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

[Freedom56]

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Originally Posted by BoredAtWork Thank you Freedom, very insightful. Looked at some offerings today and the corporate bonds are quite appealing with tenors of 1-5 years. I was initially interested by muni’s as I am in a higher tax bracket and will be in a state with state level income tax. I also feel like Muni’s have been so wrecked in the last 6 months they are a good timing play. The duration on available muni’s in my state though are very long. Like 10-20 years. It is tough to rationalize locking up capital for that long. Any other ways to invest in Muni’s with shorter duration? Not sure I want to check Muni’s out of state because then unclear I get the state income tax break. I looked at the federal agency offerings too and essentially was same as Muni’s. Really long durations scared me off.

The new issues offerings change daily and then there is the secondary market. Therefore you need to check regularly. I really don't like long durations. Right now my ladder does not go beyond February 2031. I am only buying 1-5 years now where 70% of my holdings are.

You have to filter out many of the offerings from Fidelity. For example, today I saw one rated A by S&P from Capital Impact Partners with 4.7% coupon and 15 years duration. This issue made no sense and the company itself is a non-profit serving disadvantaged communities so who wants that? You have to separate investing from philanthropy. How this organization that lives on government grants receives an "A" rating is a mystery. But then again S&P rated mortgage backed securities loaded with subprime loans as "AAA" in the past so we shouldn't be surprised if this is yet another train wreck.

With corporate bonds I always evaluate the particular bond/note based on the probability of default during the term. It's very difficult to see where a company will be beyond 10 years. For the technology sector even 5 years is a long time. Plus the longer the duration, the more volatile the price of the bond.

One way I have invested in muni bonds in the past was through closed end funds (CEFs). These are actively managed and most of them are leveraged. I bought many of them during the 2009 market crash when their distribution yields were 9% and they were trading at at an average 15-20% discount to asset value. Things were going fine until late 2010 a clown named Meredith Whitney forecasted widespread defaults in the muni bond sector. I was sitting on some sizeable capital gains so I exited after two years of tax free distributions and took the hit on capital gains. She was 100% wrong on her call and continued to double down. I just focused on corporate bonds and preferred stocks for short term holdings. Right now leveraged muni CEFs are paying up to 5.5% distributions (tax free). However, return of you capital is not guaranteed (see attached list). They are exchange traded and pay distributions monthly. You can research them at:

https://www.cefconnect.com/fund/MUC

The best time to buy these are when they trade at a significant discount to asset value so you have some level of capital protection. You can calculate your tax equivalent yield at the site referenced above. I'm not buying at this point but will reconsider during tax loss selling season as investors will no doubt harvest their losses.

Hope this information helps.

[Lawrence of Suburbia]

Does all this mean that conservative balanced funds like VTINX and VWINX might be better investments going forward, for someone in retirement? With inflation of course factored in? ...

[gayl]

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Originally Posted by Freedom56 So avoid these new issues at this time.

Hear something new every day. Have a lot to read up on

[Freedom56]

Here are this weeks corporate note offerings at Fidelity and also TDA:

The safest is Bank of Montreal's 36 month 4.5% callable note.
The best one this week is Wells Fargo's 36 month 4.5% callable note with 18 months of call protection.
The Credit Suisse note does not offer any benefits over the two above and has a lower coupon with a longer duration.
The UBS 1 year note is okay but I don't understand why they issued this as callable note after 6 months.

Avoid the last two from Prospect Capital and National Rural.

The market for high yield notes is recovering and investment grade notes are stable for now. We are just past the halfway mark for the year and hopefully more fund selling will create more opportunities in the secondary markets.

[Freedom56]

Attached is the presentation from Fidelity yesterday on bond pricing that some people may find helpful. It helps explain bonds are priced and why prices vary from brokerage to brokerage (i.e. why some brokers are ripping you off).

[COcheesehead]

I believe laddered individual bonds can be very powerful in a portfolio - especially now and in the coming months/years, but likely the least understood of the traditional asset classes.

[bobbyr]

Quote:

Originally Posted by Freedom56 Attached is the presentation from Fidelity yesterday on bond pricing that some people may find helpful. It helps explain bonds are priced and why prices vary from brokerage to brokerage (i.e. why some brokers are ripping you off).

thank you for all of the information and help, most appreciated

[aja8888]

Quote:

Originally Posted by Freedom56 Attached is the presentation from Fidelity yesterday on bond pricing that some people may find helpful. It helps explain bonds are priced and why prices vary from brokerage to brokerage (i.e. why some brokers are ripping you off).

Thanks, Good stuff!

[savory]

Hi,

Can anyone help me find the penalty for selling CDs early purchased at Fidelity? I looked around but could not find it. I want to make this part of my purchase decision.

Thanks

[COcheesehead]

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Originally Posted by savory Hi, Can anyone help me find the penalty for selling CDs early purchased at Fidelity? I looked around but could not find it. I want to make this part of my purchase decision. Thanks

I would enter a sell order and hit preview. Any fees are usually disclosed on the form shown. Then just back out of it.

[Freedom56]

This week and for the past three weeks TDA/Schwab continued to offer high grade corporate notes from Royal Bank of Canada, Citigroup, Goldman Sachs, JP Morgan, Wells Fargo, and others. This morning there are 12 listed (see attached) at TDA. Fidelity on the other hand is offering zero new issue high grade bonds. This was also the case during the past two weeks.

I contacted their fixed income desk this morning to inquire why. They confirmed that while other brokerages are participating in the corporate new issue notes but Fidelity is no longer doing so but will look into the matter. Could it be that they want to push their money losing bond ETFs and funds to customers instead of high grade notes? So in the mean time I started transferring cash from Fidelity to our account at at TDA.

[Spock]

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Originally Posted by savory Hi, Can anyone help me find the penalty for selling CDs early purchased at Fidelity? I looked around but could not find it. I want to make this part of my purchase decision. Thanks

There isn't a penalty for selling CDs early although the sale price may be below par if rates have risen since you bought them. It would be impossible to know what an eventual sale price might be before you buy them.

[madatrub]

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Originally Posted by Freedom56 This week and for the past three weeks TDA/Schwab continued to offer high grade corporate notes from Royal Bank of Canada, Citigroup, Goldman Sachs, JP Morgan, Wells Fargo, and others. This morning there are 12 listed (see attached) at TDA. Fidelity on the other hand is offering zero new issue high grade bonds. This was also the case during the past two weeks. I contacted their fixed income desk this morning to inquire why. They confirmed that while other brokerages are participating in the corporate new issue notes but Fidelity is no longer doing so but will look into the matter. Could it be that they want to push their money losing bond ETFs and funds to customers instead of high grade notes? So in the mean time I started transferring cash from Fidelity to our account at at TDA.

Thoughts on AAPL about to offer a 7/10/30/40 yr bonds?

[jazz4cash]

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Originally Posted by Spock There isn't a penalty for selling CDs early although the sale price may be below par if rates have risen since you bought them. It would be impossible to know what an eventual sale price might be before you buy them.

+1
The CDs at Fidelity are brokered CDs. This is one difference with CDs purchased directly from a bank or credit union. Another difference is that some brokered CDs can be called (e.g. redeemed by the bank) prior to maturity.

[jazz4cash]

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Originally Posted by Freedom56 I contacted their fixed income desk this morning to inquire why. They confirmed that while other brokerages are participating in the corporate new issue notes but Fidelity is no longer doing so but will look into the matter.

I noticed the lack of offerings and never considered it was just Fido. Let us know what their response is.

[Freedom56]

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Originally Posted by madatrub Thoughts on AAPL about to offer a 7/10/30/40 yr bonds?

I saw the preliminary regulatory filing but there is no mention of final coupons. Much as I like the technology sector 10/30/40 years is too far in the future for me. The other issue is that the coupon for the 40 year is only going to be 118 basis points over treasury bonds which is horrible. The seven year is likely to be less and therefore this will be a pass. The other issue is that they are using this bond/note issue to fund dividend payments and stock-buybacks not investing in their business. They essentially have one product, a small share of the PC market that is in decline, and loads of failed ventures. Who knows where their iPhone will be in 10/30/40 years from now.


https://www.sec.gov/Archives/edgar/d...upptoc358144_8

[savory]

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Originally Posted by COcheesehead I would enter a sell order and hit preview. Any fees are usually disclosed on the form shown. Then just back out of it.

Spock & Cocheeshead, thanks for the reply to my question which clearly was not well presented in terms of what I am hoping to learn.

Let me try to clarify. I am planning on buying CDs and as you know I have choices from many institutions. Before I buy, I am hoping to be able to learn the number of months of interest I would lose if I sell prior to maturity.

So, If bank A and bank B are offering the same 3.5% interest for the same maturity period that would meet my first criteria for a good interest rate. My next decision would be to learn if I would forfeit X or Y interest for cashing the bond prior to its maturity. I would select the bond that has the lower interest penalty.

I do not own the bonds now. And the 'penalty' is the loss of interest for not letting the bond go to maturity. It is the number of days/months of lost interest I cannot find on the Fidelity site prior to purchasing the bond.

Thanks

[Spock]

Fidelity is "sold out" of all 5 and 10 year non-callable new issue CDs.
Longest duration non-callable new issue they have available is 4 yrs at 3.2%

[Freedom56]

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Originally Posted by jazz4cash I noticed the lack of offerings and never considered it was just Fido. Let us know what their response is.

Will do. I also expressed concern that the notes they were offering were not suitable for investors (i.e. unrated, low coupon notes, from non-profits with no revenue stream).

[COcheesehead]

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Originally Posted by savory Spock & Cocheeshead, thanks for the reply to my question which clearly was not well presented in terms of what I am hoping to learn. Let me try to clarify. I am planning on buying CDs and as you know I have choices from many institutions. Before I buy, I am hoping to be able to learn the number of months of interest I would lose if I sell prior to maturity. So, If bank A and bank B are offering the same 3.5% interest for the same maturity period that would meet my first criteria for a good interest rate. My next decision would be to learn if I would forfeit X or Y interest for cashing the bond prior to its maturity. I would select the bond that has the lower interest penalty. I do not own the bonds now. And the 'penalty' is the loss of interest for not letting the bond go to maturity. It is the number of days/months of lost interest I cannot find on the Fidelity site prior to purchasing the bond. Thanks

As mentioned above they are priced at market. So your loss or gain is an unknown.