Ridiculous CD rates - where now

[GravitySucks]

wrong again... if you actually look at the Depth of Book for AT&T it shows a price of $1193.37/bond with a min of 10 bonds = $11,933.70 to buy in...

you can go to buy a single stock at $28 ...

I'm pretty sure who is wrong here... put some bats into that calculator...

no, every company that issues stocks do not issue bonds... but if a companies stock goes bankrupt does not indicate the bonds went bankrupt too... yes, they are senior

Companies go bankrupt. Not Stocks or Bonds. I can't think of a bankruptcy where bond holders weren't compensated except in the cases of outright fraud. Enron, WorldCom, etc. Bondholders took a beating, but even Enron and WorldCom bondholders got 36 cents on the dollar back.

 

[foxfirev5]

WADR, if you only have $12k to invest you probably shouldn't be buying individual bonds or stocks.... while your statement may be correct in the extreme of someone with $100 to invest, it is not correct for the audience here.

Don't bother. This guy is either an idiot or a master troll. He or she has hijacked a thread where I'm much more concerned about Ally bank dropping their savings rate to .6%

 

[foxfirev5]

Companies go bankrupt. Not Stocks or Bonds. I can't think of a bankruptcy where bond holders weren't compensated except in the cases of outright fraud. Enron, WorldCom, etc. Bondholders took a beating, but even Enron and WorldCom bondholders got 36 cents on the dollar back.

In todays rate environment I can not find any reason to take risk of default to any degree.

 

[dixter]

Don't bother. This guy is either an idiot or a master troll. He or she has hijacked a thread where I'm much more concerned about Ally bank dropping their savings rate to .6%

Don't fret over what Ally is doing to your savings rate... its not their fault you keep money there...

 

[dixter]

In todays rate environment I can not find any reason to take risk of default to any degree.

Quick... in less than 5 minutes name and write down 10 bonds that have gone into default... the clock starts.... NOW

 

[dixter]

Companies go bankrupt. Not Stocks or Bonds. I can't think of a bankruptcy where bond holders weren't compensated except in the cases of outright fraud. Enron, WorldCom, etc. Bondholders took a beating, but even Enron and WorldCom bondholders got 36 cents on the dollar back.

we are saying pretty much the same thing here...
probably the best deal I ever ever made with a stock was when American Airlines went bankrupt... that was such a great deal... not as good as AA but when Ford went to $1... that was another killer deal I did...

 

[pb4uski]

Quick... in less than 5 minutes name and write down 10 bonds that have gone into default... the clock starts.... NOW

Even with the Federal Reserve aiming a $750 billion fire hose at U.S. corporate debt markets to offset carnage from the pandemic, defaults at speculative-grade companies already are starting to climb as business buckle under their debts.

Frontier Communications Corp. US:FTR, LSC Communications Inc. US:LKSD and hospital operatorQuorum Health Corp. in April defaulted on a combined $14.3 billion of speculative-grade (or junk-rated) bonds, a sharp uptick from the $4 billion seen earlier in the year, according to B. of A. Global analysts. ...

https://www.barrons.com/articles/more-companies-have-defaulted-in-2019-than-all-of-2018-51570443300

 

[dixter]

that challenge was for foxfirev5 not Dr Gloom and Doom...

how much did you loose on those deals....

 

[Montecfo]

Wrong... less stocks crater than bonds since bonds are senior to stocks.

OCD: Fewer

... dixters post's are dangerously misleading to the uninformed.

Agree

 

[OldShooter]

you should realize " investment grade " is what the financial institutions use as a catch word so Old folks think they are buying some super graded instrument... kinda like a free range chicken... if you owned Fidelity would you just toss out every single bond/stock in the world or would you let your specific groups set up the instruments that Fidelity wants to sell to their customers... so they set up the meat counter so you get to see what they want to sell you.... and they just might sell some instruments to their best friends.... I wish someone would come up with a list of defaults month by month and just to see how much " marketing " is really going on by them pushing their own choices of bonds and their ratings...

Gee, a half trillion dollars in daily bond trading and it is all a plot to swindle us old folks. Who knew?

... my bonds all ways out perform my stocks on the average...

With luck like that I suggest that you not try sky diving.

 

[dixter]

well I scanned thru this list... didn't see Ford one single time... and its still paying 9.98%

but, its not tripple A rated... ya know..

 

[RunningBum]

I was going to mention Hornbeck. Planet Money recently did an episode on them. They wanted to buy and follow a junk bond, and picked them.
https://www.npr.org/2020/09/09/911162693/we-buy-a-junk-bond

 

[dixter]

There ya go pb4... listen to the npr cast and come back and tell us if you learned anything from it...

 

[pb4uski]

I didn't want to waste 24 minutes of my life on this so I skipped to the end but it sounds like their $600 investment in junk bonds ended up being worth $5.

 

[RunningBum]

They got about $5 back on their $595 investment in the bankruptcy proceedings. I don't remember if they got any of their coupon payments before then.

 

[OldShooter]

I am looking to both guys for opinions. The Schwab guy has never tried to sell me anything and he is very thorough when answering questions and pulling Schwab research for me. The other FA works through LPL, but I have no sense of that company as a product supplier (if they even are), just as a custodian.

Quoting myself, I'm reporting back on what I learned.

Schwab guy was not much help. Gave me some basic information and pointed me at their web page.

The FA was great. He took a couple of days to answer because he was researching the question. Remember this was in the context of a nonprofit investor. Here are some snips:

[FONT=&quot]Since we have not purchased a MYGA for any of our nonprofit entities to date, we have consulted with the Insurance & Annuity team at LPL to determine what issues are involved. They tell us that it is not uncommon for 501c3 nonprofit entities to own a MYGA, and that LPL has a number of issuers available on its platform. Currently, the best available rate for a 5-year MYGA is 2.4% from an A-minus rated issuer. Here are a list of other issues to consider:[/FONT]

• ·[FONT=&quot]Lack of marketability – Unlike bonds, there is no secondary market for these contracts, in the event we wish to sell them at some point. This also makes them more difficult to value for reporting purposes.[/FONT]
• ·[FONT=&quot]Surrender charges – In order to exit the position before maturity, we need to surrender the contract back to the issuer, which involves surrender charges and Contingent Deferred Sales Charges.[/FONT]
• ·[FONT=&quot]These contracts cannot be held in an advisory account. A separate brokerage account would need to be established to hold the contract, ...
  [/FONT]
• ·[FONT=&quot]Credit risk of the issuer – There is no FDIC coverage but in the past states have stepped up and honored contracts of defaulting issuers up to a certain amount. [/FONT]
• ·[FONT=&quot]Lastly, while a nonprofit organization can own an annuity and be a beneficiary, it cannot be listed as the annuitant. The annuitant on any policy must be a natural person, whose lifetime would be used as a reference point for determining the contract’s annuitization period (even though at the end of the contract term you would likely just let it expire as opposed to receiving an annuitized income stream). You would need to select a specific personfrom the Investment Committee or Board for this purpose.[/FONT]

[FONT=&quot]In summation, the rate is certainly attractive in relation to a highly rated corporate bond or CD. If the lack of liquidity and logistical issues are not a concern, a MYGA may be a viable alternative for a portion of the fixed income portfolio. We would be happy to discuss this with you and others on the Investment Committee if this is something you would like to consider further.
[/FONT]​

No real news there, I guess, except that nonprofits with fiduciary duties are buying MYGAs. I don't know if the investment committee will pursue this, but if we do I am going to try to get some kind of equivalence between AM Best ratings of a company, and Moody/S&P ratings of the company's bonds. It seems to me that they ought to track at least roughly.

 

[jazz4cash]

Thanks for the folliwup OS. The lack of news is Good News to me. I am very likely on the path to dabbling in the MYGA market at some point next year.

 

[foxfirev5]

Quick... in less than 5 minutes name and write down 10 bonds that have gone into default... the clock starts.... NOW

Troll. Thread now on ignore

 

[jazz4cash]

I was going to mention Hornbeck. Planet Money recently did an episode on them. They wanted to buy and follow a junk bond, and picked them.
https://www.npr.org/2020/09/09/911162693/we-buy-a-junk-bond

I heard that broadcast live. Funny. One of the things they reported that stood out to me is that Fidelity makes it somewhat difficult to find junk rated bonds. That was my experience when I searched for the Ford issue that was cited here.

 

[OldShooter]

Thanks for the folliwup OS. The lack of news is Good News to me. I am very likely on the path to dabbling in the MYGA market at some point next year.

Yeah. Me, too. I am still scratching my head over the high rates. Current wild theory is that MYGAs are a gateway drug and many buyers will annuitize, where the insurance companies make the real money.

 

[pb4uski]

....but if we do I am going to try to get some kind of equivalence between AM Best ratings of a company, and Moody/S&P ratings of the company's bonds. It seems to me that they ought to track at least roughly.

Moody's, S&P and Fitch all offer financial strength ratings for the major annuity writers that are an assessment of the issuer's ability to pay claims that would be appropriate for the MYGA's issued. These are usually a notch or two better than their bond ratings since claims-based products rank ahead of debt in the event of insolvency.

From S&P:

An Insurer Financial Strength Rating is our forward-looking opinion about an insurance organization's ability to pay its policies and contracts.

Insurer Financial Strength Ratings may be useful for buyers of insurance, risk managers, and employee benefit administrators. Insurance brokers and agents may also use these ratings to meet due diligence and disclosure requirements. ...

 

[pb4uski]

Yeah. Me, too. I am still scratching my head over the high rates. Current wild theory is that MYGAs are a gateway drug and many buyers will annuitize, where the insurance companies make the real money.

IME, very few MYGA owners annuitize.... most get withdrawn or rolled over at the end of the term....at least where I worked but I left in 1998 so my experience isn't current... and I was the annuity CFO for a while so I would have known.

A couple of the newer entrants are owned by PE, who think they are the smartest guys in the room and are banking on higher returns from unconventional investments.

 

[Golden sunsets]

And I bought AT&T Bonds that are paying 9.455% coupon yld/7.9%
copy/paste from Fidelity just now...

AT&T BROADBAND CORP NOTE
9.45500% 11/15/2022
Basic Analytics
Price (Bid)119.114
Price (Ask)119.359
Depth of BookView
Current Yield7.921%
Yield to Sink--
Third Party Price119.370
Spread to Treasuries0.270
Treasury Benchmark2 YR.(7.625% 11/15/2022)
Recent TradeView Recent Trades
Price119.370
Quantity20
Date/Time09/24/2020 14:18:46
Buy/SellCB

Don't bother. This guy is either an idiot or a master troll. He or she has hijacked a thread where I'm much more concerned about Ally bank dropping their savings rate to .6%

I vote Troll. Time to send he/she traveling methinks, lest he unduly influence those who genuinely seek solid investment advice.

 

[dixter]

Come on guys/gals.... if your not learning anything from this then I'm waisting my time here

wake up ... at least a little bit...

 

[jazz4cash]

IME, very few MYGA owners annuitize.... most get withdrawn or rolled over at the end of the term....at least where I worked but I left in 1998 so my experience isn't current... and I was the annuity CFO for a while so I would have known.

A couple of the newer entrants are owned by PE, who think they are the smartest guys in the room nad are banking on higher returns from unconventional investments.

The background info I’ve come across states that MYGA rates are “always” higher than CDs, but I couldn’t find out why. That may be true and the bias against annuities in some circles and lack of enthusiasm by the sales channel compared to products with fatter commissions. I expect more folks will discover MYGAs in this environment and maybe they just lag CD rates on the way down. By the time I’m ready I’ll be wishing I could get today’s rates. A 5yr @ 3.45 from an outfit I’ve never heard of. Why not?