Freedom56
Thinks s/he gets paid by the post
I'm glad you and others got some. There are more in the pipeline this week and then a reset down.
We are entering a "Golden Period" for fixed income investing
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I'm glad you and others got some. There are more in the pipeline this week and then a reset down.
Freedom56
Thinks s/he gets paid by the post
Freedom56
Thinks s/he gets paid by the post
Another flood of 5%+ CDs with call protection for 1,2,3,4,5 years are available at Fidelity.
Fotodog
Recycles dryer sheets
I’ve been keeping some dry powder, waiting to see what happens with interest rates. Thanks to input here, I picked up a couple of Discover Bank CD’s this morning. 1 year at 5.35%, 2 years at 5.25%. Still have some left and watching the longer durations.
Freedom56
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Chuckanut
Give me a museum and I'll fill it. (Picasso) Give me a forum ...
We are entering a "Golden Period" for fixed income investing
I still wonder why these guys and gals did not see the risks of long term bonds at the lowest rates in many decades. After all a lot of we amateurs here were very wary of them. Was it just greed? Or An arrogant outlook on the markets that made them think higher interest rates couldn’t happen to anointed people like themselves? I don’t know.
If the inflation rate stays at or below the February rate, a few of my CDs will earn a real rate that is positive before taxes. It’s been a while since that was true. Queue up Happy Days Are Here Again for at least this week.
Freedom56 said:
I still wonder why these guys and gals did not see the risks of long term bonds at the lowest rates in many decades. After all a lot of we amateurs here were very wary of them. Was it just greed? Or An arrogant outlook on the markets that made them think higher interest rates couldn’t happen to anointed people like themselves? I don’t know.
If the inflation rate stays at or below the February rate, a few of my CDs will earn a real rate that is positive before taxes. It’s been a while since that was true. Queue up Happy Days Are Here Again for at least this week.
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Freedom56
Thinks s/he gets paid by the post
Well, you can create an instant 5% plus CD ladder this week that is 100% risk free at two to three times the yield of a bond fund and with zero market risk. You can earn income over the so called 4% withdrawal limit and never touch your capital. So for many, there is something to smile about.
If you want to buy X amount of dollars worth (under FDIC limit) do you typically split it between two of these CDs or just go with one? For example fewer securities if you buy $150k from Discover vs. 75k at Discover and 75k at Synchrony.
However if in the future there are new offerings from Discover you only have $100k of dry powder there vs. $175k.
I'm just trying to decide at what level to split my orders between multiple CDs vs. when I should just put it all in a single one.
Freedom56
Thinks s/he gets paid by the post
The limit is $250K per depositor ($500K for joint accounts) per CD. You can split between Discover and Synchrony if you want.
Another $6M batch of 5 year 5% CDs dropped from Discover and they are being swallowed fast.
Montecfo
Give me a museum and I'll fill it. (Picasso) Give me a forum ...
Please let's stay out of the bond/bond fund discussion trap.
LastBoomer
Dryer sheet aficionado
My question probably belongs more in the now closed "bonds vs bond funds" thread. I have read through all of the posts there, and some here, but in comparing bonds to bond funds I have not seen any discussion of interest-on-interest with respect to total return of a bond vs bond fund. Also, it appears that, from the bogleheads wiki here, https://www.bogleheads.org/wiki/Individual_bonds_vs_a_bond_fund, a bond fund can always be exchanged for a zero-coupon bond in a rising rate environment, achieving the return of principal that an individual bond guarantees (absent a default).
Shouldn't the interest-on-interest, which automatically occurs via reinvested bond fund interest, be an advantage for bond funds over individual bonds (since fractional amounts of a bond fund NAV can be invested in the fund)? And shouldn't the zero coupon bond option address the concern about losing principal in a bond fund of constant duration?
Shouldn't the interest-on-interest, which automatically occurs via reinvested bond fund interest, be an advantage for bond funds over individual bonds (since fractional amounts of a bond fund NAV can be invested in the fund)? And shouldn't the zero coupon bond option address the concern about losing principal in a bond fund of constant duration?
COcheesehead
Give me a museum and I'll fill it. (Picasso) Give me a forum ...
Couple comments
Regarding interest on interest, it depends on your goals. I live on the interest earned from bonds. So they would never be reinvested anyway.
In regard to bailing to a zero to recover lost NAV in a fund, you wouldn’t need to if you were in an individual bond in the first place because it will return to par - returning your capital.
pb4uski
Give me a museum and I'll fill it. (Picasso) Give me a forum ...
No, for one thing, any interest paid from the bond ladder gets paid to my settlement account and then is swept into an ultra-safe money market fund that currently pays 4.48%... more than the typical bond fund. That money then gets redeployed the next time that I buy bonds.
I don't totally understand your second question, but if rates decline and the fair value of my bonds declines then it is a nothing-burger because I intend to hold all my bonds to maturity anyway and they will evenutually converge to par over the remaining maturity period. This applies whether the bond is zero coupon or has a coupon.
Freedom56
Thinks s/he gets paid by the post
Ask your Boglehead buddies to name one fund that does that exchange. Passive funds just follow an index. Since we are now one year into rate hikes, ask your Boglehead buddies why fund distributions are still so low? How many passive funds actually distribute anything close to 5%?
LastBoomer
Dryer sheet aficionado
Hello Freedom56,
I am not expecting the fund to do this exchange, just thinking if one was really concerned about loss of principal, due to NAV decline, one could manually sell the fund (at the loss), then re-invest in a zero-coupon bond that matures at the original NAV price paid for the fund. As I stated in my OP, I was curious that I had not seen this argument discussed, nor the interest-on-interest.
I am not expecting the fund to do this exchange, just thinking if one was really concerned about loss of principal, due to NAV decline, one could manually sell the fund (at the loss), then re-invest in a zero-coupon bond that matures at the original NAV price paid for the fund. As I stated in my OP, I was curious that I had not seen this argument discussed, nor the interest-on-interest.
LastBoomer
Dryer sheet aficionado
It's maybe a psychological crutch for those invested in bond funds vs individual bonds.
pb4uski
Give me a museum and I'll fill it. (Picasso) Give me a forum ...
WADR, that's just nonsense. You could make the same claim for a stock... you could sell and reinvest in a zero-coupon bond that matures at your basis.... it might be a 30 or 50 year zero, but it could still be done.
pb4uski
Give me a museum and I'll fill it. (Picasso) Give me a forum ...
I think that you may be onto something.
Freedom56
Thinks s/he gets paid by the post
Some of us don't have 15-30 years to wait for a return to the original principal. A lot of people invest in treasuries, CDs, and corporate notes for income. One would think that after the SVB debacle, it would shine a light on the dangers of loading up on low coupon bonds, but that is what a lot of medium duration funds have done at much lower coupons than SVB. So when investors want their money, they sell at a loss. The big difference is that the fund holder assumes the loss while fund mangers continue to earn fees.
Freedom56
Thinks s/he gets paid by the post
Back to the topic of bonds, CDs, and treasuries in the "Golden Period". The 5 year 5% non-callable are gone at Fidelity. There some 4 years 5.05% non-callable CDs still remaining as well as 5%+ for 1,2 and 3 years. There are no new corporate notes and the secondary markets for high grade notes are not offering any deals. So CDs are still best option right now.
pb4uski
Give me a museum and I'll fill it. (Picasso) Give me a forum ...
Yeah, while I don't have a lot of dry powder curently available, from what I looked at on Schwab this morning CD were heads and tails above UST, agency bonds and A-rated corporates.
| . | 3 Mo | 6 Mo | 9 Mo | 1 Yr | 18 Mo | 2 Yr | 3 Yr | 4 Yr | 5 Yr | 10 Yr | 20 Yr | 30 Yr+ |
| CDs | 5.14 | 5.21 | 5.28 | 5.35 | 5.40 | 5.25 | 5.40 | 5.10 | 5.00 | -- | -- | -- |
| U.S. Treasuries | 4.88 | 4.89 | 4.74 | 4.73 | 4.61 | 4.39 | 4.17 | 4.01 | 3.89 | 3.66 | 3.93 | 3.74 |
| U.S. Treasury Zeros | -- | -- | -- | 4.30 | 4.26 | 4.20 | 4.02 | 3.91 | 3.82 | 3.78 | 4.02 | -- |
| Government Agencies | -- | 4.68 | 4.74 | 4.81 | 5.21 | 5.24 | 5.59 | 5.20 | 6.00 | 4.96 | 5.14 | 4.65 |
| Corporates (AAA) | -- | -- | 4.34 | 4.48 | 4.44 | 4.40 | 4.28 | 4.30 | 4.23 | 4.58 | 4.49 | 4.93 |
| Corporates (AA) | 4.11 | -- | 4.34 | 5.44 | 4.69 | 4.56 | 4.74 | 4.57 | 4.57 | 4.60 | 4.79 | 5.09 |
| Corporates (A) | 4.76 | 5.01 | 5.08 | 5.44 | 5.14 | 4.92 | 5.23 | 4.96 | 5.96 | 5.50 | 5.61 | 5.83 |
Yep. Right now my Fidelity page shows a 5 yr CD ladder at 5.05%. Was as high as 5.12% this morning.
baseman250
Recycles dryer sheets
There’s a 5 year FHLB Agency bond on Fidelity at 6% but looks to be callable every three months.
Montecfo
Give me a museum and I'll fill it. (Picasso) Give me a forum ...
rates seem to be falling.
Freedom56
Thinks s/he gets paid by the post
You can now lock a 10 year note at Key Bank at 6.3%+. On Fidelity there is an ask yield at 6% but no bids. The FINRA trace data shows different picture. These regional banks are going to be under pressure as depositors continue to flee to the big banks and their debt is likely to be downgraded.
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