Fixed Income Investing II

[mrfeh]

I think I see the confusion; mrfeh's graph shows the gain if you bought Jan 1. I'm not sure that's a useful number. If you bought at the low of the year, that graph would show something like 7% return. It indicates to me that bond funds are not like bonds as much as they are like dividend stocks.

We were discussing annual returns. What other dates would one use besides 1/1 and 12/31?

Bond funds should be bought for their dividends. That's the whole point of a bond fund, not NAV gyrations.

 

[Echard]

I have a question for those of you that use the Fidelity Full View feature, that allows you to see all of your assets, even if they are held outside Fidelity. It's a good tool (from emoney advisor, who Fidelity bought). However, when I plug in my BBB bonds, it shows them as high yield rather than investment grade. Anyone else have this issue? Thoughts?

 

[mathjak107]

not saying they should be judged that way but BBB. is considered the most riskiest level of bond investing .

as moody says it’s the last rung of investment grade and one slip in a downturn and every insurer , fund , pension fund , etc that is required to hold investment grade only has to dump them and right now in the non govt sector it has the most money of any segment because it’s the sweet spot for rates .

moody’s says it’s 10x the size it was in that segment then 2008 and that can be the elephant in the room in a downturn.

the mass dumping that will be required scares the analysts.

so not sure if fidelity is being proactive or just classified wrong .

in fact in reality high yield is less risky since it won’t be the sector having to be dumped with a slip in rating

 

[Spock]

I have a question for those of you that use the Fidelity Full View feature, that allows you to see all of your assets, even if they are held outside Fidelity. It's a good tool (from emoney advisor, who Fidelity bought). However, when I plug in my BBB bonds, it shows them as high yield rather than investment grade. Anyone else have this issue? Thoughts?

Fidelity's own bond analysis tool (not in FullView) can't figure out the credit rating on CD's and groups them in "other".
One thing to check is the different ratings agencies score on the same bonds. FullView might be using Moody's which doesn't have a BBB score (and seems to actually rate bonds higher) rather than SP (or Fitch).

 

[Texas Proud]

not saying they should be judged that way but BBB. is considered the most riskiest level of bond investing .

as moody says it’s the last rung of investment grade and one slip in a downturn and every insurer , fund , pension fund , etc that is required to hold investment grade only has to dump them and right now in the non govt sector it has the most money of any segment because it’s the sweet spot for rates .

moody’s says it’s 10x the size it was in that segment then 2008 and that can be the elephant in the room in a downturn.

the mass dumping that will be required scares the analysts.

so not sure if fidelity is being proactive or just classified wrong .

in fact in reality high yield is less risky since it won’t be the sector having to be dumped with a slip in rating

There are a LOT of grades below BBB... now if you said riskiest for investment grade you would be right...


I have a number of bonds/pref that is below BBB...

 

[mathjak107]

There are a LOT of grades below BBB... now if you said riskiest for investment grade you would be right...


I have a number of bonds/pref that is below BBB...

BBB is the last rung of investment grade .

one slip down in rating and it is no longer investment grade .

so moody’s is very worried about that sector and liquidity if it takes a hit .

junk is already not investment grade so that won’t be an issue like all these institutions that can only hold investment grade stuff and now have to dump it with fewer takers

 

[Montecfo]

With credit spreads so tight, the highest quality seems most investible.

 

[copyright1997reloaded]

With credit spreads so tight, the highest quality seems most investible.

This.
I just don't get chasing yields to things that might be severely impacted in a real downturn. I am not saying that I wouldn't invest in lower quality bonds (I have), but only when we are *already* in the midst of that down turn so that the yield spread risk premium is much wider than today.

If I want risk, I have equities because I also have potential reward. Here's a link to a FRED data chart showing BBB spreads:
https://fred.stlouisfed.org/series/BAMLC0A4CBBB

To those loading up on BBB's to grab that extra yield, max out the chart to see where things are relative to 2000 or 2008/9 or even 2002. THAT's what will happen if/when we have a real, not propped up by fiscal madness situaton.

 

[mathjak107]

keep in mind today BBB has ten times more in that sector then 2008.

so a mass dumping is what moody’s calls the equal to the debacle in the credit default swap markets back in 2008

 

[Texas Proud]

BBB is the last rung of investment grade .

one slip down in rating and it is no longer investment grade .

so moody’s is very worried about that sector and liquidity if it takes a hit .

junk is already not investment grade so that won’t be an issue like all these institutions that can only hold investment grade stuff and now have to dump it with fewer takers

Yes... and I know that and I know YOU know that... but that is not what you said..


Originally Posted by mathjak107
not saying they should be judged that way but BBB. is considered the most riskiest level of bond investing .





BBB is not the riskiest level... it is the riskiest investment grade level...

 

[pb4uski]

+2, not close to riskiest level

 

[Echard]

I guess what confuses me is I look at a lot of these BBB bonds and they are from companies like Oracle, Allstate, etc. Are people saying they aren't comfortable with corporate bonds and want to stick to just mostly government?

In general, I'm struggling on my bond strategy. I didn't like the bond mutual funds, like BND, so I sold out of those a few years ago. That ended up being a good, lucky decision because I missed the downturn in those funds.

However, I replaced that over time with the ladder of corporates, treasuries, and CD's. I"m about 50% corporate and 50% treasury and CD's. The corporates are about 50% BBB because I used iShares Ibonds to build the ladder. Now, I'm concerned based upon this thread that I have too much risk in corporate BBB's. Thoughts? I'm on the verge of just blowing up my ladder and just dumping in BND I'm so tired of thinking about ladder management. Also, I had a loss in another investment area so I'm extra sensitive right now.

 

[Texas Proud]

Here is a default rate table...