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

[COcheesehead]

Who makes money on CDs? There's no fee if purchased in VG, the bank pays a good interest rate. Does VG make $ from the bank or vice versa?

The issuer leverages your money and loan it out at a higher rate.

 

[pb4uski]

Who makes money on CDs? There's no fee if purchased in VG, the bank pays a good interest rate. Does VG make $ from the bank or vice versa?

What does it matter? What is important is what you make vs other alternatives available to you.

I suspect that the broker, Vanguard in your case, makes a little for facilitating the sale to you and that the issuing bank makes money on the spread between what they receive from borrowers and what they pay to you.

 

[copyright1997reloaded]

For those starting to load up on bonds, can you let me know why you are choosing it over CDs besides I'm assuming the yield is a bit higher, but there is a little more risk of default?Is there anything else I'm missing?

This is not a binary decision, how about "All of the above"?

I've recently moved my large (to me) 401K to Rollover IRA. I've been assembling a "safe" ladder (i.e. treasuries and brokered CD's), essentially picking the highest yielders at any given time point. In addition, I've been buying little bits of preferred issues (both fixed an floating based on some of Mulligan's and other suggestions/research), along with bits and pieces of equities with decent dividends. About half of the account is still in MM @ 3.81%, mostly because the long end of the curve has collapsed so much (my current ladder, except for the small amount of perpetual preferred) extends to Dec 25, so 3 years.

Did I miss my opportunity to go long? Perhaps, but I am waiting it out in terms of a yield curve that eventually normalizes. I also think that there will eventually be opportunities in equities, so having cash earning in the high 3's while I wait isn't such a bad thing.

For better or worse, I never go all in or all out all at once. Do a little, wait a little, assess the situation and go from there (is my motto).

As of this moment, not counting preferred issues/Reits/etc., my fixed allocation has a weighted YTM of 4.053% and weighted days to maturity of 131.

 

[Rianne]

As someone new to laddering individual bonds/treasuries/CDs, when do you pull the trigger to buy maturities beyond 5 years? Or do you continue to just buy the shorter term higher yields and address them as they mature? Right now, the Fed seems to be telegraphing continued bumps, but perhaps getting smaller through 2023 with perhaps some reductions starting in 2024 once we are knee deep in the Big R! Longer term yields seem to reflect this as well. None the less, for those of us who are bucketing our laddered bonds for money to pull when equities are down, at what point do we say __% yield is good enough and lock in some 5 - 10 year bonds and call it a day? I have about 80% of my 10 year bond ladder maturing between Jan - Aug of 2023 so trying to feel out next best play. I get its all crystal ball stuff, but knowing what we know today, how does this affect your targeted bond buying over the next 3 - 6 months?

Perhaps the answer is buried somewhere in the 1900 threads??

All I know is our bond funds held for over 10 years have yielded a negative 2-3% somewhere in there. I figure if we could secure 5% over the next 10 years, we'd be doing fine. Our index funds are still at a 4-5% positive RR because we've held them for so long. Bond funds were supposed to be a hedge. But we're 65 and looking to preserve. $1 M at 5% gives $50K/year in income. That's better than the pension annuity we were offered. We took the buyout and are buying CDs and treasuries.

 

[COcheesehead]

As someone new to laddering individual bonds/treasuries/CDs, when do you pull the trigger to buy maturities beyond 5 years? Or do you continue to just buy the shorter term higher yields and address them as they mature? Right now, the Fed seems to be telegraphing continued bumps, but perhaps getting smaller through 2023 with perhaps some reductions starting in 2024 once we are knee deep in the Big R! Longer term yields seem to reflect this as well. None the less, for those of us who are bucketing our laddered bonds for money to pull when equities are down, at what point do we say __% yield is good enough and lock in some 5 - 10 year bonds and call it a day? I have about 80% of my 10 year bond ladder maturing between Jan - Aug of 2023 so trying to feel out next best play. I get its all crystal ball stuff, but knowing what we know today, how does this affect your targeted bond buying over the next 3 - 6 months?

Perhaps the answer is buried somewhere in the 1900 threads??

I possibly have answered this question in relation to my situation a few times on here, but here is my take. Intermediate and long yields are already coming down in response to the Fed hikes. The more hikes, the more likely a recession. People are buying longer maturities right now. The short end moves quicker with Fed hikes, but that cashflow also disappears quicker too.

If you stay true to a ladder strategy, maturing bonds should be reinvested on the long end. I have been buying a mix of callable and non callable assets. I am not trying to hit the highest yield possible, but shooting for as much predictable income as I can get buying bonds and CDs available to me at the time my fixed income matures. I have literally doubled my cash flow in the last year. I have a ten year ladder.

 

[pb4uski]

As someone new to laddering individual bonds/treasuries/CDs, when do you pull the trigger to buy maturities beyond 5 years? Or do you continue to just buy the shorter term higher yields and address them as they mature? Right now, the Fed seems to be telegraphing continued bumps, but perhaps getting smaller through 2023 with perhaps some reductions starting in 2024 once we are knee deep in the Big R! Longer term yields seem to reflect this as well. None the less, for those of us who are bucketing our laddered bonds for money to pull when equities are down, at what point do we say __% yield is good enough and lock in some 5 - 10 year bonds and call it a day? I have about 80% of my 10 year bond ladder maturing between Jan - Aug of 2023 so trying to feel out next best play. I get its all crystal ball stuff, but knowing what we know today, how does this affect your targeted bond buying over the next 3 - 6 months?

Perhaps the answer is buried somewhere in the 1900 threads??

Only time will tell if I'm right, but my investment hypothesis is that the Fed actions will principally affect the short to mid ends of the curve, and the long end of the curve will be more impacted by long-term inflation expectations. So very recently, I've bought some GSE 15-year bonds that are 6.38% and 6.45%, but they are callable. About 20% of my FI allocation is targeted to 5-10 year maturities and 80% is target to 0-5 year maturties, so 15-years is generally longer than I would go, but 6.38% and 6.45% with negligible credit risk were too attractive for me to resist given that the 10-year Treasury has been hovering betwn 3.4%-3.6%.

A "big R" is not a foregone conclusion. Anyway, high inflation is a much higher danger to the economy and arguably even to the republic, and a mild R would be a small price to pay to get inflation under control, but perhaps the mild R can be avoided.

Even if I'm wrong, I'm happy with collecting 6.38% and 6.45% for up to 15 years or until they are called.

 

[Rianne]

What does it matter? What is important is what you make vs other alternatives available to you.

I suspect that the broker, Vanguard in your case, makes a little for facilitating the sale to you and that the issuing bank makes money on the spread between what they receive from borrowers and what they pay to you.

True, just wondered.

 

[disneysteve]

about 80% of my 10 year bond ladder maturing between Jan - Aug of 2023

I'm curious about the structure of your ladder if 80% of it matures in an 8-month period. Isn't the whole point of laddering to have things maturing on a regular basis over time, like every 3 months or 6 months or whatever?

 

[DawgMan]

I possibly have answered this question in relation to my situation a few times on here, but here is my take. Intermediate and long yields are already coming down in response to the Fed hikes. The more hikes, the more likely a recession. People are buying longer maturities right now. The short end moves quicker with Fed hikes, but that cashflow also disappears quicker too.

If you stay true to a ladder strategy, maturing bonds should be reinvested on the long end. I have been buying a mix of callable and non callable assets. I am not trying to hit the highest yield possible, but shooting for as much predictable income as I can get buying bonds and CDs available to me at the time my fixed income matures. I have literally doubled my cash flow in the last year. I have a ten year ladder.

Predictability is the primary purpose of this bucket as opposed to creating a specific cashflow. I was more curious as to the prudent strategy here in buying longer term. I suppose I could see an argument for both, but my thought was to start buying longer term with some of these maturing funds in early 1st quarter as they mature. The crystal ball gets fuzzier each year out so I suppose we are all just guessing after some period.

 

[COcheesehead]

Predictability is the primary purpose of this bucket as opposed to creating a specific cashflow. I was more curious as to the prudent strategy here in buying longer term. I suppose I could see an argument for both, but my thought was to start buying longer term with some of these maturing funds in early 1st quarter as they mature. The crystal ball gets fuzzier each year out so I suppose we are all just guessing after some period.

I bought longer durations as recent as November and earlier this month. The mark to market on those is already positive because yields have dropped.
Same thing happened in June when we had yield spikes. I bought longer durations and I could flip those now for a profit if I wanted to. Analysis paralysis can drive you crazy.

 

[RDH010]

I see most people here are in VG or Schwab accounts.

DW and I are in late 30’s, FI, and continue to work. We hold our taxable, rollover 401k, and Roths in TDAmeritrade. Approx 2M.

We have been purchasing some fixed income recently. Is it a mistake to purchase CDs, treasuries, corporates in TDAmeritrade? We cannot see the fees but wonder if they are an efficient broker or we would be better served in VG or Schwab.

 

[DawgMan]

I'm curious about the structure of your ladder if 80% of it matures in an 8-month period. Isn't the whole point of laddering to have things maturing on a regular basis over time, like every 3 months or 6 months or whatever?

Well, I converted to the laddered bond approach this year once I retired. As noted in my post above, this was designed as a safety bucket to access when stocks are down so predictability is my main priority, but still want the most yield I can get without taking unnecessary risks. Knowing interest rates were on the rise this year, I made the decision to stay shorter term anticipating it might be best to consider the longer term options as they matured, anticipating continued Fed bumps. The way I look at it, as long as I have a min of 1 years planned spend available no later than Dec of each year then I'm good. That said, yes, in a perfect world my ladder is nice and tidy rolling each year (or 4 times a year)

 

[DawgMan]

Analysis paralysis can drive you crazy.

True Dat!

 

[disneysteve]

We have been purchasing some fixed income recently. Is it a mistake to purchase CDs, treasuries, corporates in TDAmeritrade? We cannot see the fees but wonder if they are an efficient broker or we would be better served in VG or Schwab.

Well Schwab bought TD and is starting the process of transitioning everyone so you are technically already a Schwab customer and it will be obvious sometime soon.

I haven’t bought CDs or treasuries in our TD account so I can’t speak to the process there currently but I’m sure it’s fine.

 

[sengsational]

We have been purchasing some fixed income recently. Is it a mistake to purchase CDs, treasuries, corporates in TDAmeritrade? We cannot see the fees but wonder if they are an efficient broker or we would be better served in VG or Schwab.

Were the fixed income instruments you purchased new issues or on the secondary market? It's surprising that they're not exposing the magnitude of the costs associated with the purchases.

You could go into TD, work up a deal, then post the CUSIP here and others could price the same issue on Schwab and Fidelity.

 

[daylatedollarshort]

As someone new to laddering individual bonds/treasuries/CDs, when do you pull the trigger to buy maturities beyond 5 years? Or do you continue to just buy the shorter term higher yields and address them as they mature? Right now, the Fed seems to be telegraphing continued bumps, but perhaps getting smaller through 2023 with perhaps some reductions starting in 2024 once we are knee deep in the Big R! Longer term yields seem to reflect this as well. None the less, for those of us who are bucketing our laddered bonds for money to pull when equities are down, at what point do we say __% yield is good enough and lock in some 5 - 10 year bonds and call it a day? I have about 80% of my 10 year bond ladder maturing between Jan - Aug of 2023 so trying to feel out next best play. I get its all crystal ball stuff, but knowing what we know today, how does this affect your targeted bond buying over the next 3 - 6 months?

Perhaps the answer is buried somewhere in the 1900 threads??

For my longer dated purchases I've only been buying TIPS, for the reasons in this article - Playing Inflation Russian Roulette in Retirement - Articles - Advisor Perspectives - "Investing is about the conveyance of real consumption from one’s present self to one’s future self. For the average person, that means the conversion of today’s human capital into tomorrow’s investment capital, and the most secure way of doing so, by far, is with a stream of real income throughout retirement. The key word in that last sentence is real. It does no good to defease future consumption with nominal instruments if future high inflation turns today’s seemingly plump annuity and long bond yields into tomorrow’s funny money." ( I don't think TIPS fund performance stats support the idea of using TIPS funds, even two funds, as an alternative to TIPS, but otherwise the article makes the points we thought about before retiring.)

We're pretty conservative investors, so for us our whole retirement plan has never been based on stocks, the 4% rule or Firecalc, just real interest rates.

 

[copyright1997reloaded]

I see most people here are in VG or Schwab accounts.

DW and I are in late 30’s, FI, and continue to work. We hold our taxable, rollover 401k, and Roths in TDAmeritrade. Approx 2M.

We have been purchasing some fixed income recently. Is it a mistake to purchase CDs, treasuries, corporates in TDAmeritrade? We cannot see the fees but wonder if they are an efficient broker or we would be better served in VG or Schwab.

I have accounts at TD Ameritrade, Schwab, Fidelity. All are fine and all have their pro's/con's. ThinkOrSwim is (in my opinion) superior to Schwab's Street Smart Edge or Fidelities Active Trader Pro. On the fixed side, in Ameritrade you can leverage Schwab's funds (including SWVXX and the 1 million min SNAXX). All have the ability to do brokered CD's, sometimes I find things on one and not the other. I am new to Fido's setup, but they seem to have some great bond tools. Finally, I had an issue buying a floating rate preferred at Fidelity, no issue doing that online at Ameritrade.

All and all, I wouldn't worry about it. The big change for Ameritrade is being part of Schwab now has MUCH better options in terms of cash (money market) in the account compared to years ago where their offerings were not good (for the most part I kept almost no cash in my Ameritrade account because of this).

 

[Freedom56]

Who makes money on CDs? There's no fee if purchased in VG, the bank pays a good interest rate. Does VG make $ from the bank or vice versa?

1-1.5% commission on new issue CDs.

 

[Freedom56]

Here is the full interview with Jamie Dimon (CEO of JP Morgan), the number one banker in this country from Face The Nation Today. The economy is discussed starting around the 12 minute mark.

https://www.cbsnews.com/news/jamie-dimon-face-the-nation-transcript-12-11-2022/

 

[Sand101]

New Issue CUSIP(38150AQK4) Goldman Sachs coupon 6%..Matures 12/14/27.
Any reason not to buy?

Dumb question - today is the issue date for this, but Fidelity has none. Does it take them a bit to get some?

 

[COcheesehead]

Dumb question - today is the issue date for this, but Fidelity has none. Does it take them a bit to get some?

The offering is closed. If you want it, you’d have to find in the secondary market.

 

[Sand101]

The offering is closed. If you want it, you’d have to find in the secondary market.

Thanks for the note. When was the offering period (or, in general, when are the offering periods prior to issue date)? I have been watching this for a couple weeks (since Fidelity had it listed) and never saw it available.

 

[lawman]

Dumb question - today is the issue date for this, but Fidelity has none. Does it take them a bit to get some?

My order shows a settlement date of 12/14/22

 

[COcheesehead]

Thanks for the note. When was the offering period? I have been watching this for a couple weeks (since Fidelity had it listed) and never saw it available.

I have no idea. You usually have a couple week window, but some sellout quick. You have to monitor the new offering page.
I have some 6.75% 2027 Goldman bonds. I remember those sold in a couple days.

 

[MercyMe]

I have no idea. You usually have a couple week window, but some sellout quick. You have to monitor the new offering page.
I have some 6.75% 2027 Goldman bonds. I remember those sold in a couple days.

Unfortunately, Fidelity's new corporate bond page leaves a lot to be desired. It seems like they only get a fraction of what shows at Schwab/TDA.