Fixed Income Investing II

[MichaelB]

New to the forum...
Anybody here play much in preferred's and/or ETD (baby bonds)?

The search function is your friend https://www.early-retirement.org/fo...-bad-and-the-in-between-2021-a-107188-24.html

 

[Affinity4Investing]

The new 7% Ares Capital (ARCC) corp bond is now trading at Schwab for $100.58.



CUSIP : 04010LBE2
Maturity : January 15, 2027
Dual investment grade: Baa3/BBB-

 

[Montecfo]

Simple answer yes, more complicated answer is when. Many funds still hold lower coupon bonds so you are likely to be paid sub market interest to wait out the NAV return.



Fidelity is reporting distribution interest on broad funds like BND or AGG as sub 3%. That is less than a money market.

Don't disagree with any of that. Just to point out the lower coupon increases duration since investment returns more slowly. So if not living on divs the fund could be better in a rising rate market. Though with caveats.

 

[Montecfo]

Affinity,

Those quick call bonds do not work well for my ladder. They are above market when issued. Call likely.

More of a rate speculation in my view.

Welcome to the forum!

 

[Affinity4Investing]

Affinity,

Those quick call bonds do not work well for my ladder. They are above market when issued. Call likely.

More of a rate speculation in my view.

Welcome to the forum!

Gotcha... But many of these FFCB issues can be bought below or at par. I've recently snagged the 6.25%, 6.375%, and 6.33%'ers all at or below par. All are callable within a year and at the time, were better substitutes for Tbills/CDs due to their superior yields and in some cases - more favorable tax treatment. Short term parking only, but if they run past 1st calls - that's OK also at this point since they still crush anything in yield vs Tbills.



Highest CD I saw this morning (brokerage-wise) was 5.6% from JPM, so no interest in that. I did move into the ARCC notes at 6.96% current yield.

 

[COcheesehead]

Don't disagree with any of that. Just to point out the lower coupon increases duration since investment returns more slowly. So if not living on divs the fund could be better in a rising rate market. Though with caveats.

Yes, that is the benefit of below market coupon bonds. I am living on the interest, so for me, current income is still important.

 

[Montecfo]

Gotcha... But many of these FFCB issues can be bought below or at par. I've recently snagged the 6.25%, 6.375%, and 6.33%'ers all at or below par. All are callable within a year and at the time, were better substitutes for Tbills/CDs due to their superior yields and in some cases - more favorable tax treatment. Short term parking only, but if they run past 1st calls - that's OK also at this point since they still crush anything in yield vs Tbills.



Highest CD I saw this morning (brokerage-wise) was 5.6% from JPM, so no interest in that. I did move into the ARCC notes at 6.96% current yield.

Understood. And if bought at meaningful discounts that gives you some protection.

But if not careful you could get a lot of money back at the worst time. If it is short-term money then that's less a problem.

 

[ShokWaveRider]

Agency bonds are not insured I take it?

 

[Montecfo]

They carry an implicit government guarantee. Not an explicit one as CDs and treasuries do.

 

[pb4uski]

Yes, that is the benefit of below market coupon bonds. I am living on the interest, so for me, current income is still important.

I keep about a year's spending and $25k safety stock in an online savings account currently yielding 4.3% and replenish it occasionally from maturities as needed so I can focus on YTM vs coupon. I figure that it costs me about 2bps (3% WR/2 average cash balance)*(5.3%-4.3%) but it makes things easier to manage not having to consider cash flow.

 

[COcheesehead]

I keep about a year's spending and $25k safety stock in an online savings account currently yielding 4.3% and replenish it occasionally from maturities as needed so I can focus on YTM vs coupon. I figure that it costs me about 2bps (3% WR/2 average cash balance)*(5.3%-4.3%) but it makes things easier to manage not having to consider cash flow.

I guess I sorta do the same. I have about 4 months of expenses in a MM yielding just over 5%, but the ladder in my taxable account throws off more than we need. So the cash really never gets tapped. I do buy below market coupons in deferred accounts for total gain. Sometimes I flip these if the market gives me a relatively quick gain.

 

[Echard]

I've continued to build my spreadsheet for tracking my bond ladder, but the difficulty I'm having is how to take into account the bond funds I hold in addition to my ladder.

In other words, since I'm holding some intermediate term corporate bond funds, like VCIT, I don't want to put as much into my individual security ladder in that year range.

So far, what I've been doing is the following. If the fund has an average years to maturity of 7 years, then in the 7th year of the bond ladder I buy fewer individual securities. It's not perfect, but it's roughly good enough.

Does anyone have this problem and is there a better way to look at the issue?

 

[aja8888]

The new 7% Ares Capital (ARCC) corp bond is now trading at Schwab for $100.58.



CUSIP : 04010LBE2
Maturity : January 15, 2027
Dual investment grade: Baa3/BBB-

Any opinions on this bond? It's got a make whole call provision.

I need to get serious about getting my portfolio of fixed income laddered out to 2027 at around 5% as I will be pretty old by then. Right now, a lot of my CDs and bonds mature in 2025.

 

[imbatman]

Nice coupon if you are comfortable hanging on the last bar before a "junk" grade. I still think some better rates and terms are coming (maybe not as good as earlier this year) and happy to earn my 5% MM while I wait.

 

[COcheesehead]

Any opinions on this bond? It's got a make whole call provision.

I need to get serious about getting my portfolio of fixed income laddered out to 2027 at around 5% as I will be pretty old by then. Right now, a lot of my CDs and bonds mature in 2025.

From the latest Moody’s report.

Credit challenges
- ARCC has one of the most junior-oriented portfolios in the sector, potentially leaving it vulnerable to greater investment volatility in the event of an economic downturn
- Assets consist mainly of illiquid debt investments in highly leveraged mid-sized firms, which increases the risk of earnings volatility and reduces access to liquidity in times of stress
- Liquidity and capital constraints inherent to the BDC business model

 

[aja8888]

From the latest Moody’s report.

Credit challenges
- ARCC has one of the most junior-oriented portfolios in the sector, potentially leaving it vulnerable to greater investment volatility in the event of an economic downturn
- Assets consist mainly of illiquid debt investments in highly leveraged mid-sized firms, which increases the risk of earnings volatility and reduces access to liquidity in times of stress
- Liquidity and capital constraints inherent to the BDC business model

Thanks! Looks like I'll stay away. I need to get going on a long term 5% ladder of high quality securities/Cds/T bills.

 

[COcheesehead]

Thanks! Looks like I'll stay away. I need to get going on a long term 5% ladder of high quality securities/Cds/T bills.

I sometimes find some gems in taxable munis too. You have better luck early or late in the trading day.
As of today, nothing really excites me in bond land, but I have little cash to devote to them right now anyway. I am pretty close to fully invested.

 

[aja8888]

I sometimes find some gems in taxable munis too. You have better luck early or late in the trading day.
As of today, nothing really excites me in bond land, but I have little cash to devote to them right now anyway. I am pretty close to fully invested.

I have a lot of CDs and T Bills maturing within the next three months and need to start putting that cash to work for the next 4 + years. I'll have a look at the taxable munis for my IRA which is turning into cash soon. I figure in 5 years I'll be near 85 (if I make it) and by then the IRA will be chiseled down via RMDs.

At that age, I will be looking at leaving what's left to DD and I want most of that in the Roth and/or the brokerage accounts.

 

[mf15]

Any thoughts on when brokered CD's might start to increase vs MM. I don't see
much going on at FIDO yet.
Oldmike

 

[Montecfo]

Maybe when all this new treasury supply starts rolling in. Rates could rise a bit.

 

[USGrant1962]

I sometimes find some gems in taxable munis too. You have better luck early or late in the trading day.
As of today, nothing really excites me in bond land, but I have little cash to devote to them right now anyway. I am pretty close to fully invested.

I'm thinking of dipping my toes into individual bonds - first for non-taxable munis in my taxable account. I've spent a little time in the screener (Vanguard in my case) and am getting a feel for it. I'm starting to understand the basics of pricing, callability, coupon vs YTW/YTM, etc.

My question is what defines a good deal or a gem when looking at bonds? How do I know a good deal when I see one?

 

[COcheesehead]

I'm thinking of dipping my toes into individual bonds - first for non-taxable munis in my taxable account. I've spent a little time in the screener (Vanguard in my case) and am getting a feel for it. I'm starting to understand the basics of pricing, callability, coupon vs YTW/YTM, etc.

My question is what defines a good deal or a gem when looking at bonds? How do I know a good deal when I see one?

For me, it fits my ladder, is non callable or has a longer call window, good quality rating and a high yield. It’s all relative, so I run screens everyday. You know when one stands out because you’ll understand the market from watching it.


For tax free munis in my experience the truly good times to buy are few and usually when it’s hardest to buy - meaning like early in Covid munis went on sale because every municipality was going to go broke, remember those days. I bought a bunch then. For some weird reason I was also able to snag some good ones in June of ‘22 and they have paid good coupons and appreciated in value.

 

[imbatman]

I think you have it generally figured out. I start with a minimum level of credit rating and coupon and call date..a little contemplation on how long I want to be without that principal should the call not take place.......read the risk factors in the credit rating report.....and for those that pass that, I definitely look at the Recent Trades (which due to low volume, sometimes go back multiple years) to see what others have thought it was worth. Still recent trade pricing is all relative as I consider buying to be more a point-in-time decision and evaluating against other investment options available today and risk/ reward payout. I have often had high percentages in stock but when you can get 6+% virtually risk free today....I ain't buying many stocks now.

 

[Montecfo]

I generally stick with high quality. No need to take big risks as I am mainly an equity investor.

So I look for high quality total return, either noncallable or callable secondary market at discount.

 

[Affinity4Investing]

I agree with Montecfo. High quality has to be at the forefront. I've not dabbled much with muni's but have been keeping an eye on them periodically. The yields are where you hear my brakes screeching. Most of the items I find attractive are only attractive until I see that they are taxable. That's a deal breaker for the accounts I'm shopping with. The EMMA site is an interesting animal to play with:


https://emma.msrb.org/IssuerHomePage/Map