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Old 10-21-2020, 11:36 AM   #61
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Originally Posted by aja8888 View Post
Those bonds maure 25 years from now. A lot can happen between now and then.
25 yrs... a lot of folks here won't be around in 25 yrs from now too...
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Old 10-21-2020, 11:46 AM   #62
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You go ahead and do that. How much does it cost to buy that 4.65% coupon bond and what is the effective yield?
My new FIRE safety strategy: Buy 4.65% Apple bonds at par and hold to maturity!

Nobody has accepted my bid yet, though.

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Old 10-21-2020, 12:11 PM   #63
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My new FIRE safety strategy: Buy 4.65% Apple bonds at par and hold to maturity!

Nobody has accepted my bid yet, though.

need to adjust your strategy a bit.... 4.65% is what those bonds pay per yr that you hold... so if you buy today and like you say, hold to maturity you would get per bond $46.50/yr for the duration of 26 more yrs... so $46.50 x 26= $1209 per bond and you will also get the par value at maturity of $1000... so $1000 + $1209 = $2209 total per bond... and lets say you invest $139K today... your investment over the 26 yr span is now $220,900.00
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Old 10-21-2020, 12:22 PM   #64
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Originally Posted by SecondCor521 View Post
My new FIRE safety strategy: Buy 4.65% Apple bonds at par and hold to maturity!

Nobody has accepted my bid yet, though.

Some folks don't like to play the game of over par so there are always options to this road block... tho not at the same coupon, you don't have to worry about that over par value and them not accepting your bids.... its not a used car lot..

here ya go... just a smiggin under par... and its yld is 2.569%

APPLE INC NOTE CALL MAKE WHOLE
2.55000% 08/20/2060
Buy Sell
Hypothetical Trade | Fixed Income Alerts
OverviewPrice & Performance
Basic Analytics
Price (Bid) 98.607
Price (Ask) 99.233
Depth of Book View
Ask Yield to Worst 2.581%
Ask Yield to Maturity 2.581%
Current Yield 2.569%
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Old 10-21-2020, 02:56 PM   #65
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Quote:
Originally Posted by dixter View Post
Some folks don't like to play the game of over par so there are always options to this road block... tho not at the same coupon, you don't have to worry about that over par value and them not accepting your bids.... its not a used car lot..

here ya go... just a smiggin under par... and its yld is 2.569%

APPLE INC NOTE CALL MAKE WHOLE
2.55000% 08/20/2060
Buy Sell
Hypothetical Trade | Fixed Income Alerts
OverviewPrice & Performance
Basic Analytics
Price (Bid) 98.607
Price (Ask) 99.233
Depth of Book View
Ask Yield to Worst 2.581%
Ask Yield to Maturity 2.581%
Current Yield 2.569%
This goes along with the Apple bond article I linked to above:
Quote:
The company’s bonds were sold with coupons of 0.55% for the five-year maturity, 1.25% for the 10-year maturity, 2.4% for the 30-year maturity and 2.55% for 40-year maturity. Its credit is rated AA+, the second-best rating available.
But 40 years? That is too long for most people here. I think most people here would be better off with an intermediate bond duration. That would be a duration of around 5-6 years. For instance, the SEC yield for VFIDX (VG intermedate investment grade, 6.7 yr effective maturity) is currently 1.58%.
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Old 10-21-2020, 03:54 PM   #66
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But 40 years? That is too long for most people here. I think most people here would be better off with an intermediate bond duration. That would be a duration of around 5-6 years. For instance, the SEC yield for VFIDX (VG intermedate investment grade, 6.7 yr effective maturity) is currently 1.58%.
Here is an experiment for you.... go and buy 1 single bond... this one...it has a maturity date that goes out to 40 yrs.... so you go and buy it tomorrow...
it costs you $1000 and change for that single bond.... on 11/22/20 which is exactly 1 month... go and sell it back... you will get the interest for 1 month and you will get your $1000 back... thats whats so nice about corporate bonds... you buy them now, you get to keep them for as long or as short of a time frame as you want, as long as you don't expect to keep them past the maturity date... this is NOT like a CD...

So, lets say you decide to buy bonds that have 5% coupon and you want to get that coupon for the next 30 yrs.... so you buy a bond that lasts out to 35 or more years... when the 30yrs date comes up, you look around and say.. do I want to sell the bonds now, or keep them for a few more years... you can buy a bond today and sell it on Friday...
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Old 10-21-2020, 04:47 PM   #67
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need to adjust your strategy a bit.... 4.65% is what those bonds pay per yr that you hold... so if you buy today and like you say, hold to maturity you would get per bond $46.50/yr for the duration of 26 more yrs... so $46.50 x 26= $1209 per bond and you will also get the par value at maturity of $1000... so $1000 + $1209 = $2209 total per bond... and lets say you invest $139K today... your investment over the 26 yr span is now $220,900.00
So if you invest $139,000 today, receive $4,650/year of interest for 26 years and then receive $100,000 at maturity, while you receive $220,900 of cash flow, your annual return is 2.57% [=RATE(26,4650,-139000,100000)]... not 4.65%.
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Old 10-21-2020, 05:14 PM   #68
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So if you invest $139,000 today, receive $4,650/year of interest for 26 years and then receive $100,000 at maturity, while you receive $220,900 of cash flow, your annual return is 2.57% [=RATE(26,4650,-139000,100000)]... not 4.65%.
I am so glad that you finally caught on... GOOD JOB
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Old 10-21-2020, 06:04 PM   #69
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Since I used to teach this stuff, it's not ME catching on that I'm worried about....
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Old 10-21-2020, 06:11 PM   #70
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I am so glad that you finally caught on... GOOD JOB
@dixter, pb4uski and lots of others here understand bonds, probably far better than you do. He's just too nice to spell it out directly.

And I guess you couldn't tell, but I was joking earlier. I would not expect to be able to buy 4.xx% long corporate bonds at par in the current interest rate environment - that was the (apparently way understated) point of my post.

I actually don't buy individual bonds at all; my bond component is all in VBTLX.

Good luck.

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Old 10-21-2020, 10:46 PM   #71
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I don't understand why anyone would even bother to mention (let along fixate upon) the coupon rate. Who cares? I only care about the yield. What information does the coupon rate convey to you that you would find valuable in making a decision? Why obfuscate a problem by mentioning the coupon?
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Old 10-22-2020, 05:18 AM   #72
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Originally Posted by SecondCor521 View Post
@dixter, pb4uski and lots of others here understand bonds, probably far better than you do. He's just too nice to spell it out directly.

And I guess you couldn't tell, but I was joking earlier. I would not expect to be able to buy 4.xx% long corporate bonds at par in the current interest rate environment - that was the (apparently way understated) point of my post.

I actually don't buy individual bonds at all; my bond component is all in VBTLX.

Good luck.

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It was clear to me you were joking. Nuff said.....
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Old 10-22-2020, 06:31 AM   #73
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I don't understand why anyone would even bother to mention (let along fixate upon) the coupon rate. Who cares? I only care about the yield. What information does the coupon rate convey to you that you would find valuable in making a decision? Why obfuscate a problem by mentioning the coupon?
I'll just take this post as a joke too...

any comments PB4... you teach this kind of stuff... explain how the coupon affects yld...
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Old 10-22-2020, 08:40 AM   #74
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I don't understand why anyone would even bother to mention (let along fixate upon) the coupon rate. Who cares? I only care about the yield. What information does the coupon rate convey to you that you would find valuable in making a decision? Why obfuscate a problem by mentioning the coupon?
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I'll just take this post as a joke too...

any comments PB4... you teach this kind of stuff... explain how the coupon affects yld...
I believe my question was how the coupon affects your decision. And I will take your response to mean that you do not have an answer for me.
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Old 10-22-2020, 09:31 AM   #75
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I'll just take this post as a joke too...
Sitting in my recliner with my coffee and my morning reading, two thoughts came to mind.

First, the admonition often attributed to Abraham Lincoln: "Better to remain silent and be thought a fool than to speak and to remove all doubt."

Second, my favorite internet cartoon: https://en.wikipedia.org/wiki/On_the...ternet_dog.jpg

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any comments PB4... you teach this kind of stuff... explain how the coupon affects yld...
@pb4 is probably feeling overworked by now, but this is easy stuff even for someone who is not a bond guy.

The coupon affects yield because it is a factor in the yield calculation. Once that calculation is made, the coupon rate is of little interest other than it does affect the shape of the yield cash flow. For the same yield, a higher coupon may be of interest to someone who is using the income to cover current expenses and a lower coupon may be of interest to someone who does not want to bother very much with reinvesting the yield dollars.

To be complete, "yield" might be Yield-to-Maturity, Yield-to_Call, or Yield-To_Worst.
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Old 10-22-2020, 10:03 AM   #76
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I believe my question was how the coupon affects your decision. And I will take your response to mean that you do not have an answer for me.
Ok.. lets make the answer easy to understand...

you buy a bond at par.. ($1000) you keep the bond till it matures and the issuer gives you back your $1000... so if there isn't any coupon payment during the duration of you holding the bond then the yld is ZERO YLD... you just got robbed by the issuer by using your money that you loaned him for FREE...

now, the next guy comes along and buys a bond from the same issuer... but this time the next guy has made a decision to loan the issuer the same $1000 and the issuer is going to pay a coupon every 6 months at the rate of 10%/yr...
so the guy holds the bond till it matures... he gets his $1000 back and he also got 10% per year coupon pay... thats a 10% YLD....

Now you see the value of the coupon rate.... that is a simple example...

but in practice what happens is the coupon rate is high in todays standard of investment grade bonds... so now the secondary market (bond traders) has determined that to get a 10% coupon you will need to pay a premium above the par value...
so its not un common to see a 10% coupon bond selling at 50% above par value... so that the bond now costs $1500 to hold, it still pays the 10% coupon during the duration but at the maturity date the issuer still only gives you par value ($1000) back, so the YLD is no longer 10% because you have to factor in the " Cost " of the high coupon rate... the Cost is the above par valuation given by the bond brokers..

Now you know...
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Old 10-22-2020, 11:03 AM   #77
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but in practice what happens is the coupon rate is high in todays standard of investment grade bonds... so now the secondary market (bond traders) has determined that to get a 10% coupon you will need to pay a premium above the par value...
so its not un common to see a 10% coupon bond selling at 50% above par value... so that the bond now costs $1500 to hold, it still pays the 10% coupon during the duration but at the maturity date the issuer still only gives you par value ($1000) back, so the YLD is no longer 10% because you have to factor in the " Cost " of the high coupon rate... the Cost is the above par valuation given by the bond brokers..

Now you know...
I want to give you an honest, for-real thank you for typing up that explanation. There was nothing in it I was unaware of, but you didn't know that, sitting on the other side of the keyboard. So it was a decent gesture on your part to explain it to me as you did.

Let me not be argumentative: my original point/question was that on any bond I can purchase right now, I claim only the yield matters. (And, @O.S., I had typed in "YTM, YTW, etc." in my original question, but decided to delete it for the sake of simplicity.)

As you (@dixter) point out, the original coupon rate is part of the current yield calculation, but I don't see the relevance for my purchasing decision. Bonds with different coupons can have the same yield, as you said above. So I remain unclear on why your posts nearly always speak foremost about the coupon, as if it had importance for deciding whether to purchase a given bond or not.


Note: when I say "only yield matters," I mean ceteris paribus, i.e., same duration, call status, rating, convexity, taxability, etc.
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Old 10-22-2020, 11:38 AM   #78
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One of the reasons I come onto early-retirement.org is to learn from others... If I get a question where I think it could help others I offer an answer... and if that answer is wrong I expect that I will get called out, and rightly so... and if I get called out and there is a possibility I could learn more at the same time.... there seems to be the " Investment Gods " that like to dictate to the less than informed... maybe those Gods are still in the business of selling investment products? I don't know... I got called out a couple weeks ago by claiming that yld to maturity doesn't matter... and the reason I still say that is because in todays low yld environment an investor looking for any descent ylds on bonds is going to end up paying above par.... and if you want/need to reduce the " cost " (above par valuations) of a higher yld bond then you most likely won't be holding the bond till maturity.... for example... if you buy a bond with 10% coupon and its valued at $1500 then it would be best to monitor the bond over time and attempt to recover the over par premium by simply reselling the bond before the maturity date... you may not get back the $500 cost in full but you could get close or if luck is on your side, even get back more than the $500... but you will never get the $500 cost back by sitting on the bond until maturity... so yld to maturity in that case is meaningless.. cause you don't know what yld you are going to end up with when you sell the bond back... you might get 9% or if really lucky you could get 12%..... just depends on how much you get via the coupons and the final value at the time you sell the bond back...
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Old 10-22-2020, 11:47 AM   #79
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Sitting in my recliner with my coffee and my morning reading, two thoughts came to mind.

First, the admonition often attributed to Abraham Lincoln: "Better to remain silent and be thought a fool than to speak and to remove all doubt."

Second, my favorite internet cartoon: https://en.wikipedia.org/wiki/On_the...ternet_dog.jpg
Glad you spoke up... don't remember anyone calling you a fool or a dog...
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Old 10-22-2020, 12:03 PM   #80
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I'll just take this post as a joke too...

any comments PB4... you teach this kind of stuff... explain how the coupon affects yld...
I agree with Out-To-Lunch... coupon rate is close to irrelevant.... all that I care about is effective yield, yield-to-call, yield-to-worst, etc.

You seem to have convinced yourself that coupon rate is relevant... I and many others have tried to explain to you why coupon rate is not so relevant but you don't seem to be getting it... so I give up... uncle.
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