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02-02-2023, 12:30 PM
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#2661
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Give me a museum and I'll fill it. (Picasso) Give me a forum ...
Join Date: Aug 2016
Location: Northern Virginia
Posts: 7,591
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Quote:
Originally Posted by Echard
What about this scenario? Right now the market is forecasting long-term low inflation (~2-2.25% I think). If it becomes clear that long-term inflation is going to look more like 2.5-3% wouldn't long-term rates shoot up? So, it isn't that inflation need to shoot back up to 7-9%, but that long-term rates won't come down to the expected 2-2.25% range. I personally believe that is what's going to happen. I down think inflation will run as low in the next ten years as the market is currently forecasting.
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Shoot up? No
Ease up? Yes
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02-02-2023, 01:19 PM
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#2663
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Thinks s/he gets paid by the post
Join Date: Jun 2016
Posts: 1,961
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Quote:
Originally Posted by Montecfo
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"Message seems clear"
To quote Buffalo Springfield:
Quote:
There's something happening here
But what it is ain't exactly clear
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02-02-2023, 01:21 PM
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#2664
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Recycles dryer sheets
Join Date: Nov 2022
Location: Austin
Posts: 244
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Quote:
Originally Posted by Montecfo
Shoot up? No
Ease up? Yes
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Yes, shoot up is the wrong word, but as you noted in your second post, long term rates have continued to drop, but if a 3% inflation rate becomes a reality, then long-term (10 year) would theoretically rise .5-1% from where they are today, wouldn't they?
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02-02-2023, 01:45 PM
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#2665
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Recycles dryer sheets
Join Date: May 2017
Posts: 256
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Vanguard currently has some new issues from Morgan Stanley that have 3-year call protection. One is a five-year at only 4.35%. CUSIP 61766YNJ6. My bank is offering 3-year CDs for 4.35%. The other is a 10-year at 4.8%. CUSIP 61766YNL1.
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02-02-2023, 02:39 PM
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#2666
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Give me a museum and I'll fill it. (Picasso) Give me a forum ...
Join Date: May 2009
Posts: 9,343
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Quote:
Originally Posted by Echard
Yes, shoot up is the wrong word, but as you noted in your second post, long term rates have continued to drop, but if a 3% inflation rate becomes a reality, then long-term (10 year) would theoretically rise .5-1% from where they are today, wouldn't they?
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I have certainly has some shoot up quickly. I just bought a 2031 ComEd ute trust debt at 5.9% this week, and just a few days later they are trying to pawn them off at 5.5% today.
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02-02-2023, 03:36 PM
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#2667
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Give me a museum and I'll fill it. (Picasso) Give me a forum ...
Join Date: Aug 2016
Location: Northern Virginia
Posts: 7,591
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Quote:
Originally Posted by Echard
Yes, shoot up is the wrong word, but as you noted in your second post, long term rates have continued to drop, but if a 3% inflation rate becomes a reality, then long-term (10 year) would theoretically rise .5-1% from where they are today, wouldn't they?
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would depend more on longterm rate expectations. Could be some upward pressure.
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02-02-2023, 03:38 PM
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#2668
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Give me a museum and I'll fill it. (Picasso) Give me a forum ...
Join Date: Aug 2016
Location: Northern Virginia
Posts: 7,591
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Quote:
Originally Posted by Mulligan
I have certainly has some shoot up quickly. I just bought a 2031 ComEd ute trust debt at 5.9% this week, and just a few days later they are trying to pawn them off at 5.5% today.
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yes. Rate direction is down so bonds can in fact shoot up... or ease higher as rates ease lower.
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02-02-2023, 03:46 PM
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#2669
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Give me a museum and I'll fill it. (Picasso) Give me a forum ...
Join Date: Nov 2010
Location: Sarasota, FL & Vermont
Posts: 36,370
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Quote:
Originally Posted by Montecfo
.. The better news is lower rates are good for equities, which is why they rallied so strongly today. Most of us should see lower rates as good news since it is good for stocks.
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The bigger problem with the stock market today is valuation. Even after the big decline in equities in 2022 the S&P 500 P/E ratio is 22 today vs a historical average of 15-16 so stocks are still very overpriced and will get worse if earnings weaken with a slow economy. I'm a bear.
__________________
If something cannot endure laughter.... it cannot endure.
Patience is the art of concealing your impatience.
Slow and steady wins the race.
Retired Jan 2012 at age 56
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02-02-2023, 06:43 PM
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#2670
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Give me a museum and I'll fill it. (Picasso) Give me a forum ...
Join Date: Jun 2016
Location: Colorado
Posts: 8,971
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Quote:
Originally Posted by Echard
Yes, shoot up is the wrong word, but as you noted in your second post, long term rates have continued to drop, but if a 3% inflation rate becomes a reality, then long-term (10 year) would theoretically rise .5-1% from where they are today, wouldn't they?
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The curve will normalize by having short term rates drop first. The market will determine what happens with long term rates. I see them dropping when the market takes off and people sell bonds to place equity bets.
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02-02-2023, 06:51 PM
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#2671
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Give me a museum and I'll fill it. (Picasso) Give me a forum ...
Join Date: Jan 2006
Location: Rio Grande Valley
Posts: 38,145
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Quote:
Originally Posted by COcheesehead
The curve will normalize by having short term rates drop first. The market will determine what happens with long term rates. I see them dropping when the market takes off and people sell bonds to place equity bets.
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In that scenario rates wouldn’t drop when people sell bonds to place equity bets - that would make long term rates rise.
__________________
Retired since summer 1999.
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02-02-2023, 07:02 PM
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#2672
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Give me a museum and I'll fill it. (Picasso) Give me a forum ...
Join Date: Jun 2016
Location: Colorado
Posts: 8,971
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Quote:
Originally Posted by audreyh1
In that scenario rates wouldn’t drop when people sell bonds to place equity bets - that would make long term rates rise.
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Sorry, rising is the correct term. Short term will drop, long term will rise to normalize the curve. Drove from LA to Vegas today - the hot rod highway. It has my brain scrambled.
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02-02-2023, 09:59 PM
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#2673
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Give me a museum and I'll fill it. (Picasso) Give me a forum ...
Join Date: Aug 2016
Location: Northern Virginia
Posts: 7,591
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Quote:
Originally Posted by pb4uski
The bigger problem with the stock market today is valuation. Even after the big decline in equities in 2022 the S&P 500 P/E ratio is 22 today vs a historical average of 15-16 so stocks are still very overpriced and will get worse if earnings weaken with a slow economy. I'm a bear.
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I agree and I expect a recession. But lower rates still support a higher valuation, which is the main reason stocks have rallied since Oct/Nov when rates peaked.
But to your point I have been raising money and may do a good bit more.
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02-03-2023, 07:24 AM
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#2675
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Full time employment: Posting here.
Join Date: Feb 2019
Location: NC
Posts: 568
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Quote:
Originally Posted by Freedom56
New issue offered at TDA. It is a 8 year note with 3 years of call protection.
The CUSIP number for the Notes is 78014RKQ2.
The Notes will accrue interest at the rate of 5.25% per annum.
Issuer: Royal Bank of Canada (“Royal Bank”)
Issue: Senior Global Medium-Term Notes, Series I
Underwriter: RBC Capital Markets, LLC
Currency: U.S. Dollars
Minimum Investment: $1,000 and minimum denominations of $1,000 in excess of $1,000
Pricing Date: February 10, 2023
Issue Date: February 14, 2023
Maturity Date: February 14, 2031
Type of Note: Fixed Rate Note
Interest Rate: 5.25% per annum
Interest Payment
Dates:
Semi-annually, on February 14th and August 14th of each year, commencing on August 14, 2023, and ending on the maturity date. If an Interest Payment Date is not a New York business day, interest will be paid on the next New York business day, without adjustment for period end dates and no interest will be paid in respect of the delay.
Redemption: Redeemable at our option. If we redeem the Notes, we will pay you the principal amount, together with the applicable interest payment.
Call Dates: The Notes are callable, in whole, but not in part, beginning on February 14, 2026, and on each Interest Payment Date thereafter upon 10 business days’ prior written notice.
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Does this RBA 5.25% still look good?
I like the 3-year call protection but not sure about the 8-year duration.
This offer with an "A1/A-rating" from a good Canadian bank makes me think RBA believes that rates will remain elevated for a good while.
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02-03-2023, 07:26 AM
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#2676
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Recycles dryer sheets
Join Date: Nov 2022
Location: Austin
Posts: 244
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So here's my dilemma and would appreciate hearing some thoughts. I moved into retirement a bit by accident. I thought I would take on another operational role before retiring, but have slowly been turning down work that didn't fit my desired lifestyle.
As a result, I haven't had a retirement portfolio setup with nearly enough bonds. All of the funds earmarked for bonds are in either short term treasuries less than a year, or money market funds. To build the ladder will require a very significant movement from these holdings into a bond ladder, almost 32% of my portfolio.
So, I'm trying to figure out the best way, from a timing perspective, on how to do that. If I dump it all into a ladder at once now, we could find inflation taking off and rates rising, leaving a big chunk of the ladder at below market yields. Conversely, if rates drop as expected by many, not dumping it all in now would be a huge missed opportunity to generate more income.
So, my current thinking is to take the next 12 months to build the ladder. Reasonable? Or am I missing something.
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02-03-2023, 07:31 AM
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#2677
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Recycles dryer sheets
Join Date: Nov 2022
Posts: 71
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New muni issue at Fidelity. Seems a pretty good way to earn tax free 4.3-4.5% for seven months. The expected trade price is 99.75. Fidelity expects the yield to be 4.6%.
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02-03-2023, 07:46 AM
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#2678
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Thinks s/he gets paid by the post
Join Date: Jan 2013
Location: SoCal, Lausanne
Posts: 4,408
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Quote:
Originally Posted by Born2Fish
Does this RBA 5.25% still look good?
I like the 3-year call protection but not sure about the 8-year duration.
This offer with an "A1/A-rating" from a good Canadian bank makes me think RBA believes that rates will remain elevated for a good while.
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They also offered a 10 year note with 5 year call protection at 5.2% and many others will follow suit. When a large ultra-conservative bank like RBC is extending call period it's only a matter of time before these banks revert back to offering non-callable or make whole call notes to retail investors like they did back in 2009/2010. In 2009/2010 you could buy non-callable AA+ 10 year notes at 6% and BBB- rated 10 year notes at 8.75%. We appear to be reverting back to those times again. I'm not going to lock longer durations until I start seeing 6% leading digits on high grade bonds. Individual investors should not buy longer than 10 year durations unless they are trading bonds. With corporate bonds the longer the duration the greater the risk and price volatility. Inverted yield curves make no sense with corporate bonds. To buy low coupon long duration corporates is completely insane in this era.
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02-03-2023, 07:49 AM
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#2679
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Moderator
Join Date: Oct 2010
Posts: 10,723
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Quote:
Originally Posted by Echard
...
So, my current thinking is to take the next 12 months to build the ladder. Reasonable? Or am I missing something.
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If it were me, I'd find a temporal distribution I was comfortable with, and build the whole thing now, in one swell foop. IOW, depending on how scared you are about inflation, make more of it shorter so you wouldn't be stuck with too much long stuff that isn't keeping up with inflation.
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02-03-2023, 07:55 AM
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#2680
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Give me a museum and I'll fill it. (Picasso) Give me a forum ...
Join Date: Jun 2016
Location: Colorado
Posts: 8,971
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Quote:
Originally Posted by Echard
So here's my dilemma and would appreciate hearing some thoughts. I moved into retirement a bit by accident. I thought I would take on another operational role before retiring, but have slowly been turning down work that didn't fit my desired lifestyle.
As a result, I haven't had a retirement portfolio setup with nearly enough bonds. All of the funds earmarked for bonds are in either short term treasuries less than a year, or money market funds. To build the ladder will require a very significant movement from these holdings into a bond ladder, almost 32% of my portfolio.
So, I'm trying to figure out the best way, from a timing perspective, on how to do that. If I dump it all into a ladder at once now, we could find inflation taking off and rates rising, leaving a big chunk of the ladder at below market yields. Conversely, if rates drop as expected by many, not dumping it all in now would be a huge missed opportunity to generate more income.
So, my current thinking is to take the next 12 months to build the ladder. Reasonable? Or am I missing something.
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The very nature of a ladder will provide the protection you seek. Maturing bonds can be invested at the possibly higher yields or your long bonds will appreciate if rates drop. Do it now.
I built mine when rates were much lower. You can always collect some coupons, get into the black and flip out of low yielders. I more than doubled the yield of my ladders in just the last year.
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