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

[Family]

If it's blank then it is not callable.

If the yield column is blank, the bond is no longer available (matured or called). Always do a sort by yield to eliminate those cases or specify a last trade date range in your search close to the current date. (i.e. one month prior through the current date).

There is no way to display yield to call on FINRA.

The low limit order depends on the market conditions and the yield to maturity and how much liquidity there is. The yield has to make sense given where CD and treasury yields are today. Right now, I don't see any bargains at least nothing like what there was in June. What ever bids I'm placing now are for low coupon 1 year term debt from money center banks and financial firms at YTMs of 5.5-6.2%. As the Fed continues to raise rates, short term yield will continue to rise forcing funds to sell their shortest duration and lowest coupon bonds/notes.

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QUESTION 1: Trying to place an order and Schwab desk says "they will check to see if the bond is being actively traded and if so, will call me back with a price". They didn't seem able to issue a "Good till cancelled limit order". Is this normal?

QUESTION 2: If I use the Schwab selection of Corp Bonds (not Finra) & I try and "buy" it will automatically set the limit order price (i.e. I can't modify it). Is this normal?

QUESTION 3: Do you prefer Fidelity's trading platform over Schwab?

Thank you!

 

[Freedom56]

-------------------------------------------------------------------------------
QUESTION 1: Trying to place an order and Schwab desk says "they will check to see if the bond is being actively traded and if so, will call me back with a price". They didn't seem able to issue a "Good till cancelled limit order". Is this normal?

QUESTION 2: If I use the Schwab selection of Corp Bonds (not Finra) & I try and "buy" it will automatically set the limit order price (i.e. I can't modify it). Is this normal?

QUESTION 3: Do you prefer Fidelity's trading platform over Schwab?

Thank you!

The answer to question 1 is that it is not normal. You should be able to place a GTC order on a bond. The vast majority of bonds don't trade frequently. Bonds are not liquid. The one's that trade frequently are held by funds who buy/sell depending on fund inflows and outflows. This is why I do most of my buying on the secondary market when funds are in their forced selling mode due to redemptions.

Question 2: You cannot place limit orders online at Schwab, you have to call there trading desk to do so. They and other financial firms make there money from fixed income trading. Fidelity allows you to place limit orders online.

Question3: Fidelity is better for buying bonds in the secondary market. Schwab and TDA are better for new issue bonds and preferred stock.

 

[pb4uski]

Looking at 3130ASYR4 FHLB new issue 4.00% for 3 years (8/28/2025 maturity) Thoughts?

4% for 3 years from GSE sounds pretty good to me at first blush.

https://finra-markets.morningstar.c...il.jsp?ticker=FFHLN5463511&symbol=FHLN5463511

 

[Freedom56]

Looking at 3130ASYR4 FHLB new issue 4.00% for 3 years (8/28/2025 maturity) Thoughts?

4% for 3 years from GSE sounds pretty good to me at first blush.

https://finra-markets.morningstar.c...il.jsp?ticker=FFHLN5463511&symbol=FHLN5463511

It's a good alternative to a 3 year CD at current rates. You would basically lock in a 4% yield for three years with zero risk. However we are heading into a more treacherous time for the market with the stock market is full casino mode with the usual cast of characters such as GameStop and Bed Bath and Beyond and tax loss selling season approaching. Moves like that normally are a sign of impending market crash. So there may be better bargains in the future. As yields have fallen back, I have stopped buying and will wait for the next market sell-off. The new issue corporates and agency notes are being issued at about 0.5-0.7% lower yields than in June. Limit orders on the secondary market are difficult to fill as the panic selling has tapered off.

 

[stevelb]

That FHLB is callable on 11/22 and every three months thereafter. Also appears that it totally sold out today. Ford has a new issue at 5.25 with a maturity 8/20/25. Of course callable 8/23 and every 6 months thereafter. 34540TA36

 

[Freedom56]

That FHLB is callable on 11/22 and every three months thereafter. Also appears that it totally sold out today. Ford has a new issue at 5.25 with a maturity 8/20/25. Of course callable 8/23 and every 6 months thereafter. 34540TA36

The yield that they are offering is not that great for a high yield (Ba2/BB+) note. Ford has many issues with better yields on the secondary market with plenty of inventory.

Such as:

FORD MOTOR CREDIT COMPANY NOTE 5.12500% 06/16/2025 CALL MAKE WHOLE

CUSIP: 345397A60

The bid yield is 5.630% and the ask yield is 5.548% on Fidelity's order book.

It is also a "make whole call" which means Ford has to make a lump sum payment to the holder derived from an earlier agreed- upon formula based on the net present value (NPV) of future coupon payments not paid because of the call.

In other words it makes the holder of the bond "whole" from the early call normally based on the delta between the coupon and current treasury rates.
The catch is that this bond is subject to a minimum buy of $200K. So you have to love Ford a lot to buy that one.

 

[lawman]

Before I buy ...Up for discussion..Credit Suisse CUSIP 22550L2E0

 

[Spock]

Before I buy ...Up for discussion..Credit Suisse CUSIP 22550L2E0

At a 0.495% coupon it's not for me as I'm looking for income, not eventual asset appreciation.
Lot's of bad Credit Suisse press for the last while. I stick to banks the US gov would bale out.

ETA: the minimum buy quantity is 250 even in the "depth of book" market, at 94.637 thats $236.592K. I dunno how big a pile you're playing with, but thats too much in 1 bucket for me.

 

[lawman]

At a 0.495% coupon it's not for me as I'm looking for income, not eventual asset appreciation.
Lot's of bad Credit Suisse press for the last while. I stick to banks the US gov would bale out.

ETA: the minimum buy quantity is 250 even in the "depth of book" market, at 94.637 thats $236.592K. I dunno how big a pile you're playing with, but thats too much in 1 bucket for me.

Oh my....I was thinking I'd risk 1 bond.

 

[Billy C]

If you want to take zero risk buy CDs and treasuries and high grade corporate notes (A rated) when they are issued and always compare the yields.

I registered specifically to respond to this.

With all respect, there is no such thing as zero risk in investing. The risk with fixed income is that the rate of return may fail to keep up with inflation, particularly after expenses and taxes are considered. This is definite possibility, likely a probability, given the current rates provided by CD’s and treasuries. The principle may be stable, and perhaps that’s what you are referring to, but the purchasing value of the principle is at risk.

A close friend of mine who pays 1% AUM to her financial adviser moved all her money recently to a 3 year CD yielding 3%. She is worried about the stock market dropping. I asked her what her inflation hedge was and she didn’t have a good answer. She’s trading volatility risk of stocks for inflation risk of CD’s. If that helps her sleep at night perhaps it’s worth it, but her purchasing power is in jeopardy, particularly when paying such a high advisory fee which decreases her 3% return down to only 2%.

I would rather see her get rid of her FA, or pay one with an hourly rate, and develop a sound balanced low-cost plan which includes an equity allocation based on her risk tolerance where she isn’t trying to time the market, but instead staying the course.

 

[daylatedollarshort]

I registered specifically to respond to this.

With all respect, there is no such thing as zero risk in investing. The risk with fixed income is that the rate of return may fail to keep up with inflation, particularly after expenses and taxes are considered. This is definite possibility, likely a probability, given the current rates provided by CD’s and treasuries. The principle may be stable, and perhaps that’s what you are referring to, but the purchasing value of the principle is at risk.

A close friend of mine who pays 1% AUM to her financial adviser moved all her money recently to a 3 year CD yielding 3%. She is worried about the stock market dropping. I asked her what her inflation hedge was and she didn’t have a good answer. She’s trading volatility risk of stocks for inflation risk of CD’s. If that helps her sleep at night perhaps it’s worth it, but her purchasing power is in jeopardy, particularly when paying such a high advisory fee which decreases her 3% return down to only 2%.

I would rather see her get rid of her FA, or pay one with an hourly rate, and develop a sound balanced low-cost plan which includes an equity allocation based on her risk tolerance where she isn’t trying to time the market, but instead staying the course.

Equities returns are not correlated with inflation. TIPS and I-bonds are.

"Our research has found that equities outperformed inflation 90% of the time when inflation has been low (below 3% on average) and rising. But when inflation was high (above 3% on average) and rising, equities fared no better than a coin toss, as shown in the chart below." - Which Equity Sectors Can Combat Higher Inflation? (hartfordfunds.com)

 

[Dash man]

I registered specifically to respond to this.



With all respect, there is no such thing as zero risk in investing. The risk with fixed income is that the rate of return may fail to keep up with inflation, particularly after expenses and taxes are considered. This is definite possibility, likely a probability, given the current rates provided by CD’s and treasuries. The principle may be stable, and perhaps that’s what you are referring to, but the purchasing value of the principle is at risk.



A close friend of mine who pays 1% AUM to her financial adviser moved all her money recently to a 3 year CD yielding 3%. She is worried about the stock market dropping. I asked her what her inflation hedge was and she didn’t have a good answer. She’s trading volatility risk of stocks for inflation risk of CD’s. If that helps her sleep at night perhaps it’s worth it, but her purchasing power is in jeopardy, particularly when paying such a high advisory fee which decreases her 3% return down to only 2%.



I would rather see her get rid of her FA, or pay one with an hourly rate, and develop a sound balanced low-cost plan which includes an equity allocation based on her risk tolerance where she isn’t trying to time the market, but instead staying the course.

Welcome!
No one here is unaware of the inflation risk with fixed income investments. We’re also aware there is always risk of a black swan event to tank the stock market. It’s all about balance in your asset allocation. Safe money won’t lose principle unless things get really bad. For those near or in retirement, a portion of fixed income is a wise investment.

 

[MarieIG]

Welcome!
No one here is unaware of the inflation risk with fixed income investments. We’re also aware there is always risk of a black swan event to tank the stock market. It’s all about balance in your asset allocation. Safe money won’t lose principle unless things get really bad. For those near or in retirement, a portion of fixed income is a wise investment.

+1

 

[aja8888]

Welcome!
No one here is unaware of the inflation risk with fixed income investments. We’re also aware there is always risk of a black swan event to tank the stock market. It’s all about balance in your asset allocation. Safe money won’t lose principle unless things get really bad. For those near or in retirement, a portion of fixed income is a wise investment.

And for those deep into retirement, it's absolutely necessary.

 

[Freedom56]

I registered specifically to respond to this.

With all respect, there is no such thing as zero risk in investing. The risk with fixed income is that the rate of return may fail to keep up with inflation, particularly after expenses and taxes are considered. This is definite possibility, likely a probability, given the current rates provided by CD’s and treasuries. The principle may be stable, and perhaps that’s what you are referring to, but the purchasing value of the principle is at risk.

A close friend of mine who pays 1% AUM to her financial adviser moved all her money recently to a 3 year CD yielding 3%. She is worried about the stock market dropping. I asked her what her inflation hedge was and she didn’t have a good answer. She’s trading volatility risk of stocks for inflation risk of CD’s. If that helps her sleep at night perhaps it’s worth it, but her purchasing power is in jeopardy, particularly when paying such a high advisory fee which decreases her 3% return down to only 2%.

I would rather see her get rid of her FA, or pay one with an hourly rate, and develop a sound balanced low-cost plan which includes an equity allocation based on her risk tolerance where she isn’t trying to time the market, but instead staying the course.

My comment was with respect buying bonds, treasuries, and high grade corporate notes versus investing in a lower yielding bond fund with no capital protection. So if you believe that a bond fund that continues to lose capital and provides almost no yield is going to fight inflation, more power to you. The best time to buy and ladder fixed income for income oriented investors is when yields are rising. If you want to play in the stock market casino which is exactly what it is now, go ahead. History tells us that when worthless bankrupt and near bankrupt companies are bid up to squeeze short sellers, it doesn't end well for those buyers. The equity markets are in a massive bubble and like back in 2000 it will take about three years to unravel. Eventually the collapsing speculative elements of the market will take all of it down hard.

 

[Billy C]

My comment was with respect buying bonds, treasuries, and high grade corporate notes versus investing in a lower yielding bond fund with no capital protection. So if you believe that a bond fund that continues to lose capital and provides almost no yield is going to fight inflation, more power to you. The best time to buy and ladder fixed income for income oriented investors is when yields are rising. If you want to play in the stock market casino which is exactly what it is now, go ahead. History tells us that when worthless bankrupt and near bankrupt companies are bid up to squeeze short sellers, it doesn't end well for those buyers. The equity markets are in a massive bubble and like back in 2000 it will take about three years to unravel. Eventually the collapsing speculative elements of the market will take all of it down hard.

All investments contain an element of risk, which is why I took issue with your original comment. The risks may differ among the various asset classes, but can never be eliminated to zero.

You may be right that the equity markets are in a bubble. Or you may be wrong. That is why a balanced portfolio containing both stocks and bonds has proven to be an excellent strategy for long term investors. Market timing, on the other hand, is not a sound strategy in my opinion.

 

[lawman]

Someone will correct me if I'm wrong but forgetting about total return and focusing only on gain/loss column of my Schwab account if I buy 100 shares of bond fund A and take all dividends in cash and that share price drops a penny a share my gain/loss column will show a loss. If it remains at that price for a year and it paid me a 4% dividend I made money on it..So, the gain/loss showing me with a loss is misleading..It shows me losing money when in fact I made money..Correct or not?

 

[Mulligan]

At a 0.495% coupon it's not for me as I'm looking for income, not eventual asset appreciation.
Lot's of bad Credit Suisse press for the last while. I stick to banks the US gov would bale out.

ETA: the minimum buy quantity is 250 even in the "depth of book" market, at 94.637 thats $236.592K. I dunno how big a pile you're playing with, but thats too much in 1 bucket for me.

Spock, I am looking forward to heading back to the theatre first week in September. To see your best performance in Star Trek 2 Wrath of Kahn 40th year anniversary directors cut. Three nights only.
…I noticed Wells Fargo A1 rated step up note has been jacked up to 4.1% first 2 years, 4.75% next 2, and 5.75% final year if not redeemed prior. I bought some of this again Thursday. “Time out” money for me, ha.

 

[Freedom56]

All investments contain an element of risk, which is why I took issue with your original comment. The risks may differ among the various asset classes, but can never be eliminated to zero.

You may be right that the equity markets are in a bubble. Or you may be wrong. That is why a balanced portfolio containing both stocks and bonds has proven to be an excellent strategy for long term investors. Market timing, on the other hand, is not a sound strategy in my opinion.

By risk, I was referring to capital risk. CDs are FDIC insured. Treasuries and agency notes are guaranteed by the government. High grade corporate bonds are extremely safe and conservative investments. Bond funds offer no capital protection. Market timing is a sound strategy for fixed income investors (i.e. lock in rates when yields are high and stay in short term cash or other instruments when yields are low). This strategy has been proven to work for decades. The fund industry will have you believe that it's okay to lock in 10 year notes at 0.9%, which is what bond funds do, but no sane investor would do that. They will also have you believe that it's okay to buy stocks and bonds as long as the momentum is up. I have been in 100% fixed income since 1989 and every correction since then has made me wealthier as stocks and bonds sell off during market corrections/crashes. Investors/institutions sell everything (bond and stock funds) to raise liquidity. They are the best times to buy bonds at inflated yields.

 

[Montecfo]

^^^^ thanks for the shout out on timing the bond market. Many folks seem to have missed the opportunity to do so last year and earlier this year by avoiding duration owing dur to the equity saw "you can't time the market".

 

[Billy C]

By risk, I was referring to capital risk. CDs are FDIC insured. Treasuries and agency notes are guaranteed by the government. High grade corporate bonds are extremely safe and conservative investments. Bond funds offer no capital protection. Market timing is a sound strategy for fixed income investors (i.e. lock in rates when yields are high and stay in short term cash or other instruments when yields are low). This strategy has been proven to work for decades. The fund industry will have you believe that it's okay to lock in 10 year notes at 0.9%, which is what bond funds do, but no sane investor would do that. They will also have you believe that it's okay to buy stocks and bonds as long as the momentum is up. I have been in 100% fixed income since 1989 and every correction since then has made me wealthier as stocks and bonds sell off during market corrections/crashes. Investors/institutions sell everything (bond and stock funds) to raise liquidity. They are the best times to buy bonds at inflated yields.

Being 100% fixed income since 1989 worked out great since that corresponded with the greatest bull market for bonds in history. But those spectacular bond returns cannot continue with current interest rates being so low. That is my point. There is a great deal of risk in fixed income due to the current high level of inflation and massive government debt. The 10 year TIPS yield is less than 0.5%. It’s hard to build wealth with that kind of return.

I feel bad for my friend who placed all of her money in a 3-year CD. Maybe it will work out for her but I still think she would be better served by getting rid of the FA who is charging her 1% of AUM for that advice, and instead developing a simple, balanced, low cost, index-oriented plan based on her risk tolerance and then staying the course.

 

[pb4uski]

All investments contain an element of risk, which is why I took issue with your original comment. The risks may differ among the various asset classes, but can never be eliminated to zero.

You may be right that the equity markets are in a bubble. Or you may be wrong. That is why a balanced portfolio containing both stocks and bonds has proven to be an excellent strategy for long term investors. Market timing, on the other hand, is not a sound strategy in my opinion.

Welcome Billy C. I think it was pretty evident in Freedom's post that you first responded to that he was referring to credit risk but you raise a valid point that we are all well aware of.

Other than I Bonds that have a big fan club here, virtually every asset class has failed to keep up with inflation since the beginning of 2021... its just a matter of what the best looking horse in the glue factory is.

 

[aja8888]

Just closed on this purchase:

Security Description: BANK OF AMERICA CORP 4.4% 08/23/2027
Action: BOUGHT
Security No./CUSIP: 06048W-X4-7
Type: Cash
Trade Date: 08/19/22
Settle Date: 08/23/22

 

[daylatedollarshort]

Being 100% fixed income since 1989 worked out great since that corresponded with the greatest bull market for bonds in history. But those spectacular bond returns cannot continue with current interest rates being so low. That is my point. There is a great deal of risk in fixed income due to the current high level of inflation and massive government debt. The 10 year TIPS yield is less than 0.5%. It’s hard to build wealth with that kind of return.

The ten year TIPS real currently yield is .41%, more than I-bonds, plus CPI inflation, which is over 8% this year. Older TIPS have a real return of 2% or more, so around 10% this year. It is even harder to build wealth when your investments are losing 10 - 25% in market value, plus another 8% due to inflation, on top of a 4% withdrawal rate.

 

[Freedom56]

…I noticed Wells Fargo A1 rated step up note has been jacked up to 4.1% first 2 years, 4.75% next 2, and 5.75% final year if not redeemed prior. I bought some of this again Thursday. “Time out” money for me, ha.

Hey Mulligan,

The WFC step up note that I see now is 4 year note rated A1/BBB+:

----Date-------CPN APY
08/28/2024 4.100 4.100
08/28/2025 4.700 4.316
08/29/2026 6.500 4.837


Details
CUSIP 95001DC99
ISIN US95001DC996
SEDOL --
Pay Frequency SEMI-ANNUALLY
Coupon Step-up
Maturity Date 08/29/2026
Moody's Rating A1
S&P Rating BBB+
Issuer Events NO
Survivor Option NO
Bond Type Corporate Note
Sector FINANCE (BANK)
Interest Accrual Date 08/29/2022

I'm buying some of that.