bond funds or CDs/Treasuries

[dixter]

short term bond for that kind of yld is a differnt game... but it can be done it just takes a lot more effort... there is a guy that gets good results.. steve shaw bondsavvy

 

[pb4uski]

I guess I look at it a little differently...

Hard to argue with that.

If you want to look at it strangely then you can also look at it that you pay out $1,300 and it takes 13 years for you to get your money back and then it is all gravy after that.

 

[TwoByFour]

I am interested in any comments you all might have about my idea of moving the fixed income side away from bond funds and toward relatively short term CDs and treasuries. Thanks.

I have also been converting bond funds to bond ladders. I think CD's are fine for that purpose also. My motivation for this is to partition risk so that the fixed-income part of my portfolio has minimal risk and all the risk is in the equity side. So I no longer expect a positive real return from fixed income. I not only have been dumping bond funds, but also corporate bonds.

The bulk of FI is now TIPS ladders - AAA rated, no inflation risk, and since it is a ladder, no interest rate risk. To make up for the loss of real return in the FI side of the portfolio, I just boosted the AA a little (like 2%) towards equities. To retain liquidity I still have a short-term bond fund.

There's a saying you hear on bogleheads - equities are for return, bonds are for safety. That's my model.

 

[dixter]

think your math might be a little wrong... its 3 yrs.... you cash in your bond at the prevailing value... the value on bonds change every single day... they track the fed rates which change everyday ... you sell the bond back to the bond broker...

 

[TwoByFour]

....so it shows a Corporate Bond by the company Ford Motor... its coupon payout is reported as 9.98 % and a maturity date of 2/15/2047 (28 yrs and a few months) the moody rating is BAA3 and the S&P rating is BBB (This is not a Junk Rating) as of this afternoon the bond is priced above par with a price of $1,306.79/bond or $306.79 above par... so the yield is 7.637% ...

I looked that up. Cusip 345370BW9. That thing has been offered for years as it gets talked about on various investing boards. It is a 50-year term bond. The whole thing is fishy - a 7.4% YTM with a BBB rating is something that would normally be snapped up as that yield is way high for that credit rating, but it doesn't. In fact, Ford would come out way ahead itself by buying back those bonds and re-issuing new bonds at the prevailing 4.6% rate for BBB. In fact who would issue a non-callable 50-year bond with a 10% coupon to begin with? That is nuts!

 

[pb4uski]

No worries... dixter is going to buy them all up... after all, they have that juicy 10% coupon.

 

[COcheesehead]

If you look at the book, people are buying that bond 345370BW9 every day. The yield is 7.4% and if you hold until 2047... you get par. In reality that is equal to the long term return of some balanced funds. Question is will Ford be around in 2047.
And technically the coupon is 9.98.

 

[pb4uski]

What is a couple basis points between friends?

 

[COcheesehead]

What is a couple basis points between friends?

10 is higher than 9.98. I just wouldn’t want to mislead anyone.

 

[dixter]

some people can't do math... thats why I wrote coupon rate at 9.98% and rounded for math challenged folks by including the tilde ~ before the 10%

you try to learn something new each and every day...

 

[dixter]

If you look at the book, people are buying that bond 345370BW9 every day. The yield is 7.4% and if you hold until 2047... you get par. In reality that is equal to the long term return of some balanced funds. Question is will Ford be around in 2047.
And technically the coupon is 9.98.

There does exist a possibility that you purchase any single corporate bond and its value actually goes up independent of the FED rates... at that time you have the option to cash in the bond and make a profit from the above par value and they pay the accumulated coupon interest to you at the same time... you don't have to hold any bond until maturity and there is no early cash out costs to you...

and of course it can go the other way...and you wouldn't sell at that point...
for discussion 9.98% = ~10 easier for math challenged folks to comprehend that way...

 

[dixter]

I would suspect that Ford issues Bonds for several reasons... its an easy instrument to offer your workers for retirement say... looking at ford and ford credit they have issued over 150 different bonds and they go all the way out to around ~100 yrs... (tilde folks)

Bonds like these are also what Pension Fund Managers purchase for other companies...
a strange buy/sell tactic I see every day is when they sell millions of $$$ in bonds and repurchase the same bonds within minutes.... must be something to do with taxes

 

[RunningBum]

some people can't do math... thats why I wrote coupon rate at 9.98% and rounded for math challenged folks by including the tilde ~ before the 10%

you try to learn something new each and every day...

for discussion 9.98% = ~10 easier for math challenged folks to comprehend that way...

How about you just say you rounded it rather than turning it into an insult to others?

How about you just say it once?

How about we move on from this?

 

[dixter]

just once... rounded

 

[COcheesehead]

some people can't do math... thats why I wrote coupon rate at 9.98% and rounded for math challenged folks by including the tilde ~ before the 10%

you try to learn something new each and every day...

I was just being a smart@ss. Tongue in cheeky.

 

[COcheesehead]

There does exist a possibility that you purchase any single corporate bond and its value actually goes up independent of the FED rates... at that time you have the option to cash in the bond and make a profit from the above par value and they pay the accumulated coupon interest to you at the same time... you don't have to hold any bond until maturity and there is no early cash out costs to you...

and of course it can go the other way...and you wouldn't sell at that point...
for discussion 9.98% = ~10 easier for math challenged folks to comprehend that way...

Oh, I completely agree. I have had some bonds go up in value and have sold them before maturity. Those instances are rare, but they can happen.

 

[dixter]

I was just being a smart@ss. Tongue in cheeky.

me too... guess its a little too early in the morning for some folks..