Why are my bonds down?

[Freedom56]

Where does one buy these invstment grade corporate bond deals direct?

You need to look at the Finra site for trace data. Calling your broker or using a Fidelity bond selector first is a ticket to getting ripped off. Bond spreads are often very wide. You need to look at Finra trace data to see the price and trade history. Always use limit orders. Never go at ask price unless it is at or below the trace data.

Research the company and pick stable companies in stable to growth sectors like Intel, Applied Materials, JP Morgan Chase, Seagate Technology, Pfizer, Merk...etc

Don't rely on bond ratings. You need to look at free cash flow operating earnings and interest coverage ratio. For example Exxon is still rated as a AAA/AA+ but the reality is they have to issue debt to pay their dividends. Boeing is an example of another ratings disaster. It was rated A about 2 weeks ago and now is rated BBB+. The bonds trade like they are junk rated. It should be rated CCC. Ignore the ratings and look at the company and its fundamentals first.

Bonds Home

 

[Freedom56]

Are you referring to BBB rated bonds? Any examples of the kind of corporate quality you are talking about?

I have only ever bought Treasuries in individual bonds and have no way of rating these except by going by the rating agency ratings. Many funds do their own ratings.

I am referring to BBB, BBB+, A+, A, Baa1 rated bonds from Capital One Financial, JP Morgan Chase, Applied Materials, Intel, and Seagate Technology.

Don't go by ratings only. I have high yield bonds in my portfolio that lower chance of default than an investment grade issue like Boeing, Chevron, or GE.

 

[Freedom56]

Hers is a yield table as of today from Fidelity. All the good, high yield, high quality bonds are gone. The spike was late last week and early this week. Anything with yield now is close to junk rated.

https://fixedincome.fidelity.com/ftgw/fi/FILanding?bar=p

The ratings downgrades in the Muni bond market is about to hit. There will be a sharp downturn in revenue as the stay at home order is in effect and as many businesses in municipalities shutter completely after the order is lifted. Commercial real estate mortgage back bonds are about to become the next subprime debt bomb.

 

[Truckinalong]

The ratings downgrades in the Muni bond market is about to hit. There will be a sharp downturn in revenue as the stay at home order is in effect and as many businesses in municipalities shutter completely after the order is lifted. Commercial real estate mortgage back bonds are about to become the next subprime debt bomb.

I tend to think you are right, Munis in general are regarded as fairly default risk free at a certain quality(I know, not totally) but when in history have so many munis ever been in a scenario with sales tax revenues, toll revenues, convention taxes, airport taxes, liquor sale tax etc etc etc stopped. It has to have a negative impact. With unemployment headed where it will, very likely many won't be able to pay property taxes both residential and commercial. Now I do not think necessarily it means huge defaults as the FED will likely bail out but ratings decline and legitimate financial problems seem more real than ever.

 

[COcheesehead]

I listened to a muni bond fund manager the other day. He was a buyer. The risk reward is still there. Debt is almost always serviced no matter what, because if it’s not, they will never get financing again. Municipalities have multiple sources of revenue. He brought up the recent changes for online purchases that now must include sales tax. Things like that weren’t available in the last down turn.
Ratings down grades don’t hurt a bond I already own. I hold to maturity so I could care less what the value of it is day to day.
As far as getting ripped off by a Fidelity, they give you access to third party pricing. It’s a visible part of the process.

 

[Truckinalong]

If you are holding the bond yourself to maturity you are correct. I recently learned mostly through bad tax harvesting timing on my part the perils of a muni bond fund. That said, I will get back in at some point, I just understand them better now with an expensive lesson.

 

[COcheesehead]

I don’t own muni funds. Funds have no par, no end date so you can experience NAV erosion.
I own the bond. It’s counter intuitive, but I think they are safer if you can buy enough to create your own diversified pool.

 

[Truckinalong]

Agreed, though watching VWAHX through this and being in it for a lot of years it does sort of seem to revert to a mean over time. Sometimes overheated, sometimes over discounted. The NAV is not predictable to your point to some degree but also not fully unpredictable.

 

[Freedom56]

I listened to a muni bond fund manager the other day. He was a buyer. The risk reward is still there. Debt is almost always serviced no matter what, because if it’s not, they will never get financing again. Municipalities have multiple sources of revenue. He brought up the recent changes for online purchases that now must include sales tax. Things like that weren’t available in the last down turn.
Ratings down grades don’t hurt a bond I already own. I hold to maturity so I could care less what the value of it is day to day.
As far as getting ripped off by a Fidelity, they give you access to third party pricing. It’s a visible part of the process.

All brokers are required to give you third party pricing. But what Fidelity doesn't let you do is put a bid more than 2 points below their ask price online. So you can have situations like last week where trades were executing 10 to 15 points below Fidelity's ask price and the only way around that was to call their bond desk and good luck getting someone on the phone during the panic selling. What I ended doing is calling their bond desk before the market open and demanded that they put in my low ball limit orders even if they were 10 to 12 points below their own ask prices or my account goes somewhere else. Fortunately my portfolio is large enough that they take my threats seriously. Many bonds have a minimum 200 (200K) per trade restriction as they are interested in institutional investors. So in those cases a 10 - 12 spread is a lot of money. Their $1 per bond commission is total BS. They make their money on the bid and ask spread.

 

[COcheesehead]

All brokers are required to give you third party pricing. But what Fidelity doesn't let you do is put a bid more than 2 points below their ask price online. So you can have situations like last week where trades were executing 10 to 15 points below Fidelity's ask price and the only way around that was to call their bond desk and good luck getting someone on the phone during the panic selling. What I ended doing is calling their bond desk before the market open and demanded that they put in my low ball limit orders even if they were 10 to 12 points below their own ask prices or my account goes somewhere else. Fortunately my portfolio is large enough that they take my threats seriously. Many bonds have a minimum 200 (200K) per trade restriction as they are interested in institutional investors. So in those cases a 10 - 12 spread is a lot of money. Their $1 per bond commission is total BS. They make their money on the bid and ask spread.

Fighting over nickels for muni’s. I took ask on many of them earlier in the week and late last week. Happy to have them now. Raised my average yield by a percent on my bond portfolio. That’s a lot. Those deals are all gone.

 

[Truckinalong]

Yes, I need a another Muni plummett to get back in selfishly. Right now my debate is VTEB or VWIUX.

 

[socca]

OK, you guys made me blink. It's not a real financial crisis unless I'm also tracking reported assets under management (AUM). Here are the numbers for 02/29/20. All numbers are $ billions.

• VG Muni Money Market: 18.2
• VG Short-Term Tax-Exempt: 17.3
• VG Limited-Term Tax-Exempt: 31.0
• VG Intermediate-Term Tax-Exempt: 77.4
• VG Long-Term Tax-Exempt: 15.0
• VG High-Yield Tax-Exempt: 17.7
• TOTAL: 176.6

For reference, here is :
• VG Federal Money Market: 156.5

The VG fund AUM data for end-of-March will be available in early April. Don't lose any sleep waiting for it.

 

[RobbieB]

My muni bonds are up today just like my equities

 

[BeachOrCity]

Fighting over nickels for muni’s. I took ask on many of them earlier in the week and late last week. Happy to have them now. Raised my average yield by a percent on my bond portfolio. That’s a lot. Those deals are all gone.

Be careful with munis right now. State and local governments are looking at a steep drop off in revenues.
All kinds of revenues are headed down
Local income taxes
Restaurant sales taxes
Property taxes if housing prices decline

Plus higher local expenses as a result of this. State and local can’t run deficits the way the feds do. And it is far from certain they won’t default.

 

[njhowie]

Be careful with munis right now. State and local governments are looking at a steep drop off in revenues.
All kinds of revenues are headed down
Local income taxes
Restaurant sales taxes
Property taxes if housing prices decline

Plus higher local expenses as a result of this. State and local can’t run deficits the way the feds do. And it is far from certain they won’t default.

However, like the Feds, they do have the ability to "print" more money. With interest rates so low, most all with borrowing capacity are capable of issuing new/more bonds at historically low rates. There would be plenty of demand for 2% or 3% tax free munis at this time with Fed rate at 0%. Over the past couple months I've been seeing lots of new tax free issues coming to market at under 2%.

 

[COcheesehead]

Be careful with munis right now. State and local governments are looking at a steep drop off in revenues.
All kinds of revenues are headed down
Local income taxes
Restaurant sales taxes
Property taxes if housing prices decline

Plus higher local expenses as a result of this. State and local can’t run deficits the way the feds do. And it is far from certain they won’t default.

Not all muni’s are tied to municipalities. They fund specific projects as well with their own revenue streams.

 

[Kimo]

Could't say it any better myself

I am not in bond funds to make a profit on selling shares. Instead, I am in bond funds for their monthly dividends




Exactly.

 

[2177V]

I just calculated the damage on my portfolio for the recent crash. Unsurprisingly, all my stocks are way down. This should be fine, because I've "diversified" my portfolio. Then why are my bonds down 8% too?

Check out the following link:

https://obliviousinvestor.com/what-happens-to-bonds-in-a-stock-market-crash/

I reallocated from 60/40 AA to 100% treasuries last Summer 2019 after the yield curve inverted plus various other reasons. Treasuries are the only asset class that rises during a bear market due to the flight to quality.

Most people understand equities but less people understand bonds. I suggest that you learn more about bonds and about treasuries and you will become a better investor. After each crash, I tried to learn as much as I can, to prepare myself and become a better investor. That has paid off recently....making this my best bear market ever.

 

[COcheesehead]

I post on a private financial forum at a large brokerage. I can say without hesitation, the most misunderstood investments are bonds based on some of the stupidity posted in that forum.

 

[2177V]

I post on a private financial forum at a large brokerage. I can say without hesitation, the most misunderstood investments are bonds based on some of the stupidity posted in that forum.

I agree. For example, you have to understand the risks first....There are "interest rate" risk and well as "flight from quality" risks. Example: Here is the total performance of VUSUX LT treasuires:

2007 +9.8% Beginning of the last severe Bear market
2008 +24% Bear market (as I stated previously, treasuries rises during a bear market)
2009 -12.9% End Bear Market

2019 +14.8% Prior to 2020 severe bear market
2020 YTD +14% Bear Market

I was fully aware of the 2007, 2008, 2009 numbers. Note that in 2009 was a -12.9% return because of a "flight from quality" when investors started pulling money from treasuries and back into equities. Here is a link that explains flight to quality and flight from quality:

https://www.thebalance.com/what-is-the-flight-to-quality-416873

Why did treasuries did well in 2019 when interest rates are so low? Answer: There are two components for the total return of a treasury bond fund: Price plus interest rates. Even if you get 0% on the interest rates, you can still get a high price return if there is a demand for the treasuries.

When the yield curve inverted, I understood that the yields are declining for long term treasuries. When the yields are declining, that means the prices are rising because "yield and price move in opposite direction". This is why I reallocated my entire 60/40 portfolio to 100% treasuries bonds because of my knowledge of how treasury bonds work. At that time I realize that there was little risk of interest rates rising and there is little risk of a flight from quality...so I went "all in".

PS: I hope other people will think my post on bonds make sense.

 

[Gearhead Jim]

About 15 years ago I decided that the various risks bonds have, as discussed here, made them less appropriate for my "secure money" allocation than CD's. Bond funds and individual bonds have different risks but still more than I wanted. Went to a CD ladder with FDIC insurance.

Now that interest rates are dropping, my CD's don't gain in value from that but they are now paying above-market rates. I sleep well at night.

 

[Freedom56]

I don't know if people are paying attention, but corporate bonds (investment grade and certain high yields) have been getting bids and been moving up as treasury yields fall. Things are appearing to normalize but it's too early to tell.

Here are some examples of some high yield bonds that I purchased during the sell-off below par:

Bonds Detail

Bonds Detail

The BB- rating for Advanced Micro Devices or the Baa3 rating for Seagate technology doesn't bother me at all. This is a case where you have two companies with strong fundamentals rated incorrectly by the rating agencies. The market is correctly pricing these corporate notes and they are much safer than investment grade notes from GE or Boeing or the AAA rated notes from Exxon Mobile.

 

[Doc0]

All Funds bonds or stocks have a risk on risk off reality devoid of valuation. Vanguard gets a buy order and they buy. Vanguard gets a sell order and they sell. So the value of the fund is strictly supply and demand. More sell than buy orders the fund prices go down. There has been a monthly accumulation bias to buy every month as people accumulate. Right now that bias is extinguished making the funds more susceptible to sell pressure and lower prices. Also depending on the fund mix some corporate. If BBB bonds will default in this kind of upheaval. If BBB turns into junk they are going to be worth pennies on the dollar in this illiquidity.

 

[scrabbler1]

I am not in bond funds to make a profit on selling shares. Instead, I am in bond funds for their monthly dividends, as I have been living off that in my 11 years of ER. What I will be interested in is what that monthly dividend (dividend per share) will be at the end of March (and beyond). Will that monthly DPS be fairly stable or will that take a hit, too?

For March, the monthly main bond fund's monthly dividend came in at 3 cents per share, my desired, ordinary, amount. About 10 days ago, I had contacted my fund company to get the Daily Mil Rate for the fund through ~22 days. It was normal, it hadn't taken a hit. I will contact the fund company once or twice during April to see how the fund's Daily Mil Rate is doing so I won't get blindsided at the end of the month by any unusual activity.

 

[socca]

Vanguard muni bond yield curve for 5 pm ET 3/31/20:

• VG Muni Money Market: 3.20%
• VG Short-Term Tax-Exempt: 1.82%
• VG Limited-Term Tax-Exempt: 1.71%
• VG Intermediate-Term Tax-Exempt: 1.80%
• VG Long-Term Tax-Exempt: 2.15%
• VG High-Yield Tax-Exempt: 2.67%

For reference, here is:

• VG Federal Money Market: 0.68%

Comment:

• Although the yield on VG Muni Money Market has dropped substantially since its recent peak last Wednesday 3/25 (4.05%), the ratio of VG Muni Money Market to VG Federal Money Market has only dropped from 4.9 to 4.7, so there is still lots of fear in the market regarding short-term muni bonds. The rest of the VG muni bond yield curve continues to drift steadily upwards.