I choked

[lawman]

From Fidelity as of tonight:
3-5 year CD 3.15% - 3.3%
3-5 year Treasury 2.92% - 3.1%
3-5 year A rated corporates 4.04% - 4.35%
3-5 year taxable muni 3.8% - 4.18%

I don't have a good feel for risk..What are the chances of an A rated company defaulting on a 5 year bond?

 

[COcheesehead]

I don't have a good feel for risk..What are the chances of an A rated company defaulting on a 5 year bond?

According to Moody’s: 2.10%.

 

[Koolau]

According to Moody’s: 2.10%.

And I've never heard of it happening though I suppose it has. YMMV

 

[COcheesehead]

And I've never heard of it happening though I suppose it has. YMMV

See chart.

 

[jazz4cash]

According to Moody’s: 2.10%.

Isn’t it likely that a downgrade would occur before default? That may or may not provide an opportunity to get out.

 

[Koolau]

See chart.

Yeah, I never doubted the data - I just can't think of a default of an A rated bond. I'm sure there have been some, but one would think such an event would be a touchstone like equity-oriented faux pas such as Enron or Madoff. Everyone knows those names and drops them even if they don't recall the story. I'm just saying I don't have a similar touchstone for bonds though I'm sure folks in the know like Bill Gross would have a whole list of them. YMMV

 

[COcheesehead]

Isn’t it likely that a downgrade would occur before default? That may or may not provide an opportunity to get out.

I have had bonds downgraded that did not default so I wouldn’t use that as an accurate indicator.

 

[lawman]

See chart.

That's a pretty high default rate if you think about it..One default in every 50 bonds would do substantial damage to overall returns..Makes me wonder if there is any way to know the default rate in a particular bond fund..

 

[COcheesehead]

That's a pretty high default rate if you think about it..One default in every 50 bonds would do substantial damage to overall returns..Makes me wonder if there is any way to know the default rate in a particular bond fund..

A default doesn’t mean the bond goes to zero, so keep that in mind.

A bet you can extrapolate default risk by looking at the credit quality of the fund’s holding.

 

[lawman]

A bet you can extrapolate default risk by looking at the credit quality of the fund’s holding.

I don't understand. Is there a typical result when a company defaults? Do bondholders get partial payment? Do bondholders even receive notification of default? I suppose there are innumerable outcomes. I just have no idea what a default really looks like..Anyone here ever been a holder of a defaulted bond?

 

[youbet]

I don't know enough about BLNDX and, yes, it is new. If I could only invest in one managed fund (i.e., NOT an index fund) I would choose pssst. Wellesley. It has a good track record. It's about 60/40 IIRC. It's been around for a long time.

Full disclosure, I do own it though most of my equities/bonds are in index funds. YMMV

You’ve got that AA reversed.

 

[SecondCor521]

I don't understand. Is there a typical result when a company defaults? Do bondholders get partial payment? Do bondholders even receive notification of default? I suppose there are innumerable outcomes. I just have no idea what a default really looks like..Anyone here ever been a holder of a defaulted bond?

I think the bondholder receives notice at the latest when the interest or principal is not paid.

I don't own individual bonds. My Dad was the holder of WPPSS ("Whoops") bonds way back when. Pretty sure he lost most of his investment, but that was also probably a near-worst case scenario.(*) It left an impression on him.

(*) A google search says investors got 10 cents to 40 cents back on the dollar as the result of a settlement about five years later: https://www.investopedia.com/ask/answers/09/wpps-municipal-bond-default-whoops.asp

 

[OldShooter]

Do you guys know whether that default rate is dollar-weighted in some way or not? If not, a few defaults among small issues might be the cause of the apparently-high rate.

 

[youbet]

I don't have a good feel for risk..What are the chances of an A rated company defaulting on a 5 year bond?

You need to explain what you mean by risk. Do you mean Beta? FIRE portfolio depletion? Some arbitrary percentage loss over some arbitrary time frame? Inflation risk? Etc.

They’re all very real, sometimes interconnected and need to be understood. Focusing on avoiding one type of “risk” sometimes exacerbates other types.

 

[COcheesehead]

I don't understand. Is there a typical result when a company defaults? Do bondholders get partial payment? Do bondholders even receive notification of default? I suppose there are innumerable outcomes. I just have no idea what a default really looks like..Anyone here ever been a holder of a defaulted bond?

I have never had a bond default so I am going on things I have read, but usually - not always though - bond holders get something after a lengthy process.

As a bond holder you get a notice anytime there is an ME - a material event which could be anything from sector outlooks provided by rating agencies to failure to provide financial data to ratings changes. I get a handful of emails a week with MEs related to my bonds. 99% of the time they are meaningless.

 

[COcheesehead]

Do you guys know whether that default rate is dollar-weighted in some way or not? If not, a few defaults among small issues might be the cause of the apparently-high rate.

If you read the chart Moody’s says “average cumulative default over rolling ten year periods” so interpret that.

 

[OldShooter]

If you read the chart Moody’s says “average cumulative default over rolling ten year periods” so interpret that.

I would very tentatively interpret that as not being dollar weighted, so at best marginally useful for retail investors. It may be that simply avoiding small issues/small companies is enough to make a portfolio fire-resistant.
​

 

[COcheesehead]

I would very tentatively interpret that as not being dollar weighted, so at best marginally useful for retail investors. It may be that simply avoiding small issues/small companies is enough to make a portfolio fire-resistant.
​

Or one industry getting burned like companies in the oil patch all taking a hit simultaneously.

 

[Chuckanut]

You’ve got that AA reversed.

Good catch. The last time I checked the Psssstt Wellesley AA was something like 35/65. But I haven't checked lately since we started the slide in stock and bond prices.

Wellesely is the only place I hold bonds of medium or higher maturity.

 

[Graybeard]

I've been contemplating this for several weeks and today I did it. I have been losing money like crazy in the Vanguard Short Term Investment Grade Bond Fund. The SEC yield is now 3.38% and the duration 2.8 or 2.9 years but despite me thinking it wasn't all that exposed to nav loss it is. I have lost 10 times the amount (actually slightly more) in this fund this year so far than in the Ultra Short Term Bond Fund and they had basically the same dollars in each. I sold all shares into the settlement account in my roll over IRA. I may use some of this for my RMD but probably it'll just get dollar cost average into the Ultra Short Term fund and T bills, if the market really drops I'll put some more into the Total Stock Market Index. With the Fed raising the overnight rate on this coming Wednesday and again next month, this Short Term Investment Grade fund is just going to lose more each month. I get around $160 in dividends and lose several hundred in nav losses each month. Enough is enough.

 

[skipro33]

I'm heavy into an S&P 500 equity index fund, looking for a bottom and when I feel we are near, I plan to convert the max I can to ROTH. What an opportunity! I thought I would have to take it in the shorts with conversion and here the market discounts my fund values so I can save a bunch on taxes. Now, just gotta time it so I maximize the conversion and watch it swing back and climb to its historical high. As long as it stays depreciated for a few tax years, I'll be happy. 10 would be ideal, then I'll be at RMD age and have to start taking it out.

 

[lawman]

I've been contemplating this for several weeks and today I did it. I have been losing money like crazy in the Vanguard Short Term Investment Grade Bond Fund. The SEC yield is now 3.38% and the duration 2.8 or 2.9 years but despite me thinking it wasn't all that exposed to nav loss it is. I have lost 10 times the amount (actually slightly more) in this fund this year so far than in the Ultra Short Term Bond Fund and they had basically the same dollars in each. I sold all shares into the settlement account in my roll over IRA. I may use some of this for my RMD but probably it'll just get dollar cost average into the Ultra Short Term fund and T bills, if the market really drops I'll put some more into the Total Stock Market Index. With the Fed raising the overnight rate on this coming Wednesday and again next month, this Short Term Investment Grade fund is just going to lose more each month. I get around $160 in dividends and lose several hundred in nav losses each month. Enough is enough.

I used the proceeds from the sale of my bond fund to buy short term treasuries and c.d.'s..Now I just have to figure out how I can invest in fixed income and get 4% yield without taking on a lot of risk..That may prove to be difficult.

 

[COcheesehead]

I'm heavy into an S&P 500 equity index fund, looking for a bottom and when I feel we are near, I plan to convert the max I can to ROTH. What an opportunity! I thought I would have to take it in the shorts with conversion and here the market discounts my fund values so I can save a bunch on taxes. Now, just gotta time it so I maximize the conversion and watch it swing back and climb to its historical high. As long as it stays depreciated for a few tax years, I'll be happy. 10 would be ideal, then I'll be at RMD age and have to start taking it out.

Let us all know when you feel the bottom is near.

 

[aja8888]

Let us all know when you feel the bottom is near.

+1

 

[skipro33]

Let us all know when you feel the bottom is near.

By the end of the year so I can capitalize on the conversion for the tax year. Then it continues to drop for another 3 years, then stagnates for another 3 years, then slowly grows the next 3 years so that by the time 10 years have passed, we will once again break the high of Jan 4th 2022
ROTH conversions and putting my cash back to work is my goal between now and RMD time.
That's the plan anyways.

I think it's better than the panic and sell it all now before it falls even further plan I'm hearing.

EDIT
I'm down 5% 1-year and 17% year-to-date. Down 5% for 1 year is surely nothing to panic about. All I'm seeing is a little volatility and certainly anyone who exercises their money beyond annuities has to have some tolerance for risk.