Ridiculous CD rates - where now

[bjorn2bwild]

I am taking the other side of that trade.
A good portion of my brokered CD's purchased years ago at a discount have appreciated to the point where holding to maturity no longer makes sense. The best ones had a negative yield to maturity from the discounted price - the worst, ~.1%/yr.
I now have 2 1/2 - 3 1/2 years to find a better place for the money.

 

[Dtail]

Dixter's response is about what I expected but I don't think there's any point trying to convince him/her otherwise. (Hint: you pay the full premium up front and you do not get a portion back every every year with your coupons.)
For anyone that is unfamiliar with the bond price/yield calculation, please check any of the dozens of reputable bond yield calculators on the web and you will see the yield to maturity in Dixter's example is 5.54%, not 7.334.


Glad you are intrigued by these MYGA offerings.....Maybe we need a dedicated thread as we all learn together. As far as the "magic" that enables an insurance company to beat a CD, I don't know but I did note the blueprint income website has details on commissions paid to the seller which is in the 1-2% range. I like Blueprint Income the best but Stan the Annuity Man and immediateannuities.com are also good and they mostly have the same products from what I've seen.

+1 on Blueprint income site.

 

[jazz4cash]

Agreed.

I've emailed my Schwab guy; probably Schwab has a position paper on these. I've also emailed an FA that runs some nonprofit money where I'm on the investment committee. I'll report back if I get anything of interest.

Sounds good. FWIW Schwab and Fido offer MYGA products from highly rated nationally known providers, but the rates are barely competitive with CDs. I don't see anything from VG, though

 

[pb4uski]

Here's another one... this is a direct copy/paste from the Fidelity web site... no fancy simple math... 7.175%, call protected.... and I'm out...
The OP asked " I have CDs spaced out over the next few years, but with the rates so low where else can you put safe money and get a descent return ?
Thinking about some short term bond funds ? "
And I gave some solutions... not sure he got anything else from some folks here.. but what ever... you guys enjoy your returns...

From the Fidelity web site 5 minutes ago...

Basic Analytics
Price (Bid) 130.250
Price (Ask) 133.000
Depth of Book View
Ask Yield to Worst 7.175%
Ask Yield to Maturity 7.175%
Current Yield 7.503%
Yield to Sink --
Third Party Price 129.220
Spread to Treasuries 5.788
Treasury Benchmark 27 YR.(3.000% 02/15/2047)
Recent Trade View Recent Trades
Price 130.063
Quantity 20
Date/Time 09/18/2020 16:11:27
Buy/Sell CS

I guess you missed post #69 of this thread while you were clipping coupons.

What's the CUSIP of the security you provided details on? What's the credit rating? What's the coupon?

With a 7.175% yield I'm guessing it's way below investment grade... so not very comparable to a CD.

OTOH, AGO.PRB is rated Baa2 by Moody's and A by S&P and sports a 6.51% yield (and a 6.875% coupon)... again more credit risk than a CD but IMO a pretty good yield for an A rated baby bond.

 

[Dtail]

Sounds good. FWIW Schwab and Fido offer MYGA products from highly rated nationally known providers, but the rates are barely competitive with CDs. I don't see anything from VG, though

I believe Fidelity likes to stick to the A++ MYGA products, which are Mass Mutual and NY Life.

 

[OldShooter]

Sounds good. FWIW Schwab and Fido offer MYGA products from highly rated nationally known providers, but the rates are barely competitive with CDs. I don't see anything from VG, though

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.

 

[jazz4cash]

I guess you missed post #69 of this thread while you were clipping coupons.

What's the CUSIP of the security you provided details on? What's the credit rating? What's the coupon?

With a 7.175% yield I'm guessing it's way below investment grade... so not very comparable to a CD.

OTOH, AGO.PRB is rated Baa2 by Moody's and A by S&P and sports a 6.51% yield (and a 6.875% coupon)... again more credit risk than a CD but IMO a pretty good yield for an A rated baby bond.

This looks like it .......you are correct....below investment grade.....
345370BW9
FORD MTR CO DEL BOND 9.98000% 02/15/2047 9.980 SEMI-ANNUALLY 02/15/2047 -- BA2 BB+ -- -- 7.364
7.175
-- 7.175

 

[stephenson]

Don’t flame, please ...

Bought more ATT today at 27.85 ... 7.25% dividend.

 

[Golden sunsets]

I actually think its important to call out Dixter's faulty dead wrong reasoning. If we don't other less informed investors might interpret his examples as legitimate worthy investment options, rather than realizing them for what they are: incorrect computations that imply that a bond coupon is actually the yield.

Another significant limitation in his suggestions is the absolute lack of acknowledgement that his examples of high coupons accompany junk bonds.

 

[jazz4cash]

I actually think its important to call out Dixter's faulty dead wrong reasoning. If we don't other less informed investors might interpret his examples as legitimate worthy investment options, rather than realizing them for what they are: incorrect computations that imply that a bond coupon is actually the yield.

Another significant limitation in his suggestions is the absolute lack of acknowledgement that his examples of high coupons accompany junk bonds.

Thanks, GS....that was my intent, not to "flame" anyone. (I actually had to look that up to verify my understanding of the term and I don't think my post qualifies as flaming).

 

[Sunset]

Don’t flame, please ...

Bought more ATT today at 27.85 ... 7.25% dividend.

ha ha ha ha .... I was thinking of it too, even though I am not impressed with the company, lots of bone head moves, I think they will still be around for a long time.

 

[VFK57]

Don’t flame, please ...

Bought more ATT today at 27.85 ... 7.25% dividend.

I also bought ATT yesterday.

 

[aja8888]

I also bought ATT yesterday.

I'm going to pick up some more when it hits $25. I have been a shareholder for a very long time and will continue to have T in my dividend portfolio.

 

[jazz4cash]

This thread was about alternatives to ridiculous CD rates and we’ve strayed into junk bonds and now high dividend stocks. That just shows how bad it is for savers right now. I have family that are nervous about CDs and would never consider a stock or a bond. At least I’m sticking with investment grade bonds so far and will look at MYGAs when the time comes.

 

[Sunset]

Ally bank just sent me an email:

Online Savings Account is changing from 0.80% APY to 0.60% APY on all balance tiers. Your new APY is effective 9/25/2020 and will show online in your account details on 9/26/2020.

 

[dixter]

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 Book View
Current Yield 7.921%
Yield to Sink --
Third Party Price 119.370
Spread to Treasuries 0.270
Treasury Benchmark 2 YR.(7.625% 11/15/2022)
Recent Trade View Recent Trades
Price 119.370
Quantity 20
Date/Time 09/24/2020 14:18:46
Buy/Sell CB

 

[dixter]

Thought you guys/gals would like some interesting reading... translation of the article.. the FED and World Banks have stabilized the Bond Market and now Junk Bonds are the only game in town left... thats why the FED and World Banks can back away from purchasing the bonds and let the rest of us have at it.... I still say I have never ever seen Ford default on a bond EVER... you can call it Junk Bond if you want as long as it pays me 9.98%

Hows that Ally Bank doing for your savings account.. .6% vs 9.98% hmmm...

https://finance.yahoo.com/news/u-junk-bonds-set-329-204710508.html

 

[pb4uski]

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 Book View
Current Yield 7.921%
Yield to Sink --
Third Party Price 119.370
Spread to Treasuries 0.270
Treasury Benchmark 2 YR.(7.625% 11/15/2022)
Recent Trade View Recent Trades
Price 119.370
Quantity 20
Date/Time 09/24/2020 14:18:46
Buy/Sell CB

And investment grade to boot... albeit just barely investment grade.

Rating Agency	Long-Term Issuer Rating	Outlook
Moody's	Baa2	Stable
S&P	BBB	Stable
Fitch	A-	Stable

But I don't get the bolded part. What is that? Or are they saying that the yield is +7.625% compared to the 2 year treasury of 0.267% I guess. Seems like a nice premium even for a just barely investment grade credit.

 

[dixter]

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... I'd bet there are a whole lot more stocks that crater than there will ever be with bonds... I also think that bonds aren't that super popular because you basically have to have more money to play bonds vs stocks... my bonds all ways out perform my stocks on the average...
you want to see a real junk bond... here is an example... 36.764% yld...

PLEASE DO NOT BUY THIS

OASIS PETROLEUM INC NOTE CALL MAKE WHOLE
6.87500% 01/15/2023
Basic Analytics
Price (Bid) N/A
Price (Ask) 18.700
Depth of Book --
Ask Yield to Worst 109.530%
Ask Yield to Maturity 109.530%
Current Yield 36.764%
Yield to Sink --
Third Party Price 18.000
Spread to Treasuries 9.395
Treasury Benchmark 3 YR.(1.500% 01/15/2023)
Recent Trade View Recent Trades
Price 14.487
Quantity 50
Date/Time 09/24/2020 14:20:54
Buy/Sell CB

 

[samm]

There is no such thing as safe money with a decent return. There is safe money with a "decend" return i.e. you will slowly loose to inflation.

You might put some cash into a fund like Vanguard Short Term Investment Grade (VFSUX). Some modest risk but has a short duration (2 years) so money put in for that time should probably keep up with inflation. I own some of this. No guarantees.

https://investor.vanguard.com/mutual-funds/profile/overview/vfsux

Here are 2 other Vanguard muni mutual funds to consider.

 

[Sojourner]

I'm going to pick up some more when it hits $25. I have been a shareholder for a very long time and will continue to have T in my dividend portfolio.

Unless I'm misreading the chart, T hasn't touched $25 since late 2018. But I wouldn't mind owning a few hundred shares at a slight discount, so I just sold some Oct 16 $27 puts.

 

[dixter]

I was just curious how this works out.. Bond vs Stock... AT&T

Stock price = $28.04 with dividend of $.52/qtr=$2.08/yr x 45 shares= $93.6 with total cost of 45 shares x $28.04 = $1261.80

Bond price = $1190 and coupon of 9.455%, 1 bond face value= ($1000 x .09455)=$94.50

So...
Bond Costs - $1190 and returns $94.50/yr - yld=7.941%
Stock Costs - $1261.80 and returns $93.6/yr - yld=7.417%

Interesting....

 

[pb4uski]

....I'd bet there are a whole lot more stocks that crater than there will ever be with bonds... I also think that bonds aren't that super popular because you basically have to have more money to play bonds vs stocks... my bonds all ways out perform my stocks on the average...

Wrong... less stocks crater than bonds since bonds are senior to stocks. You don't really need more money to buy bonds rather than stocks... wrong again If your bonds "all ways out perform" ([sic]... twice in a row... bravo!) your stocks then you are the exception and not the rule.

I actually think its important to call out Dixter's faulty dead wrong reasoning. If we don't other less informed investors might interpret his examples as legitimate worthy investment options, rather than realizing them for what they are: incorrect computations that imply that a bond coupon is actually the yield.

Another significant limitation in his suggestions is the absolute lack of acknowledgement that his examples of high coupons accompany junk bonds.

I totally agree... dixters post's are dangerously misleading to the uninformed.

 

[dixter]

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

 

[pb4uski]

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.