A Bond Newbie

[marko]

So, despite being in the market for almost 50 years--and being a DYI for the past 20 years--the only bonds I've held have been through bond funds.

But the 2 year, now at 4%+ has me intrigued. With a recession likely ahead, it could go even higher, I'd imagine.

A couple of easy ones that I'm a bit embarrassed to be asking:
Can I assume that I can buy a 2yr through my broker?
How often does it pay? Monthly? Quarterly? Can you NOT reinvest and instead take the payment?
"...you get your money back if held to maturity". What happens if you sell before maturity? Do you get the current rate at that time? What if the rate is higher?

Admittedly, I have no idea what I'm doing on this one so any insight appreciated.

 

[Lsbcal]

Bonds are a tough subject because you are basically buying a contract. Fair amount of math to really to dig deeply into this but not really necessary I think.

Some thoughts:
1) You can buy individual bonds through your broker. At Vanguard there is the bond desk and they can answer some questions about your purchase but not about strategy.
2) Consider TIPS if you want a guaranteed above inflation return and especially if you are buying for a retirement account.
3) Rates could go higher and we do not know where this ends. If rates go higher prices go lower.
4) Look for tutorial articles on bonds.
5) For history of different maturities get familiar with the FRED charts. Here is a link for the 1 year Treasury bond: https://fred.stlouisfed.org/series/DGS1?cid=115 Click on Max to see the chart since 1962. You can see we have never had such a rapid, sustained rate of rise. Click on "Treasury Constant Maturity) to see other issues and charts available.
6) Here is a link to see the daily final Treasury curve data. I refer to it quite frequently nowadays. You can also get TIPS data there:
https://home.treasury.gov/resource-center/data-chart-center/interest-rates/TextView?type=daily_treasury_yield_curve&field_tdr_date_value_month=202209

FWIW, my current bond holdings are in TIPS and 2 month Treasuries (expire mature mid October) and older (unavailable) iBonds. I don't know when to pull the trigger and go out longer. If someone has a good timing idea that would be great (large grain of salt needed though).

 

[11522914]

If someone has a good timing idea that would be great (large grain of salt needed though).

LOL. Yes, please let me know what you find out. I've been struggling with this for awhile.

Most people will suggest a bond ladder.

 

[Graybeard]

So, despite being in the market for almost 50 years--and being a DYI for the past 20 years--the only bonds I've held have been through bond funds.

But the 2 year, now at 4%+ has me intrigued. With a recession likely ahead, it could go even higher, I'd imagine.

A couple of easy ones that I'm a bit embarrassed to be asking:
Can I assume that I can buy a 2yr through my broker?
How often does it pay? Monthly? Quarterly? Can you NOT reinvest and instead take the payment?
"...you get your money back if held to maturity". What happens if you sell before maturity? Do you get the current rate at that time? What if the rate is higher?

Admittedly, I have no idea what I'm doing on this one so any insight appreciated.

Like you have have managed my finances and only held bond funds for 35 years. I just got into buying bills a few months ago. I assume your questions are about a 2 year T note not a corporate note.

Can I assume that I can buy a 2yr through my broker?

You can buy them through your brokerage account, it is pretty easy. By "broker" I don't know if you mean a person that will charge you and IMO that is not worth the cost seeing how easy it is to do yourself.

How often does it pay? Monthly? Quarterly? Can you NOT reinvest and instead take the payment?

T bills which are up to 1 year are bought at a discount, they don't have a coupon. You pay less than par and they mature at par. Notes are 2 to 10 years and you pay the full price and they pay a coupon every 6 months. I doubt there is a way to reinvest that back into the 2 year note but I am sure you can reinvest it where you want, if nothing else the Settlement Fund then from there you can but whatever.

you get your money back if held to maturity". What happens if you sell before maturity? Do you get the current rate at that time? What if the rate is higher?

Yes if held to maturity you get your money back. If you sell it before maturity then you get whatever the prevailing cost is. If rates have moved higher you will get less but if rates have dropped you will get more.

 

[marko]

Like you have have managed my finances and only held bond funds for 35 years. I just got into buying bills a few months ago. I assume your questions are about a 2 year T note not a corporate note.

.

Thank you Graybeard. Very helpful.

 

[53anddone]

I buy individual bonds all the time and hold them to maturity. Its relatively simple on fidelity.

I have about 15% of my investible assets in individual muni bonds in my state. Obviously there is some learning to this (rating, issuing authority, call date, expiration date, etc. ) but its not particularly hard for a retired guy to educate themselves.

So long as you are prepared to hold them to maturity (often 10+ years) you don't really care about the current price going up or down. You just care about the income which is normally paid to you every 6 months. When the bond is called or expire you get your principle back.

I have also bought individual T Bills in the same way. Again, just hold them to maturity: 3 mo, 6 mo, 9 mo or whatever and price fluctuation wont matter to you.

If you need liquidity you can buy into a bond fund but then you are subject to price fluctuations.