Fixed Income Investing II

[Texas Proud]

How are people looking at risk in corporate bonds? Maybe someone can help me out with understanding the risk between two bonds that I saw mentioned on another thread (CUSIP 46625HJM3 and 48130CBN4).

46625HJM3 from JPM: it is rated BBB+ and has 'subordinated' debt.
48130CBN4 from JPM it is rated A- and has 'senior unsecured' debt.

If I understand this correctly JPM is issuing various levels of debt so that in the case of some form of insolvency they can determine who gets paid back in what order based on the tiers of debt that they offer. eg 'senior unsecured' debt gets paid before 'unsubordinated' debt.

What does the kind of insolvency that leads to not paying unsubordinated debt look like? Does JPM actually have to be in trouble, or does whatever debt is wrapped up in these bonds need to be in trouble (I'm thinking of mortage bonds circa 2008)

Basically my question in: going on the idea that the US Govt wouldn't actually let JPM fail, is there a reason to not buy the lowest grade stuff that they're selling?

Remember that GM was bailed out and their debt became worthless... I know because one of my friends mom called me to complain about her high rated bonds...


It might be me, but if JPM failed I doubt any bonds are gong to get anything... well, if it is secured by something it will, but unsecured.... not...

 

[pb4uski]

...if JPM failed I doubt any bonds are gong to get anything... well, if it is secured by something it will, but unsecured.... not...

I have some JPM bonds and if JPM fails then I think the JPM bonds will be the least of my worries.

 

[Texas Proud]

I have some JPM bonds and if JPM fails then I think the JPM bonds will be the least of my worries.

LOL... true, true...

 

[Koolau]

I have some JPM bonds and if JPM fails then I think the JPM bonds will be the least of my worries.

Why? Too big to fail (and also too big to bail out?)

 

[aja8888]

Why? Too big to fail (and also too big to bail out?)

Jamie is part of the inside circle.

 

[twirler]

FI but young.

So, with all this great action within fixed income investing I feel like I am missing out. We are something like 2/3 stock 1/3 real estate. Being that we are still young, and have plenty of time to accrue more, I feel as though I should sit tight. However, anytime there's a deal, I can' help but feel I should be attempting to capitalize on the opportunity. Anyone care to offer their thoughts on this matter?

 

[COcheesehead]

So, with all this great action within fixed income investing I feel like I am missing out. We are something like 2/3 stock 1/3 real estate. Being that we are still young, and have plenty of time to accrue more, I feel as though I should sit tight. However, anytime there's a deal, I can' help but feel I should be attempting to capitalize on the opportunity. Anyone care to offer their thoughts on this matter?

FOMO

Having owned both fixed income and real estate, real estate in the long run usually will do better. It did for me. I made seven figures. Once you have won the game and want income in your later years, I would then look to fixed income. Just my two cents.

 

[Montecfo]

^^^
Yes.. no rush to get into bonds if you feel real estate is providing the ballast.

Just need to stay conservative. Bad real estate markets, well, you know.

 

[COcheesehead]

^^^
Yes.. no rush to get into bonds if you feel real estate is providing the ballast.

Just need to stay conservative. Bad real estate markets, well, you know.

Yes, you can make a lot in real estate and lose a lot too. Over a long period it tends to lean towards a positive outcome, but not always.

 

[Texas Proud]

Why? Too big to fail (and also too big to bail out?)

In a way yes... they have 3 or more trillion in assets... over 10% of deposits of the US... and that was before buying one of the failed banks recently...


The economy would have to be so bad for them to fail that a lot of other pain would be happening...

 

[pb4uski]

Why? Too big to fail (and also too big to bail out?)

In a way yes... they have 3 or more trillion in assets... over 10% of deposits of the US... and that was before buying one of the failed banks recently...


The economy would have to be so bad for them to fail that a lot of other pain would be happening...

Texas Proud nailed it.

If JPM, the largest bank in the US ends up unable to service its debt it will because the US economy is such a sh!tshow that all sorts of really bad things will be happening... in short, financial armageddon. Remember, during the 2008 financial crisis JPM was very strong so if JPM ends up in trouble then 2008 will be a nit by comparison.

 

[Weathering]

I’m really hoping that Tuesday wasn’t the bottom of the bond market drop. It was a hard bottom - big drop into the bottom (from Friday to Tuesday) and big jump out (from Tuesday to Wednesday). If tomorrow, the Fed guy says good things about nearing the end of rate increases, then Tuesday will have been the bottom of the bond market.

I’m hoping the bond market trough last a little longer because I’m going to be selling some I-bonds in early Oct with a plan to reinvest the proceeds into long term corporate bonds.

 

[finvest2]

A bailout doesn’t guarantee bond holders are made whole or get anything at all. That is what risk is and why you are paid more to take it. Read the Moody’s reports. They are usually interesting.

That's an interesting point that I didn't think about. These reports? https://www.moodys.com/credit-ratings/JPMorgan-Chase-Co-credit-rating-165000 or something specific to each CUSIP?

I have some JPM bonds and if JPM fails then I think the JPM bonds will be the least of my worries.

Are you considering the ratings when you buy them (A-/BBB+)? I'm new to corporate bonds, I had assumed that all bonds issued from any company would have the same credit rating but it seems that isn't the case. My assumption is that JPM not paying back ANY debt would be a big deal.

Maybe not too useful, but digging around I found that the amount of debt issued by JPM (and, probably any bank) is also mandated by the Federal Reserve:

Federal Reserve rules require that JPMorgan Chase & Co. (the “Parent Company”) maintain minimum levels of unsecured external long-term debt and other loss-absorbing capacity with specific terms (“eligible LTD”) for purposes of recapitalizing JPMorgan Chase’s operating subsidiaries if the Parent Company were to enter into a resolution either:

in a bankruptcy proceeding under Chapter 11 of the U.S. Bankruptcy Code, or
in a receivership administered by the FDIC under Title II of the Dodd-Frank Act (“Title II”).

I also picked up a few Morgan Stanley bonds, arguably not as strong as JPM but again seems relatively safe assuming financial armageddon doesn't happen.

 

[Montecfo]

Yeah the ratings will vary even by the same issue depending on where the issue lies in the issuer's, capital structure, whether secured, etc.

Similar to an individual with a mortgage (secured), car loan (secured) and credit card debt (unsecured).

In a dire situation, most folks would default on the credit card that first then the car, then the mortgage.

Intriguingly, that is also from highest interest rate to lowest. Interest rate reflects risk.

 

[Montecfo]

I’m really hoping that Tuesday wasn’t the bottom of the bond market drop. It was a hard bottom - big drop into the bottom (from Friday to Tuesday) and big jump out (from Tuesday to Wednesday). If tomorrow, the Fed guy says good things about nearing the end of rate increases, then Tuesday will have been the bottom of the bond market.



I’m hoping the bond market trough last a little longer because I’m going to be selling some I-bonds in early Oct with a plan to reinvest the proceeds into long term corporate bonds.

I know what you mean. If Powell hints at no hike in September bonds and stocks both likely to rally sending yields lower.

People talk about higher for longer but yields have been mostly lower since last fall with a couple of blips up.

Treasury borrowing volumes may push treasuries a bit but the elusive 6% high quality non-call 5 year corporate opportunities have not happened.

And if they don't at least that is bullish for stocks.

But I expect Powell to continue the hawkish tone, say September will be a "live" meeting, we remain data dependent etc.

But recent data certainly points toward a slowing economy.

 

[twirler]

FOMO

Having owned both fixed income and real estate, real estate in the long run usually will do better. It did for me. I made seven figures. Once you have won the game and want income in your later years, I would then look to fixed income. Just my two cents.

No joke, serious FOMO. I have no problem dipping a toe in right now, because I have the loose cash to do so. OTOH we'll be earning for the next 40ish years passively not including investments and real estate W2 ect.... So, I have a hard time justifying it, but at the same time I am like why not add some diversification? know what I mean?

 

[pb4uski]

....Are you considering the ratings when you buy them (A-/BBB+)? ...

Yes. At Schwab, the ratings are on the summary page for each cusip. I generally look for A or higher but will conceded to BBB if the YTM is attractive.

BTW, after looking I do own JPM but it is JPM issued brokered CDs, not JPM debt. But JPM debt would be fine with me if the YTM was attractive.

Most of the corporate debt that I own is A or better, though I have one A- holding and one BBB+ holding.

 

[copyright1997reloaded]

No joke, serious FOMO. I have no problem dipping a toe in right now, because I have the loose cash to do so. OTOH we'll be earning for the next 40ish years passively not including investments and real estate W2 ect.... So, I have a hard time justifying it, but at the same time I am like why not add some diversification? know what I mean?

If you are 40 years to go, high % of equities is the way I would go. I'm only at 40% equities, but my son (who I am investing for) at 21 is 95%, the other 5% is in SWVXX waiting to invest in whatever I pick next for him. I won't be buying corporate bonds or any longer term fixed for him.

You have diversification in your real estate. Maybe make sure you have non US investments, e.g. emerging markets. Maybe a tiny bit in PM's as an inflation hedge.

 

[twirler]

If you are 40 years to go, high % of equities is the way I would go. I'm only at 40% equities, but my son (who I am investing for) at 21 is 95%, the other 5% is in SWVXX waiting to invest in whatever I pick next for him. I won't be buying corporate bonds or any longer term fixed for him.

You have diversification in your real estate. Maybe make sure you have non US investments, e.g. emerging markets. Maybe a tiny bit in PM's as an inflation hedge.

With holding an index I abandoned Ems along time ago. I just can't see the reason to take on currency risk, worry about exchange rates, taxes, political instability, ect... when I can just purchase the 500, due to big companies being internationally diversified. My RE is not diversified (primary residence) but I purchased really really well. Great rate great market great price. It's also our only debt. We have pensions and other uncommon investments. I hold to the maxim of purchase assets and ignore the noise.

 

[Koolau]

With holding an index I abandoned Ems along time ago. I just can't see the reason to take on currency risk, worry about exchange rates, taxes, political instability, ect... when I can just purchase the 500, due to big companies being internationally diversified. My RE is not diversified (primary residence) but I purchased really really well. Great rate great market great price. It's also our only debt. We have pensions and other uncommon investments. I hold to the maxim of purchase assets and ignore the noise.

Sounds like you are on top of the situation. You can divest some RE in the future if you need to.

I'm just curious, so no need to answer, but what are your uncommon investments? I've thought mine were uncommon at times. I used to be a part owner of a small (very small) family business. Technically there was some stock involved, but in fact we sold as property owners only (IOW, we didn't sell the name.) Niece already created an LLC while we (sister and I) were an S Corp. selling the real property and "stuff" inside (van, inventory, etc.)

Probably most "controversial" is my roughly 3 to 4% of precious metals investments. Few here like PMs but I've found them to smooth my portfolio. YMMV

 

[twirler]

Royalties, pensions, metals, individual stock picks ect... nothing too crazy, just not part of a typical portfolio. If I see a good deal, and it's an asset I am buying.

 

[savory]

Learning question. A CD @3.75% with a maturity date of 2025 was called. While I understand the call could be as simple as the bank needs cash, I was surprised but not disappointed, that the bank was kind enough to help me out with my lower than available interest rate return.

Being new to individual bond investments, I am trying to learn what might be behind this move by the bank. Thoughts? Thanks

 

[Montecfo]

What bank is it? Seems odd at first glance.

 

[savory]

what bank is it? Seems odd at first glance.

cfg cmnty bk lutherville md cd 3.75000% 12/11/2025

 

[COcheesehead]

Learning question. A CD @3.75% with a maturity date of 2025 was called. While I understand the call could be as simple as the bank needs cash, I was surprised but not disappointed, that the bank was kind enough to help me out with my lower than available interest rate return.

Being new to individual bond investments, I am trying to learn what might be behind this move by the bank. Thoughts? Thanks

Only the issuer knows for sure. Anything else is a guess. They actually did you a favor. You can now take advantage of much higher yields.