Buying Corp Bonds

[lawman]

I have a t-bill maturing tomorrow..I want to reinvest that money in a corp. bond. The CUSIP # is 38141E2F5 (Goldman Sachs). That bond is not available through Schwab when I try to pull up by CUSIP..I called their bond desk and after waiting 15 - 20 minutes on hold I was finally able to talk to a person..If I understood her correctly the procedure is that they can look for someone offering that for sale and if they find someone they will get a price and call me back to see if i want it at that price. I can either take it at that price or pass or another option is to tell Schwab what I am willing to pay and they can see if they can find a seller willing to sell at my offering price. This seems to me to be very inefficient and unworkable way to buy a bond especially since wait times are so long when calling the bond desk..Do I understand the procedure correctly? If not, please explain to me how it works..Thanks..

 

[Turbo29]

That does seem kind clunky. On E*trade they have a "quote request tool."

"Need to buy or sell a bond but don’t see a live bid or offer for the CUSIP? Use the quote request tool to submit a bid (sell) or offer (buy) quote request, and we’ll get a price quote from our dealer network." Don't know how well it works or how long it takes as I've never tried it.

 

[lawman]

That does seem kind clunky. On E*trade they have a "quote request tool."

"Need to buy or sell a bond but don’t see a live bid or offer for the CUSIP? Use the quote request tool to submit a bid (sell) or offer (buy) quote request, and we’ll get a price quote from our dealer network." Don't know how well it works or how long it takes as I've never tried it.

That seems like a MUCH better way...
Still trying to master the correct terms..To me it seems like "bid" would refer to an offer to buy..

 

[Turbo29]

That seems like a MUCH better way...
Still trying to master the correct terms..To me it seems like "bid" would refer to an offer to buy..

It does seem confusing. I think it's a "bid" because they are telling you how much someone else is offering to buy it from you.

 

[njhowie]

The language is correct, but they could have done a better job with the wording. Read it slowly, and just need to keep in mind that you are requesting a bid quote (you want to sell) or requesting an offer quote (you want to buy).

Regardless whether requesting a bid or offer, as the small individual retail investor, you are likely going to get shafted. Your best opportunity to get a good deal is to buy from the brokers inventory - what bonds are currently displayed on their site?

Your Goldman bond does seem to trade with some frequency. Set up a query on your brokers website for looking up the bond, and re-run it daily. Buy when you see it is being offered.

Understand that it matures in 10 months and based on the last trades you're looking at about 3.4% to 3.5% tops. Ask yourself if it's really worth the effort to make 0.25% more than the equivalent maturity treasury, which is free from state and local tax? Additionally, remember Schwab will charge you commission on your corp bond purchase ($1/bond with $10 minimum), but not for treasuries.

 

[euro]

Your Goldman bond does seem to trade with some frequency. Set up a query on your brokers website for looking up the bond, and re-run it daily. Buy when you see it is being offered.

Understand that it matures in 10 months and based on the last trades you're looking at about 3.4% to 3.5% tops. Ask yourself if it's really worth the effort to make 0.25% more than the equivalent maturity treasury, which is free from state and local tax? Additionally, remember Schwab will charge you commission on your corp bond purchase ($1/bond with $10 minimum), but not for treasuries.

Those are great points to consider - thanks for bringing them up!

 

[lawman]

The language is correct, but they could have done a better job with the wording. Read it slowly, and just need to keep in mind that you are requesting a bid quote (you want to sell) or requesting an offer quote (you want to buy).

Regardless whether requesting a bid or offer, as the small individual retail investor, you are likely going to get shafted. Your best opportunity to get a good deal is to buy from the brokers inventory - what bonds are currently displayed on their site?

Your Goldman bond does seem to trade with some frequency. Set up a query on your brokers website for looking up the bond, and re-run it daily. Buy when you see it is being offered.

Understand that it matures in 10 months and based on the last trades you're looking at about 3.4% to 3.5% tops. Ask yourself if it's really worth the effort to make 0.25% more than the equivalent maturity treasury, which is free from state and local tax? Additionally, remember Schwab will charge you commission on your corp bond purchase ($1/bond with $10 minimum), but not for treasuries.

I think you are correct.. I thought I could get it with a YTM of 5% or better..Think I will take your advice and save myself a lot of hassle..1 year Gov't agencies are paying 3.5% THANKS

 

[njhowie]

I think you are correct.. I thought I could get it with a YTM of 5% or better..Think I will take your advice and save myself a lot of hassle..1 year Gov't agencies are paying 3.5% THANKS

Still not going to beat out equivalent maturity treasuries. You will pay commission same as corp bonds, and they are not free from state and local taxes like treasuries.

Fidelity currently shows 1 year agencies for 3.36%, 1 year treasuries for 3.26%.

Stop trying to finagle for peanuts.

 

[lawman]

Still not going to beat out equivalent maturity treasuries. You will pay commission same as corp bonds, and they are not free from state and local taxes like treasuries.

Fidelity currently shows 1 year agencies for 3.36%, 1 year treasuries for 3.26%.

Stop trying to finagle for peanuts.

Didn't realize there was a transaction fee for agencies at Schwab..I live in Texas and I don't pay state and local taxes..On Schwab the 1 year agencies are 3.5% and the treasuries are about 3.2 %.. I think I still do better with the agencies but I'll need to check on that transaction fee...Thanks

 

[njhowie]

https://www.schwab.com/fixed-income/pricing

• Individual bonds - secondary trades
  Corporate bonds
  Municipal bonds
  Government agencies
  Zero-coupon Treasuries (including STRIPS)
  
  
  
  
• Pricing
  $1 per bond online $10 minimum, $250 maximum online**
  
  
  Broker-assisted trades:
  Online fee plus $25
  
  

 

[Turbo29]

Didn't realize there was a transaction fee for agencies at Schwab..I live in Texas and I don't pay state and local taxes..On Schwab the 1 year agencies are 3.5% and the treasuries are about 3.2 %.. I think I still do better with the agencies but I'll need to check on that transaction fee...Thanks

If you buy $10000 worth ($1/bond) the commission may not be that significant depending on the bond maturity. If you buy $1000 worth and pay $10 for 1 bond (for a bond with a short maturity) it will be significant. The first time I bought a corporate bond I made that mistake. That's how we learn.

 

[njhowie]

If you buy $10000 worth ($1/bond) the commission may not be that significant depending on the bond maturity. If you buy $1000 worth and pay $10 for 1 bond (for a bond with a short maturity) it will be significant. The first time I bought a corporate bond I made that mistake. That's how we learn.

This is one reason to consider Fidelity if you are a bond investor and you'd like to buy in smaller quantities. Though Fidelity charges $1/bond, there is no minimum, which Schwab and Etrade (as I remember) do have. You buy 1 bond, the fee is $1.

 

[lawman]

Have never invested in individual bonds until now..I don't understand why anyone would invest in high grade corporate bonds when treasuries are paying as well or almost as well..

 

[Freedom56]

Have never invested in individual bonds until now..I don't understand why anyone would invest in high grade corporate bonds when treasuries are paying as well or almost as well..

High grade corporate bond yields were much higher than treasuries just two months ago. Rates ebb and flow and rarely shoot strait up. Just keep in mind that with the national debt at $30T, rates can only go up so high. September and October are normally treacherous times for the market. When funds are selling bonds due to redemptions, a smart investor does their buying. For new issues, Schwab and TDA are better than Fidelity. If you want buy on the secondary market, Fidelity is better. Schwab and TDA make it a bit more bothersome but both did provide a me direct lines to bond traders who are assigned to my accounts. The traders sometime call me and let me know what is becoming available on the secondary market. Fidelity has done the same. I only call Fidelity when there is no inventory showing on their site or I want to place a good till cancel order and specify the maximum and minimum quantities I want to buy. If you are just starting out with corporate bonds, start with the high grade new issues. There were many from Citigroup, TD Bank, Goldman Sachs, with 5% coupons on a 5 year note or 3 year notes at 4.5%. Wait for ones with higher coupons to appear and build your fixe income portfolio slowly. Always compare yields between CDs, treasuries, agencies, and high grade corporates.

 

[lawman]

High grade corporate bond yields were much higher than treasuries just two months ago. Rates ebb and flow and rarely shoot strait up. Just keep in mind that with the national debt at $30T, rates can only go up so high. September and October are normally treacherous times for the market. When funds are selling bonds due to redemptions, a smart investor does their buying. For new issues, Schwab and TDA are better than Fidelity. If you want buy on the secondary market, Fidelity is better. Schwab and TDA make it a bit more bothersome but both did provide a me direct lines to bond traders who are assigned to my accounts. The traders sometime call me and let me know what is becoming available on the secondary market. Fidelity has done the same. I only call Fidelity when there is no inventory showing on their site or I want to place a good till cancel order and specify the maximum and minimum quantities I want to buy. If you are just starting out with corporate bonds, start with the high grade new issues. There were many from Citigroup, TD Bank, Goldman Sachs, with 5% coupons on a 5 year note or 3 year notes at 4.5%. Wait for ones with higher coupons to appear and build your fixe income portfolio slowly. Always compare yields between CDs, treasuries, agencies, and high grade corporates.

No experience with new issues..I see them listed but have never bought any..How does that work? Do I know the YTM before buying or just an estimate?

 

[lawman]

High grade corporate bond yields were much higher than treasuries just two months ago. Rates ebb and flow and rarely shoot strait up. Just keep in mind that with the national debt at $30T, rates can only go up so high. September and October are normally treacherous times for the market. When funds are selling bonds due to redemptions, a smart investor does their buying. For new issues, Schwab and TDA are better than Fidelity. If you want buy on the secondary market, Fidelity is better. Schwab and TDA make it a bit more bothersome but both did provide a me direct lines to bond traders who are assigned to my accounts. The traders sometime call me and let me know what is becoming available on the secondary market. Fidelity has done the same. I only call Fidelity when there is no inventory showing on their site or I want to place a good till cancel order and specify the maximum and minimum quantities I want to buy. If you are just starting out with corporate bonds, start with the high grade new issues. There were many from Citigroup, TD Bank, Goldman Sachs, with 5% coupons on a 5 year note or 3 year notes at 4.5%. Wait for ones with higher coupons to appear and build your fixe income portfolio slowly. Always compare yields between CDs, treasuries, agencies, and high grade corporates.

Here is new issue listed at Schwab that interests me..Barclay's CUSIP 06748XNQ0..What do you think of it?

 

[Freedom56]

No experience with new issues..I see them listed but have never bought any..How does that work? Do I know the YTM before buying or just an estimate?

Didn't you buy those corporate notes from Citigroup, Bank of Montreal, Wells Fargo, Goldman Sachs that were issued over the past two months?

 

[Freedom56]

Here is new issue listed at Schwab that interests me..Barclay's CUSIP 06748XNQ0..What do you think of it?

It's a step up note that is being issued tomorrow.

08/25/2024 4.250 4.396
08/25/2025 5.250 4.668
08/25/2026 6.500 5.092

Nothing wrong with the coupons (4.25% for 2 years, 5.25% 1 year, and 6.5% the final year). The only risk is that they call it before the maturity date. But even the 4.25% coupon is higher than any bond fund yield of the same duration. If rates keep going up, you have effectively hedged yourself. It's a pretty safe investment.

 

[lawman]

Didn't you buy those corporate notes from Citigroup, Bank of Montreal, Wells Fargo, Goldman Sachs that were issued over the past two months?

I bought some Citi Group and Goldman Sachs but I don't think they were new issues

 

[DrRoy]

+1 on Fidelity. The process you described is how it works, but with Fido it is all automated and on the website, without all those phone calls.

 

[wannabefire]

It's a step up note that is being issued tomorrow.

08/25/2024 4.250 4.396
08/25/2025 5.250 4.668
08/25/2026 6.500 5.092

Nothing wrong with the coupons (4.25% for 2 years, 5.25% 1 year, and 6.5% the final year). The only risk is that they call it before the maturity date. But even the 4.25% coupon is higher than any bond fund yield of the same duration. If rates keep going up, you have effectively hedged yourself. It's a pretty safe investment.

Freedom56 - where do you recommend someone, new to bond investing, go to research and learn about buying bonds? Also, where do you go to learn about new issues or secondary mkt bonds to purchase?

Thanks for sharing your knowledge on this site!

 

[lawman]

It's a step up note that is being issued tomorrow.

08/25/2024 4.250 4.396
08/25/2025 5.250 4.668
08/25/2026 6.500 5.092

Nothing wrong with the coupons (4.25% for 2 years, 5.25% 1 year, and 6.5% the final year). The only risk is that they call it before the maturity date. But even the 4.25% coupon is higher than any bond fund yield of the same duration. If rates keep going up, you have effectively hedged yourself. It's a pretty safe investment.

I'm discouraged.. By the time my matured T -Bill funds hit my account today the Barclay's note was gone...

 

[Freedom56]

I'm discouraged.. By the time my matured T -Bill funds hit my account today the Barclay's note was gone...

New issues are sold on a first come first server basis. Buy the Wells Fargo step-up notes.

Coupon End Date Coupon Yield to Maturity
08/28/2024 4.100 4.100
08/28/2025 4.700 4.316
08/29/2026 6.500 4.837

CUSIP 95001DC99

You have until 8/25/22 to put in your order.

 

[aja8888]

I'm discouraged.. By the time my matured T -Bill funds hit my account today the Barclay's note was gone...

There will be more stuff to buy.

 

[Freedom56]

Freedom56 - where do you recommend someone, new to bond investing, go to research and learn about buying bonds? Also, where do you go to learn about new issues or secondary mkt bonds to purchase?

Thanks for sharing your knowledge on this site!

I would start here:

https://www.fidelity.com/learning-c...-income-bonds/bonds-bondfunds-bondetfs-replay

As far as research, just stick to Fortune 500 companies. I limit my choices to:

Large money center banks/financial companies
Technology/e-commerce
Telecom
Pharma
Biotech


I avoid everything else (i.e airlines, retail, malls, energy, mining, industrials, consumer discretionary, etc...).