Interest Rates and Bonds

[Freedom56]

Can you find it on Schwab?

Schwab uses JPM/PRC. The suffix is /PR to the common stock symbol followed by the series letter (in this case "C").

By the way, waiting to buy investment grade preferred stocks when the yields spike up to 7.5-9% is sound advice. Funds are forced to sell into a market as panicked investors exit those funds. At those high yields, the yield to call is significantly better due to the difference in price between what you paid for the preferred stock and the call price.

 

[aja8888]

If you are going to buy a preferred stock, make sure the dividend is "Cumulative" in the event it is suspended for a while.

Quantum online is a great and free website for evaluating preferred issues:

https://www.quantumonline.com/Index.cfm

It's used here by the folks who buy these stocks.

 

[Freedom56]

This is from Barron's a few days ago regarding preferred stocks.

https://www.barrons.com/articles/buy-preferred-stocks-51651884060

Waiting to buy assets, whether they are bonds, preferred stocks, real estate, when they are undervalued is sound advice. Buying those assets when they are overvalued is total absurdity. We are entering a precarious period where the stock market casino is on the verge of crashing. When that happens everything drops. A smart investor waits for those moments to buy quality fixed income assets as steep discounts.

You should understand what you are buying but do people who buy funds really understand what they are buying?

 

[Freedom56]

If you are going to buy a preferred stock, make sure the dividend is "Cumulative" in the event it is suspended for a while.

Quantum online is a great and free website for evaluating preferred issues:

https://www.quantumonline.com/Index.cfm

It's used here by the folks who buy these stocks.

That would eliminate investment grade bank preferred stocks which are the highest quality preferred stocks in the market.

 

[aja8888]

That would eliminate investment grade bank preferred stocks which are the highest quality preferred stocks in the market.

Many folks here have bought both (non and cumul.) if you check the preferred thread. Many of the folks like the cumulative dividend protection. It depends on what one is comfortable owning.

I'm in agreement that the BIG banks are safe plays. But many banks have gone under and if things get real squirrely as is heading that way, nothing is safe in the equity and debt markets.

 

[Freedom56]

Many folks here have bought both (non and cumul.) if you check the preferred thread. Many of the folks like the cumulative dividend protection. It depends on what one is comfortable owning.

I'm in agreement that the BIG banks are safe plays. But many banks have gone under and if things get real squirrely as is heading that way, nothing is safe in the equity and debt markets.

I see cumulative preferred stocks as a "red flag" since only only blue-chip companies with strong dividend histories can issue non-cumulative preferred stock without increasing the cost of capital.

 

[daylatedollarshort]

Many folks here have bought both (non and cumul.) if you check the preferred thread. Many of the folks like the cumulative dividend protection. It depends on what one is comfortable owning.

I'm in agreement that the BIG banks are safe plays. But many banks have gone under and if things get real squirrely as is heading that way, nothing is safe in the equity and debt markets.

Great Western went under in the last recession.

 

[lawman]

I will likely have to pass on preferred as I'm not comfortable buying things I don't understand..Do the preferred stock ETF's have the same shortcomings as bond funds?

 

[jazz4cash]

I am sitting on a lot of cash and am not actively buying. My next maturities are in late 2023 and early 2024. Then 2025, 2027 and 2031. There is nothing wrong floating cash in a money market fund or with short term treasury notes waiting for those bargains to appear. I'm waiting again for that March 2020 moment before I aggressively buy. The FED is now taking about bringing the target rate up to 3.5% by the end of the year. Short term treasuries, CD, Muni bonds, and investment grade corporate notes are not reflecting that reality.

I’ve been following your line of reasoning very closely. I got lucky in March 2020 but I did not have a lot of dry powder. I have more cash this time. How long do you expect the next opportunity will last? In 2020 it only lasted a week or two as I recall. If you hesitated the deals were substantially weaker.

 

[jazz4cash]

Agreed, but understanding starts with reading and talking to those who do understand.

There is a very long thread devoted to buting preferred shares. That would be a great place to learn from experienced strangers on the internet.

 

[lawman]

There is a very long thread devoted to buting preferred shares. That would be a great place to learn from experienced strangers on the internet.

How do I find it? Can you give us a link?

 

[aja8888]

I see cumulative preferred stocks as a "red flag" since only only blue-chip companies with strong dividend histories can issue non-cumulative preferred stock without increasing the cost of capital.

You should check out the preferred stock thread here (years old). Most of us who had many preferreds during the "low interest rate" times have sold all them off. I have one left out of dozens I had and made good money on all of them over a few years time. Most were sold off last year when treats of rising interest rates were announced.

Poster "Mulligan" is the preferred stock/baby bond Guru here.

I'm going to follow your bond lead when rates go higher as I am sitting on a pile of cash after selling all but one of my preferreds.

 

[Freedom56]

You should check out the preferred stock thread here (years old). Most of us who had many preferreds during the "low interest rate" times have sold all them off. I have one left out of dozens I had and made good money on all of them over a few years time. Most were sold off last year when treats of rising interest rates were announced.

Poster "Mulligan" is the preferred stock/baby bond Guru here.

I'm going to follow your bond lead when rates go higher as I am sitting on a pile of cash after selling all but one of my preferreds.

I have been posting on that thread for years. Read my posts from March 2020, December 2018 and 2017 and back to 2015 and 2013. I never hold preferred stocks for long periods of time as there is no incentive to after they recover from their periodic thrashing.

 

[jazz4cash]

How do I find it? Can you give us a link?

It’s in the “sticky note” area of the Active Investment Strategy board…

Preferred Stock Investing-The Good , The Bad and The In Between 2021
https://www.early-retirement.org/forums/showthread.php?t=107188

 

[njhowie]

This is from Barron's a few days ago regarding preferred stocks.

https://www.barrons.com/articles/buy-preferred-stocks-51651884060

Waiting to buy assets, whether they are bonds, preferred stocks, real estate, when they are undervalued is sound advice. Buying those assets when they are overvalued is total absurdity. We are entering a precarious period where the stock market casino is on the verge of crashing. When that happens everything drops. A smart investor waits for those moments to buy quality fixed income assets as steep discounts.

You should understand what you are buying but do people who buy funds really understand what they are buying?

Waiting for those moments is unquestionably market timing. Nothing wrong with it, but you have no guarantees that they will recur, when, or by how much.

If 6% on a bank preferred is an acceptable yield for your investment purposes/objectives, there is no need to wait. In waiting, you may get your 7%-9%, or you may not. Further, you can always buy more should the price go lower, taking yield higher. However, what you can be assured of, is that you've locked in your 6% (or whatever based on what your first buy point is) and will not get any less.

I have a number of bank preferreds that I've been nibbling on, am happy with at this time, and will buy more should they trade lower. I also have one baby bond (exchange traded debt) that I've been nibbling on as well as it trades lower - it matures in November 2026 and has a 7% coupon. It was just issued November 2021. It's been knocked below par and now has a yield to maturity of 9.8% (for 4.5 years). If called November 2023, yield to call is 15.8%. This is not a junk issue either.

Anyhow, my point is that once the yield gets to a place where it meets what you're looking for, there is no necessity to wait for more/better. At the end of the day, we do not know where rates are going or what might happen along the way. The same way you look for black swan situations to take interest rates higher, we could just as easily have one where rates are immediately taken back to zero, or even negative.

Your objective is waiting for those events and making a quick profit trading on it. Nothing wrong with that. However, most other folks are looking to lock in the income stream.

Folks interested in preferreds or exchange traded debt should get familiar with quantumonline.com, as they have very good resources for searching and investigating these.

 

[lawman]

Waiting for those moments is unquestionably market timing. Nothing wrong with it, but you have no guarantees that they will recur, when, or by how much.

If 6% on a bank preferred is an acceptable yield for your investment purposes/objectives, there is no need to wait. In waiting, you may get your 7%-9%, or you may not. Further, you can always buy more should the price go lower, taking yield higher. However, what you can be assured of, is that you've locked in your 6% (or whatever based on what your first buy point is) and will not get any less.

I have a number of bank preferreds that I've been nibbling on, am happy with at this time, and will buy more should they trade lower. I also have one baby bond (exchange traded debt) that I've been nibbling on as well as it trades lower - it matures in November 2026 and has a 7% coupon. It was just issued November 2021. It's been knocked below par and now has a yield to maturity of 9.8% (for 4.5 years). If called November 2023, yield to call is 15.8%. This is not a junk issue either.

Anyhow, my point is that once the yield gets to a place where it meets what you're looking for, there is no necessity to wait for more/better. At the end of the day, we do not know where rates are going or what might happen along the way. The same way you look for black swan situations to take interest rates higher, we could just as easily have one where rates are immediately taken back to zero, or even negative.

Your objective is waiting for those events and making a quick profit trading on it. Nothing wrong with that. However, most other folks are looking to lock in the income stream.

Folks interested in preferreds or exchange traded debt should get familiar with quantumonline.com, as they have very good resources for searching and investigating these.

I read these posts and they make me feel so ignorant.. Some of you seem to able able to make 7% to 15% with low risk..Yesterday I purchased a $50,000.00 Treasury with a ytm of 1.443% maturing 11/15/22..I wish I knew how to do better.

 

[njhowie]

I read these posts and they make me feel so ignorant.. Some of you seem to able able to make 7% to 15% with low risk..Yesterday I purchased a $50,000.00 Treasury with a ytm of 1.443% maturing 11/15/22..I wish I knew how to do better.

For 6 months, there is absolutely nothing wrong with that yield - if it meets your objective. If your hurdle is cash and CD yields for that maturity, you're doing fine. For my 7% baby bond, there's no guarantee what the value will be six months from now. There's obviously also some level of default potential, no matter how strong the company backing it is. Your treasury has no risk whatsoever - other than inflation risk negating any yield you may get out of it, but that's no different than a CD or any other asset.

If you are interested in fixed income and getting higher yields, just follow some of the folks around here and what they say and suggest. Freedom56 is one of the stars around here - so it's good to listen to what he says, use his tips, and make it work to your advantage and your investment objectives.

 

[lawman]

For 6 months, there is absolutely nothing wrong with that yield - if it meets your objective. If your hurdle is cash and CD yields for that maturity, you're doing fine. For my 7% baby bond, there's no guarantee what the value will be six months from now. There's obviously also some level of default potential, no matter how strong the company backing it is. Your treasury has no risk whatsoever - other than inflation risk negating any yield you may get out of it, but that's no different than a CD or any other asset.

If you are interested in fixed income and getting higher yields, just follow some of the folks around here and what they say and suggest. Freedom56 is one of the stars around here - so it's good to listen to what he says, use his tips, and make it work to your advantage and your investment objectives.

I'm hoping to do that..I took a beating when I finally sold my bond fund. What I would like to do is to replace it with individual bonds so that I don't get caught holding a bond fund when rates suddenly go higher. The problem I think I will have is trying to get investment grade bonds averaging 6 years in duration that will get me 4.5% which is what the fund is now yielding..My guess is I got out at exactly the wrong time but for all I know rates could still go up another 3 points or more..After watching Schwab's bond offerings I am having doubts that good bonds will be available to investors like me.I am certainly hoping to learn how to do better by follwing people like you and Freedom 56..Right now I just want to hold my cash and be ready to move if the right time comes..Thanks

 

[njhowie]

I'm hoping to do that..I took a beating when I finally sold my bond fund. What I would like to do is to replace it with individual bonds so that I don't get caught holding a bond fund when rates suddenly go higher. The problem I think I will have is trying to get investment grade bonds averaging 6 years in duration that will get me 4.5% which is what the fund is now yielding..My guess is I got out at exactly the wrong time but for all I know rates could still go up another 3 points or more..After watching Schwab's bond offerings I am having doubts that good bonds will be available to investors like me.I am certainly hoping to learn how to do better by follwing people like you and Freedom 56..Right now I just want to hold my cash and be ready to move if the right time comes..Thanks

I don't believe that Schwab or any of the major retail brokers restrict bonds to particular clients. Certainly not what's available in the secondary market.

 

[lawman]

I don't believe that Schwab or any of the major retail brokers restrict bonds to particular clients. Certainly not what's available in the secondary market.

I just think that bond fund managers probably have access to better bonds than Schwab has to offer to investor's like me..

 

[njhowie]

I just think that bond fund managers probably have access to better bonds than Schwab has to offer to investor's like me..

As a newbie/beginner investing in bonds, what makes you think that? Did you read it somewhere? Have some evidence of it? Just a hunch?

I'm assuming your definition of "better" is that it offers a higher yield? Is that correct? I have plenty of examples where I've gotten quantity 5 or 10 of a particular bond for a significantly better price/yield than what a fund manager got for the same bond for much higher quantity immediately before or after me. I'm no special bond investor. Yet I have evidence that the individual retail investor can do better than the bond fund manager.

 

[aja8888]

I just think that bond fund managers probably have access to better bonds than Schwab has to offer to investor's like me..

I have been with Schwab for 38 years.

They have access to the same bonds other brokers have. You just have to do the research and find what you want. If you can't find it, call the Bond Desk, they will be happy to help you.

Investing is work. It takes effort and knowledge and that knowledge is obtained through reading and learning the ropes. It's clearly not easy.

 

[pb4uski]

Great Western went under in the last recession.

Are you sure about that?

From what I could find Great Western Bank was acquired by Washington Mutual in 1997. 11 years later, in 2008, WaMu was placed into receivership by the OTC and was ultimately purchased by JPM.

 

[lawman]

They have access to the same bonds other brokers have. You just have to do the research and find what you want. If you can't find it, call the Bond Desk, they will be happy to help you.

All I know to do is to look at the bond offerings that Schwab offers on their offerings page..Where do you find what you want? I can pull up other bonds by CUSIP but I don't know a good resource for identifying other bonds.

 

[jazz4cash]

I just think that bond fund managers probably have access to better bonds than Schwab has to offer to investor's like me..

I think just the opposite. I regularly see small quantities of bonds available that are just too small for a bond fund manager to have any interest in. Most of my purchases are in the 10-25k range. I would not go much over 25k on an issue for reasons of diversification. Maybe you are looking to take much larger positions so it may not work for you.