On energy, do you avoid even things like Chevron, Nextera, etc?
Individual bonds
- Thread starter beachfire
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On energy, do you avoid even things like Chevron, Nextera, etc?
Freedom56
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I really avoid all cyclical sectors and I consider energy to be a graveyard for fixed income investors as well as stock investors. Airlines are another sector I avoid. Chevron and Exxon bonds are overpriced. Seventy percent of the demand for oil comes from automobiles. With all the money being invested in EV and battery technology it's a matter of time before battery technology is more affordable and more efficient for the mass market. I don't find any values in power generation fixed income . Technology has and continues to change the world. So instead of fighting change, I invest only in sectors that continue to grow.
pb4uski
Give me a museum and I'll fill it. (Picasso) Give me a forum ...
I appreciate the list but am struggling with how realistic it is to expect these first two issues that are currently yielding ~2.5% to double in yield.
For example, for the WF issue to yield 5% then the price would have to decline to $89.60 (4.48% coupon*100/5% yield) vs the current price of $103.22. Or for the Citi issue to yield 5% then the price would have to decline to $73.00 (3.65% coupon*100/5% yield) vs the current price of $101.97. Seems like it might be a long time.
What are you doing with your dry powder in the meantime?
Freedom56
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Here are the limitations in buying corporates at Fidelity. In the attached order book for an issue that I purchased recently the bid is currently $99.59 and the ask is $100.136. The system allows me to enter a buy order all the way down to $97 without contacting the bond trading desk. However with Fidelity if I wanted to set it below $97 or specify a minimum quantity that I was willing to buy as noted in the parenthesis, I have to call the order desk. With online entry an order for 100 bonds at a price means "fill it all or nothing" at the price I set. In this case the recent trades are on average between the bid and ask. But last week, recent trades were much lower that the current bid/ask from Fidelity. So I set my limit price just over 2% lower than the ask price at Fidelity and waited for my order to be filled. It took three trading days to get my price but I saved $4000 by doing that and in effect received a higher yield. The point I was trying to make is that if you blindly go in and buy a bond at ask price you are overpaying but your order is filled right away (no different from market order for stocks). If you look at the recent trades you can see that the price varies such that the $1 commission for each bond is moot compared to the spread in pricing. This is why most other brokers don't charge the $1 commission for bonds and they make their real money from the bid and ask spreads. Fidelity does both.
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Freedom56
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It's yield to maturity. Theses notes are not perpetual. The duration is only two years. At par ($100) the Wells Fargo note yields 4.48%. To get a yield of 5% it has to drop to $99. The Citi issue would have to drop to $97.4.
My dry powder is sitting in money market savings accounts at 0.5% linked to my brokerage accounts. I sweep all my coupon payments to money market accounts.
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Just trying to be sure I understand. I think you are saying that through the use of a limit order you were able to put in your price and wait for the market to "come to you" exactly like with a stock trade. You are NOT saying that the use of the limit order caused the trading desk to compress their mark up and take less of a spread. Is that right?
Thanks
pb4uski
Give me a museum and I'll fill it. (Picasso) Give me a forum ...
Got it... my bad.... too used to perpetual preferreds (which I no longer have).
njhowie
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I understand what you're saying, have encountered same with munis, and have uncovered a workaround which allows you to go lower without calling in.
Here, this is an example with corporates:
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Freedom56
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Correct. Limit orders allow me to wait for the market to come to me. The trend is down for bond prices in the near term. However unlike stocks, these corporate notes have limited duration and are redeemed at par or called early higher than par. I'm basically locking in a yield to maturity that I can live with for the next two three years. Your capital is returned to you at maturity with the final coupon payment. If you bought below par like I always do, you realize a capital gain when the bond/note matures. I also only buy fixed income when yields become attractive. My last round of purchases was back in March 2020 and prior to that at the end of 2018. I just accumulate cash from redemptions and coupon payments in money market accounts until it's time to buy again. We are entering that period again. However this time it will be particularly destructive given how low some coupon payments are for many bonds/notes issued by corporations during the past two years and those fools buying sovereign debt with negative yields. Over $2.6 trillion has been wiped out of bonds so far with rates rising. I would speculate that the yield curve will begin to invert after the next few rate hikes signaling an economic slowdown as the bond market assesses the impact of further rate hikes.
Freedom56
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Can you share what you did to bypass the "There is no displayed quote that will satisfy your order. If you're attempting to enter an order at the same price as the displayed quote, confirm the quantity fulfills the dealer's quantity requirements. If you are attempting to enter a limit order at a price other than the displayed price, enter your order between XXX and XXX."
njhowie
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Will send you a PM in the next hour or so.
Freedom56
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Here are some higher quality preferred stocks that I am tracking from banks and insurance companies. Although some are as much as 18% off their 52 week highs, they should be avoided until we see the mass liquidation by preferred ETFs like PFF and PGX and yields climbing to over 7-7.5%. I don't know if we will see the carnage like we saw in March 2020 but anything is possible given how low the coupons are now. I was aggressively buying at that time and will do the same if it happens again. I would not even begin to entertain buying them at this time.
I also included some well managed preferred CEFs. I plan to buy these if/when their yields exceed 10%. They are leveraged and much more volatile. However a CEF such as PDT has outperformed the S&P 500 over the past 20 years.
I also included some well managed preferred CEFs. I plan to buy these if/when their yields exceed 10%. They are leveraged and much more volatile. However a CEF such as PDT has outperformed the S&P 500 over the past 20 years.
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Freedom56
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Last but not least, here are the California muni-bond CEFs that I am tracking. The leveraged CEFs are now trading with yields from 4% to over 5%. The zero leveraged CEFs are just over 3%. The yields are still not attractive enough to buy at this time, however they have improved over the past month.
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aja8888
Moderator Emeritus
In the nutty times during 2020 when everything sank, my best preferred stock buy was CHSCM @ $17. I sold a bunch of it a shade over $28.00 last year. If preferred stocks are taken out to the wood shed again like that, they will be attractive....especially the ones that pay a cumulative dividend and won't go BK when the recession hits from high interest rates and the FED's QT actions.
njhowie
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Mine was RILYN @ $7.31 on 3/18/2020 currently at $25.51
aja8888
Moderator Emeritus
Wow!
I had missed CHSCM at $13, if my memory is correct. Boy, that was a good time to have cash.
Freedom56
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There is a good possibility that they will. Many investors buy and sell based on fear and emotion not fundamentals. The vast majority of investors buy low cost passive funds where BOTs make buy/sell decisions based on fund flows. Those funds are responsible for the carnage that occurs. Unless the Fed changes course, tax loss selling season is going to be particularly brutal or a great opportunity depending if your are a buyer or seller.
aja8888
Moderator Emeritus
I have all my retirement assets at Schwab (38 years now) and I just spoke with the Bond Desk about no mechanism to buy bonds via a "bid" price on their website. No good news as the only option is place an order at the "ask" price. When I inquired about having a bond trader place an order using a bid price, that was kind of blown off as not that attractive to try.
I would guess that if I placed a bond order willing to pay the ask price, they would probably make some kind of cut on the action seeing they could easily buy the bond at their bond desk at some lower price and sell it to me at ask. This sucks.
I would guess that if I placed a bond order willing to pay the ask price, they would probably make some kind of cut on the action seeing they could easily buy the bond at their bond desk at some lower price and sell it to me at ask. This sucks.
Freedom56
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This is how they make their money. Every quarter you can hear the CEOs of JP Morgan and Goldman Sachs talk about strong profits from fixed income trading. While the days of high commission stock trades died, hidden bond trading commissions never did. Even worse is that many secure bonds that are designated 144A are unavailable to retail investor and are limited to registered institutions. Think about that for a moment. The SEC is shutting retail investors out of secured bonds/notes but will let them buy unsecured bonds/notes. Does that make sense?
aja8888
Moderator Emeritus
It's tough being the small guy.
But I suppose I could move my account to Fidelity but that would probably not be worth it. I guess I could just bite the bullet and pay the ask on a bond trade. As long as I don't go nutty and buy a huge amount, it won't be too bad in the long run.
Freedom56
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I have executed many bond trades on Schwab and often have found that their ask prices are lower than recent trades reported by FINRA. But 60% of the time I have to call their bond trading desk. TD Ameritrade actually encourages you to call their trading desk for the best prices because their online quoted bid and ask are 2-3% higher than the current market price.
aja8888
Moderator Emeritus
Isn't TD Ameritrade part of Schwab now? I recall they bought them out. I guess they may be a separate entity?
Freedom56
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The have not fully integrated. The sites are operating as if nothing changed for now.
aja8888
Moderator Emeritus
That's kind of what I thought. The guy I spoke with at the bond desk this morning told me he had just "come over" from TDA. Maybe they are starting to integrate the employees now that Covid is quiet.
I buy individual muni bonds through Schwab. Previously I had a personal account rep solely for my bond portfolio. Which meant that each time I wanted to buy a bond I could process it through him. I would offer a price below the ask and he would try and fill the order. Sometimes it went through and sometimes it didn't. Unfortunately, this gentleman retired and that ability has went away. I have also noticed that Schwab seems to be shifting its customer service away from individualized account reps even for larger accounts. It doesn't really bother me (except for loss of the above ability) because I never really need an account rep. If I have an issue I go to my local Schwab office and they resolve the issue personally.
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