0625*1.04~1.05116^2).

I think that any reduction in rates will be gradual and don't see rates declining so fast that the 6.25% is called in the next two years. That, and TD is a better credit than Wells Fargo.

 

[dobig]

+100

This is my go to thread and one of my favorites that I look forward to reading.

Thank you Freedom!!!

+1

I had very litte knowledge about fixed income investing besides CD's before finding this site and more importantly this thread. Now it's the excitement of reading new posts and seeing where the next 5 - 6% yield is coming from.

 

[mf15]

Many people own a second or third property that they rented out over the years and decided to sell their property into a strong market. They suddenly find themselves with a lot of cash. Learning to invest that cash risk free will lead to a pretty comfortable life.

Happy Fourth of July!

That's me,33 year owner. The depreciation recapture, cap gains tax, then NJ cap gains tax same as federal were brutal.
Oldmike

 

[copyright1997reloaded]

Same here, looks like anyone with a TD HSA (via HSA Bank) is the last to be merged - my three accounts (regular, Roth, HSA) are also scheduled for Labor Day weekend. I plan to see how it goes with Schwab before deciding about moving any accounts.

My Ameritrade rep indicated my account would be moved in the last wave due to me using the ThinkOrSwim app.

Support of ThinkOrSwim for my Schwab accounts (once merged) is a major concern of mine, so I was happy to hear the account wouldn't be moved until after ThinkOrSwim was supported at Schwab.

 

[pdxgal]

That's me,33 year owner. The depreciation recapture, cap gains tax, then NJ cap gains tax same as federal were brutal.
Oldmike

With mortgage rates back up, I wonder if some landlords and homeowners will consider seller financing to minimize that pain. When I bought my first home in 1995 when mortgage rates were over 8%, my Nolo Press home buying guide suggested seller financing could be a win-win for both buyer and seller. Of course there's credit risk for the seller, but could be worth it for some folks.

 

[Freedom56]

Market timers are welcome here.

I would hold off on buying anything right now. Just float money in MM funds. Build up some dry powder with maturities and coupon payments. Rates are likely to surge up. The 10 and 30 year are about to breach 4%. If it doesn't happen in the next few weeks, it will certainly happen in a few months as the treasury auctions about $1.5T of longer term notes.

https://www.bloomberg.com/markets/rates-bonds/government-bonds/us

 

[Freedom56]

The ADP private payroll number has come in hot at 497,000 and more than double expectations. As I stated before the economy is strong and getting stronger. The long rates have breached 4% today. The two year is above 5%. We will be taking out the peaks from last October and March pretty soon. Bank of America is projecting a 6% terminal rate on the Fed funds.

https://www.cnbc.com/2023/07/06/adp-jobs-report-private-sector-added-497000-workers-in-june.html

 

[Spock]

The ADP private payroll number has come in hot at 497,000 and more than double expectations. As I stated before the economy is strong and getting stronger. The long rates have breached 4% today. The two year is about 5%. We will be taking out the peaks from last October and March pretty soon. Bank of America is projecting a 6% terminal rate on the Fed funds.

https://www.cnbc.com/2023/07/06/adp-jobs-report-private-sector-added-497000-workers-in-june.html

It seems that predicted numbers are getting further and further off the actual path. The above payroll number was off by a factor of 2 where being off by 10% is a huge miss. "Inflation is transitory". "Sub-prime is self-contained". New to me is that the bank deposit vs. money market ebb and flows are also seasonally adjusted... so the dollars flooding out of low yield banks into higher yield MMs was seasonally adjusted from -$28Billion to a positive $102B.... thats one heck of an "adjustment". It's getting the point you can't trust any of the data any more. It's all spun to meet an agenda and everyone has an agenda so neutral sources are no longer or are well hidden.

 

[imbatman]

Definitely all the secondaries I have been watching have significantly moved up in yield in the last week but new issue still dead for me in Fido, probably just holiday lag.

 

[copyright1997reloaded]

Definitely all the secondaries I have been watching have significantly moved up in yield in the last week but new issue still dead for me in Fido, probably just holiday lag.

Yes, they will be forced to raise if short term treasury yields continue at these rates or go higher.

 

[Freedom56]

It seems that predicted numbers are getting further and further off the actual path. The above payroll number was off by a factor of 2 where being off by 10% is a huge miss. "Inflation is transitory". "Sub-prime is self-contained". New to me is that the bank deposit vs. money market ebb and flows are also seasonally adjusted... so the dollars flooding out of low yield banks into higher yield MMs was seasonally adjusted from -$28Billion to a positive $102B.... thats one heck of an "adjustment". It's getting the point you can't trust any of the data any more. It's all spun to meet an agenda and everyone has an agenda so neutral sources are no longer or are well hidden.

As I stated many times, this economy is strong and getting stronger. The rate hikes are just adding more stimulus to the economy in the form of interest income as there is a lot of cash in the system previously earning almost zero but now generating over $1T in interest income. Some of that interest income will be spent on goods and services some will be saved adding more fuel to the fire in the future. If I had a vote in the Fed, I would tell them to pause rate hikes an let the yield curve flatten. But they will raise rates and now Bank of America is projecting a 6% terminal rate by the end of 2023. This would be welcome news for those rolling their ladders later in the year and in 2024 as 4.5%+ coupons are rolled into 6%+ coupons. However higher income means more potential economic stimulus. The other issue is that more rate hikes will wipe out many smaller banks that have been using free deposit money to fund loans for the past decade. That banking model is dead.

 

[Rianne]

As I stated many times, this economy is strong and getting stronger. The rate hikes are just adding more stimulus to the economy in the form of interest income as there is a lot of cash in the system previously earning almost zero but now generating over $1T in interest income. Some of that interest income will be spent on goods and services some will be saved adding more fuel to the fire in the future. If I had a vote in the Fed, I would tell them to pause rate hikes an let the yield curve flatten. But they will raise rates and now Bank of America is projecting a 6% terminal rate by the end of 2023. This would be welcome news for those rolling their ladders later in the year and in 2024 as 4.5%+ coupons are rolled into 6%+ coupons. However higher income means more potential economic stimulus. The other issue is that more rate hikes will wipe out many smaller banks that have been using free deposit money to fund loans for the past decade. That banking model is dead.

Great news, thank you Freedom56! We have $300K+ maturing by the end of 2023. I followed short-term bond/CD ladder advice from April 2022, after selling all our bond funds. Looking good for a solid interest income/coupon for us in the 4-6% range long-term.

 

[Born2Fish]

+1. 6.25% guaranteed for a year and highly likely for the second year is better than 5.116% YTM for 2 years. Even if a year from now 1-year rates crashed to 4% and the note was called and you reinvested for a year at 4% you would still come out the same with the 6.25% callable issue vs the 2-year non-callable issue (1.0625*1.04~1.05116^2).

I think that any reduction in rates will be gradual and don't see rates declining so fast that the 6.25% is called in the next two years. That, and TD is a better credit than Wells Fargo.

pb et al - Thanks for the nudge.

I bought the TD 6.25%.

I am around 60% CDs and 40% investment grade Corp/Agency bonds between FIDO and TDA fixed income holdings, with a 4.90% yield.

Almost all of my TDA fixed income is Corp notes.

Fidelity corp note offerings seem to be more limited.

A bunch of my older low-yielding CDs are maturing over the next few months. I hope to replace those with the higher yielding Corp notes.

All is good!!