We are entering a "Golden Period" for fixed income investing

[Spock]

Quote:

Originally Posted by Montecfo Fitch puts US on credit watch with negative implications. But they also admit the AAA credit rating will not be affected even if the US does default. That will be a blow to folks who speculate that the credit ceiling tug-o-war will lead to a credit downgrade and higher rates. Fitch Puts U.S. Debt on ‘Credit Watch Negative.’ The Debt Ceiling Debate Turns Real.: https://www.barrons.com/articles/fit...watch-5e1800bb

I read the Fitch statements quite differently:

Quote:

We believe that failing to make full and timely payments on debt securities is less likely than reaching the x-date and is a very low probability event. Such a failure would be a debt default under Fitch's sovereign rating criteria and would lead us to downgrade the sovereign IDR to Restricted Default (RD). Affected debt securities would be downgraded to 'D'. Additionally, other LT debt securities with payments due within the following 30 days would likely be downgraded to 'CCC', and ST treasury bills maturing within the following 30 days would likely be downgraded to 'C'.

Potential Post Default ratings:

Quote:

Other debt securities with payments due beyond 30 days would likely be downgraded to the expected post-default rating of the IDR. A key consideration in determining the U.S. post-default rating would be Fitch's Sovereign Rating Model (SRM) - the details of which are in the public domain. The SRM output for the U.S. stands at 'AA+'. The model applies a two-notch reduction for a sovereign that has recently defaulted, suggesting that Fitch's model-implied post-default rating would be 'AA-'. The final rating could be adjusted lower or higher via the Qualitative Overlay as per our criteria. Fitch would expect any debt default to be relatively short-lived. However, a more protracted default scenario could have more severe implications for the country's post-default ratings.

The remaining AAA rating is for "country ceiling"... I have no idea what this means or which bonds are considered "country ceiling".

Quote:

Country Ceiling to Remain at 'AAA': Fitch would expect the U.S country ceiling to remain at 'AAA' even in the scenario of a debt default. The U.S. dollar is the preeminent world's reserve currency, and we view the risk of exchange and capital controls as de minimis.

[dobig]

Bought some FMLB callable 05/24 at $99.77 with 5.89% coupon this morning. Cusip 3130AVVT6

[COcheesehead]

T bills in the secondary are in the 6.5%+ range right now.

[Montecfo]

Quote:

Originally Posted by Spock I read the Fitch statements quite differently: Potential Post Default ratings: The remaining AAA rating is for "country ceiling"... I have no idea what this means or which bonds are considered "country ceiling".

None of that was in the article, perhaps for good reason. They are saying the individual issues in default would be downgraded. No surprise there I don't think.

The result of any post default re-rating of the US creditworthiness appears ambiguous under Fitch's processes which appear to be relatively opaque.

But the credit ceiling according to Fitch is the country's "highest achievable rating". Given this would remain at AAA, this suggests US creditworthiness would not be permanently damaged.

[Free bird]

Quote:

Originally Posted by Montecfo None of that was in the article, perhaps for good reason. They are saying the individual issues in default would be downgraded. No surprise there I don't think. The result of any post default re-rating of the US creditworthiness appears ambiguous under Fitch's processes which appear to be relatively opaque. But the credit ceiling according to Fitch is the country's "highest achievable rating". Given this would remain at AAA, this suggests US creditworthiness would not be permanently damaged.

Isn’t all this to be determined? Isn’t all of it speculative? Can a banking system like we have remain intact if the citizenry decide to take a pass on paying the public debt? Are corporations insulated from from a public debt policy? Do you think full scale political instability is inevitable due to the way Americans think? The joke is America always does the right think after it’s tried everything else

[soylentgreen]

Quote:

Originally Posted by COcheesehead T bills in the secondary are in the 6.5%+ range right now.

Indeed, for a month or less of returns.

[soylentgreen]

Quote:

Originally Posted by dobig Bought some FMLB callable 05/24 at $99.77 with 5.89% coupon this morning. Cusip 3130AVVT6

Same here. Goes out to 2038

[dobig]

Found a GSE with a 2 year call(06/02/2025) and 2037 maturity. 5.69% coupon bought at $99.80. FHLB cusip 3130AW6U9. Need to find some 3 - 5 year term bonds or cd's.

[Ballhawker]

Hello, I retired on 12.31.21 with good portion of nest egg in stocks and needless to say, not a great first year. I found myself stressed out and staring at charts way too much.

Getting honest with myself I have a low risk tolerance. So I'm thinking with interest rates now fairly attractive, maybe a t-bill ladder will help me sleep at night and focus more on the important things in life.

So I'm curious what a logical t-bill ladder might look like based on your experience. This will about a third of my net worth, taxable account, no income tax state. Thanks!

[Chuckanut]

How far out do you want the ladder to go?

Keep in mind that we have an inverted yield curve so that bonds and CDs out past 2 year or more often take a rather steep drop in interest rates. I think a lot of people have been laddering in the 3 month to 18 month area which seems to be the sweet spot for the best rates these days. If they see a good rate that is non callable in the 2-5 year area they jump on it. I also think most people are not going out much farther than 5 years as the risk increases too much for the interest being paid.

I am avoiding callable bonds unless they pay at least 1% over the going rate for non callable. Even then I’m may only look but decide not to buy.

YMMV.

[Ballhawker]

Quote:

Originally Posted by Chuckanut How far out do you want the ladder to go? Keep in mind that we have an inverted yield curve so that bonds and CDs out past 2 year or more often take a rather steep drop in interest rates. I think a lot of people have been laddering in the 3 month to 18 month area which seems to be the sweet spot for the best rates these days. If they see a good rate that is non callable in the 2-5 year area they jump on it. I also think most people are not going out much farther than 5 years as the risk increases too much for the interest being paid. I am avoiding callable bonds unless they pay at least 1% over the going rate for non callable. Even then I’m may only look but decide not to buy. YMMV.

Thanks for your reply! Agree on the non-callable - too much hassle and added risk if rates start dropping. I'm looking for stability and peace of mind. Extra bit of yield not worth it for me. Yes the 3 to 18 months range looks really attractive right now, that's what I will be targeting. A big part of this has been figuring out my "true" risk tolerance vs. my "hoped for" risk tolerance. I'm risk averse. I am now owning it! Everyone is different and that's ok.

[swk7907]

I have a treasury that matures on 5/31 (912828R69). Yellen is saying that X-date is 6/1. I know that it can take up to two days for treasuries to settle but on what date would the US Government make the payment for this bond? Is the payout on the maturity date (5/31) or would it be on the day after (6/1)?

I realize that it is highly unlikely that there will be any issue with payout but still trying to understand the timing of treasury redemptions. The bond last traded at 99.938 so the market doesn't seem to think there will be any issues with getting payment. Thanks.

[NomDeER]

Quote:

Originally Posted by Ballhawker Hello, I retired on 12.31.21 with good portion of nest egg in stocks and needless to say, not a great first year. I found myself stressed out and staring at charts way too much. Getting honest with myself I have a low risk tolerance. So I'm thinking with interest rates now fairly attractive, maybe a t-bill ladder will help me sleep at night and focus more on the important things in life. So I'm curious what a logical t-bill ladder might look like based on your experience. This will about a third of my net worth, taxable account, no income tax state. Thanks!

I retired about the same time, so I can empathize.

If you don't have state income tax and if you don't want to look at this issue again within the year, you definitely should consider a ladder of non-callable CDs. This week is wonky for unusual reasons, but you often can get a better rate on these CDs than with treasuries and with comparable low risk. Your brokerage should have a selection of brokered CDs and you can talk to someone there about a ladder.

Your specific ladder, including the number of rungs and how far out you want to go, is going to depend on your own needs and wants. For example, you will have to consider when you may need some of this money. You may also want to consider reinvestment risk. There are people here who just choose the highest interest rate even if the CD or treasury is pretty short-term. That may be because they don't want to lock up their money for long. It also may be because they think that they will be able to find good or even better interest rates when that CD term is over.. Others are trying to get some CDs for longer terms and are willing to take slightly lower interest rates because they think that good rates won't be available for reinvestment in a year or two when a shorter term CD matures. Some have a mix.

[dobig]

If you go the cd route, here's some decent rates which would could help make a nice ladder. FDIC insured up to $250,000 per person.


Taken from Doctor of Credit.

CFG Bank non-callable CD’s:
12 month 5.28% APY
18 month 5.25% APY
36 month 4.60% APY
60 month 4.50% APY
MMS (FDIC insured) remains at 5.07% APY
https://www.cfg.bank/personal-bankin...-deposit-rates


Might also want to look at GSE's if you're looking for safety and a little higher rate. For longer term 20 year treasuries are currently 4.15% with 4% coupon and JP Morgan has a 20 year non callable at 5.62%. Most here don't seem to like long term.

[Echard]

Quote:

Originally Posted by Chuckanut How far out do you want the ladder to go? Keep in mind that we have an inverted yield curve so that bonds and CDs out past 2 year or more often take a rather steep drop in interest rates. I think a lot of people have been laddering in the 3 month to 18 month area which seems to be the sweet spot for the best rates these days. If they see a good rate that is non callable in the 2-5 year area they jump on it. I also think most people are not going out much farther than 5 years as the risk increases too much for the interest being paid. I am avoiding callable bonds unless they pay at least 1% over the going rate for non callable. Even then I’m may only look but decide not to buy. YMMV.

I'm not sure that I'd say most people aren't going out past 5 years. A lot of people are building ladders of 5-10 years, with the viewpoint that predicting 5-10 year interest rates is impossible. They could be higher or lower in the future. A ladder is one way to mitigate the reinvestment risk of years 5-10.

Also, I've seen many folks buying near-term callable bonds with long-term maturities out past ten years. In my opinion, this is very risky. For the first time in decades, we are seeing inflation at elevated levels. By purchasing these bonds people are exposing themselves to pretty significant inflation risk. While inflation may calm back down in the 2-3% range, it's impossible to know whether it will end up being higher. After world war 2 inflation jumped around 4%. I could easily see that happening again as our federal government inflates away the debt, rather than try to tax our way into a sensible budget deficit.

[COcheesehead]

Quote:

Originally Posted by soylentgreen Indeed, for a month or less of returns.

You could ladder that with some agencies paying in the 6.25% range callable in August. Easy money. In fact you could ladder 6% plus government bonds into next Spring.

[Echard]

The yields on the Canadian Banks are really good as compared to other bonds. I know Freedom thinks highly of them. I'm surprised they trade at such high yields because the odds of U.S.-like bank failures is much lower.

[Born2Fish]

Quote:

Originally Posted by COcheesehead You could ladder that with some agencies paying in the 6.25% range callable in August. Easy money. In fact you could ladder 6% plus government bonds into next Spring.

I like easy money!

Where are you finding 6.25% agencies callable in August? I am on TDA and am not seeing anything.

What search criteria are you using?

[dobig]

Quote:

Originally Posted by Born2Fish I like easy money! Where are you finding 6.25% agencies callable in August? I am on TDA and am not seeing anything. What search criteria are you using?

Farm credit GSE (cusip 3133EPKT1) callable 8/23. Coupon 6.23% and current ask price $99.70 on Fidelity.

[COcheesehead]

Quote:

Originally Posted by Born2Fish I like easy money! Where are you finding 6.25% agencies callable in August? I am on TDA and am not seeing anything. What search criteria are you using?

I search government bonds and sort by date and yield. I use Fidelity.