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

[pb4uski]

Note the settlement date on this is 12/21 and won't start accruing interest until then.

Yeah, I got caught on that one, not realizing that it won't settle until 12/21. If the purchase was at Vanguard or Fido it would not be a big deal because the settlement account earns decent interest, but at Schwab the settlement account only yields 0.4% so I'll have $100k sitting there not doing much of anything until Dec 21. So I'm going to call and see if I can cancel the buy and I'll either buy something else or buy it closer to settlement if it is still available.

Lesson learned to pay attention to funding timing for new issues.

 

[pb4uski]

I'm curious as to how y'all categorize callable bonds in your ladder. For example, yesterday I bought an agency bond with a 6.45% coupon at a little over par that matures in Oct 2037 but is callable beginning in Jan 2023.

I doubt that it will get called in Jan 2023, but is likely to get called before 2037... in the meantime I'll be content with the 6.45% coupon. I assume that if rates decline that it will be pegged to par or therabouts because of the call but if rates rise then the value will decline but I'm content with the 6.45% coupon.

So what rung of the ladder does this belong in? 2023? 2037? Somewhere in between and if so, where?

 

[Retired2021]

Tried to post my cliff notes, kept getting rejected with file size to large. I'm done trying, but thanks again to all contributors. So appreciate your knowledge and perspective!

Here goes...

 

[COcheesehead]

I'm curious as to how y'all categorize callable bonds in your ladder. For example, yesterday I bought an agency bond with a 6.45% coupon at a little over par that matures in Oct 2037 but is callable beginning in Jan 2023.

I doubt that it will get called in Jan 2023, but is likely to get called before 2037... in the meantime I'll be content with the 6.45% coupon. I assume that if rates decline that it will be pegged to par or therabouts because of the call but if rates rise then the value will decline but I'm content with the 6.45% coupon.

So what rung of the ladder does this belong in? 2023? 2037? Somewhere in between and if so, where?

I use the Fidelity bond analysis tool and it will show the bond in the rung of the year it matures. It will also show up in the call potential column.

So I keep an eye on potential calls, but see the bond as running to maturity. If it gets called, I can easily replace it at or near the original maturity date - maybe not at the same yield, but same duration, if I want.

I try and stay true to a ladder strategy: reinvest maturing and called bonds on the long end.

 

[Freedom56]

I'm curious as to how y'all categorize callable bonds in your ladder. For example, yesterday I bought an agency bond with a 6.45% coupon at a little over par that matures in Oct 2037 but is callable beginning in Jan 2023.

I doubt that it will get called in Jan 2023, but is likely to get called before 2037... in the meantime I'll be content with the 6.45% coupon. I assume that if rates decline that it will be pegged to par or therabouts because of the call but if rates rise then the value will decline but I'm content with the 6.45% coupon.

So what rung of the ladder does this belong in? 2023? 2037? Somewhere in between and if so, where?

For me it belongs in the date of maturity. I keep track of the next call date. Unless Powell and company decide to start cutting rates aggressively, the call risk of recently issued notes is still low. There is zero call risk for the notes issued in 2021 for obvious reasons.

 

[Freedom56]

The Fed has been pretty consistent with messaging (at least this year).

"The Federal Reserve needs to raise interest rates quite a bit further and then hold them there throughout next year and into 2024 to gain control of inflation and bring it back down toward the U.S. central bank's 2% goal, St. Louis Fed President James Bullard said on Monday."

The sweet spot is in currently in the 1-2 year durations now until the bond market adjusts for the reality that interest rate cuts are not coming in 2023. I just wonder how many of the Fed officials and their close friends and family members were shorting the market before they started the aggressive rate hikes.



https://www.reuters.com/markets/us/fed-has-a-ways-go-interest-rate-hikes-bullard-says-2022-11-28/

 

[GravitySucks]

I'm curious

So what rung of the ladder does this belong in? 2023? 2037? Somewhere in between and if so, where?

I buy the bond to fit the rung of the ladder. So I would have considered this one to be year 15. If it's called I'd try to replace it with another FI instrument maturing in 2037.
I had an 8 year ladder that is down to 3 years. Rates had been so crappy so long I have been buying 1 to 3 year corporates with my rebalancing and reinvesting the wrungs that matured. In the next 3 months I'll have 2023 rung plus two other bonds mature. I'll add year 4 and 5 back on my ladder and if I don't spend the 3rd maturing bond I'll add year 6. The rest of the FI I will keep in FUAMX until it recovers.
As others have wisely said YMMV.

 

[pb4uski]

I use the Fidelity bond analysis tool and it will show the bond in the rung of the year it matures. It will also show up in the call potential column.

So I keep an eye on potential calls, but see the bond as running to maturity. If it gets called, I can easily replace it at or near the original maturity date - maybe not at the same yield, but same duration, if I want.

I try and stay true to a ladder strategy: reinvest maturing and called bonds on the long end.

For me it belongs in the date of maturity. I keep track of the next call date. Unless Powell and company decide to start cutting rates aggressively, the call risk of recently issued notes is still low. There is zero call risk for the notes issued in 2021 for obvious reasons.

I buy the bond to fit the rung of the ladder. So I would have considered this one to be year 15. If it's called I'd try to replace it with another FI instrument maturing in 2037.
I had an 8 year ladder that is down to 3 years. Rates had been so crappy so long I have been buying 1 to 3 year corporates with my rebalancing and reinvesting the wrungs that matured. In the next 3 months I'll have 2023 rung plus two other bonds mature. I'll add year 4 and 5 back on my ladder and if I don't spend the 3rd maturing bond I'll add year 6. The rest of the FI I will keep in FUAMX until it recovers.
As others have wisely said YMMV.

Thanks everyone. That is the way that I was leaning. I guess if the Fed eventually achieves their 2% inflation target that I'll be happy with 6.45% even though it is for 15 years. I normally would not buy a 15 year bond but that 6.45% with negligible credit risk was hard to resist.

 

[MercyMe]

Yeah, I got caught on that one, not realizing that it won't settle until 12/21. If the purchase was at Vanguard or Fido it would not be a big deal because the settlement account earns decent interest, but at Schwab the settlement account only yields 0.4% so I'll have $100k sitting there not doing much of anything until Dec 21. So I'm going to call and see if I can cancel the buy and I'll either buy something else or buy it closer to settlement if it is still available.

Lesson learned to pay attention to funding timing for new issues.

Is it possible for this bond to sell out before 12/21? Just wondering how long I should wait to set up my order.

 

[COcheesehead]

Is it possible for this bond to sell out before 12/21? Just wondering how long I should wait to set up my order.

They have a history of selling out.

 

[Fotodog]

When I search on the FINRA site for corporate bonds with a one year maturity, I get the results shown in the attached screenshot. The yields are quite high, but I’m sure there’s something I’m missing. I never see yields this high on Schwab’s site. Please educate me as to what I don’t understand. If these aren’t available, how do I search for bonds on FINRA that are available? Thanks!

 

[lawman]

When I search on the FINRA site for corporate bonds with a one year maturity, I get the results shown in the attached screenshot. The yields are quite high, but I’m sure there’s something I’m missing. I never see yields this high on Schwab’s site. Please educate me as to what I don’t understand. If these aren’t available, how do I search for bonds on FINRA that are available? Thanks!

Same here...I tried to call the bond desk to make an offer on bonds not listed on the Schwab list but I don't think they want to make that method feasible..I finally gave up..Bottom line is I think Schwab must be getting very rich..

 

[Freedom56]

When I search on the FINRA site for corporate bonds with a one year maturity, I get the results shown in the attached screenshot. The yields are quite high, but I’m sure there’s something I’m missing. I never see yields this high on Schwab’s site. Please educate me as to what I don’t understand. If these aren’t available, how do I search for bonds on FINRA that are available? Thanks!

Click on them and see if they are trading. Funds dump bonds less than one year from maturity. It a rising rate environment, the are selling them at a loss. Schwab will never display what bonds are trading for over the counter. It's up to you to check on your own. You will have to use limit orders to get those prices.

 

[lordjust]

Thanks everyone. That is the way that I was leaning. I guess if the Fed eventually achieves their 2% inflation target that I'll be happy with 6.45% even though it is for 15 years. I normally would not buy a 15 year bond but that 6.45% with negligible credit risk was hard to resist.

any reason you didnt go for 3133ENY95 ?

 

[Fotodog]

Click on them and see if they are trading. Funds dump bonds less than one year from maturity. It a rising rate environment, the are selling them at a loss. Schwab will never display what bonds are trading for over the counter. It's up to you to check on your own. You will have to use limit orders to get those prices.

So in this example for Citigroup, it last traded on 11/21/22. Can I assume that it is still trading? In this case would you recommend putting in a limit order for $92.16, which was the last trade price?

Thanks again Freedom!



https://finra-markets.morningstar.com/BondCenter/BondDetail.jsp?ticker=C940015&symbol=C5062802

 

[MercyMe]

When I search on the FINRA site for corporate bonds with a one year maturity, I get the results shown in the attached screenshot. The yields are quite high, but I’m sure there’s something I’m missing.

This must be too good to be true.

 

[lordjust]

So in this example for Citigroup, it last traded on 11/21/22. Can I assume that it is still trading? In this case would you recommend putting in a limit order for $92.16, which was the last trade price?

Thanks again Freedom!



https://finra-markets.morningstar.com/BondCenter/BondDetail.jsp?ticker=C940015&symbol=C5062802

it is too good to be true.

i always open up the "market depth" at Schwab to see what the offers are currently available for a bond. Basically, if you search for it, and it doesnt have a buy price you cannot get it, yet. Freedom will tell you to just to write up an offer but Schwab will tell you they cannot do it when you call. I did have one that i pressured into writing one but he would only do it if he could use the previous offer prices that went through. it was an unpleasant experience. They basically only want you to use the web interface that has a buy listing available. I am still very new to this but these have been my experiences thus far.

 

[COcheesehead]

This must be too good to be true.

It’s only true if someone is willing to sell. You can place a bid, but if no one accepts it…

I have written a few bond limit orders, 95% go unfilled.

 

[Born2Fish]

Yeah, I got caught on that one, not realizing that it won't settle until 12/21. If the purchase was at Vanguard or Fido it would not be a big deal because the settlement account earns decent interest, but at Schwab the settlement account only yields 0.4% so I'll have $100k sitting there not doing much of anything until Dec 21. So I'm going to call and see if I can cancel the buy and I'll either buy something else or buy it closer to settlement if it is still available.

Lesson learned to pay attention to funding timing for new issues.

I'm curious as to how y'all categorize callable bonds in your ladder. For example, yesterday I bought an agency bond with a 6.45% coupon at a little over par that matures in Oct 2037 but is callable beginning in Jan 2023.

I doubt that it will get called in Jan 2023, but is likely to get called before 2037... in the meantime I'll be content with the 6.45% coupon. I assume that if rates decline that it will be pegged to par or therabouts because of the call but if rates rise then the value will decline but I'm content with the 6.45% coupon.

So what rung of the ladder does this belong in? 2023? 2037? Somewhere in between and if so, where?

Thanks for posting the 12/21 settlement date at FIDO...I found a 6.45% agency bond at TDA (CUSIP 3133ENU24) and bought a few barely over par.

Not sure if this is the same one you found. lordjust posted the CUSIP

not sure its quite as good (call date sooner) but smidge better yield.. 3133ENU24

(I didn't want to wait on the settlement date at FIDO listing either.)

I hope it pays until the maturity date!

 

[lawman]

Have any Government Sponsored Enterprises (GSE)'s ever defulted?

 

[aja8888]

it is too good to be true.

i always open up the "market depth" at Schwab to see what the offers are currently available for a bond. Basically, if you search for it, and it doesnt have a buy price you cannot get it, yet. Freedom will tell you to just to write up an offer but Schwab will tell you they cannot do it when you call. I did have one that i pressured into writing one but he would only do it if he could use the previous offer prices that went through. it was an unpleasant experience. They basically only want you to use the web interface that has a buy listing available. I am still very new to this but these have been my experiences thus far.

Schwab will not place bid orders on their bond desk. Get used to it and don't even bother calling them. They sell bonds to us commoners at "ask" prices only.

 

[Freedom56]

So in this example for Citigroup, it last traded on 11/21/22. Can I assume that it is still trading? In this case would you recommend putting in a limit order for $92.16, which was the last trade price?

Thanks again Freedom!



https://finra-markets.morningstar.com/BondCenter/BondDetail.jsp?ticker=C940015&symbol=C5062802

You could do so. But you will have to call Schwab's trading desk to do so. Nobody wants the low coupon short maturities and bond funds have to sell them at a loss since most maintain a constant average maturity. The problem with Schwab is you have to call in and insist on a limit order at that price. Schwab will try to coerce you into buying it at a YTM of 4% since they want to make money. Don't be timid with the person at the bond desk. Just tell them to follow your instructions. I have 20 open limit orders today with Fidelity. I had to call in 5 of them since their was no order book at Fidelity. This is the time of year to do this type of buying. You also have to be patient and buy in small quantities. For that particular issue, if you want to buy $10K of the Citigroup 0.55% October 2023 note, break it into two orders at $92.5 and $93. The risk of default with a short duration high grade note is almost nil which is why bond funds are the dumbest investments since they sell their lowest risk notes at a loss to buy higher duration notes at higher risk.

 

[Freedom56]

Schwab will not place bid orders on their bond desk. Get used to it and don't even bother calling them. They sell bonds to us commoners at "ask" prices only.

Schwab will place limit orders if you insist. They like coercing their customers. You have to threaten them by letting them know that you will move your account to another brokerage unless they place the order according to your instructions. They make a lot of their money from fixed income trading with wild bid/ask spreads that are even higher than what full service brokers used to charge in the 80's and 90's. Schwab and TDA are better for new orders only where you pay par value.

 

[Freedom56]

Have any Government Sponsored Enterprises (GSE)'s ever defulted?

Here is some background on GSEs.

https://www.fhfaoig.gov/Content/Files/History of the Government Sponsored Enterprises.pdf

 

[lawman]

Here is some background on GSEs.

https://www.fhfaoig.gov/Content/Files/History of the Government Sponsored Enterprises.pdf

As I understand Fannie Mae and Freddy Mac were placed into conservatorship in 2008 - 2009 where they remain today but I've been unable to find out if any individual investors lost money..