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

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Freedom56 said:
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.
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If I have to threaten them like you say, I may as well move my accounts to Fidelity.
 
aja8888 said:
If I have to threaten them like you say, I may as well move my accounts to Fidelity.
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The trading desks at Fidelity or Schwab even get upset if you want to put a limit order to buy at the third part price that they use to value bonds and CDs after the close of business every day. Sometimes the third party price is off by 5-6% from what the market price is. They will tell then you that the third party price is not for buying but selling bonds on the secondary market. So if you are not careful, they will take advantage of you whether you buy or sell on the secondary market. They also do a good job of hiding the FINRA trace data which they are required to provide before you place your trade. In the case of Fidelity, they provide a material events report that a lot of people ignore but it lists what the most recent trades were. So is it any wonder that most retail investors buy new issues and hold them to maturity and not get involved with the bond desks.
 
Freedom56 said:
The trading desks at Fidelity or Schwab even get upset if you want to put a limit order to buy at the third part price that they use to value bonds and CDs after the close of business every day. Sometimes the third party price is off by 5-6% from what the market price is. They will tell then you that the third party price is not for buying but selling bonds on the secondary market. So if you are not careful, they will take advantage of you whether you buy or sell on the secondary market. They also do a good job of hiding the FINRA trace data which they are required to provide before you place your trade. In the case of Fidelity, they provide a material events report that a lot of people ignore but it lists what the most recent trades were. So is it any wonder that most retail investors buy new issues and hold them to maturity and not get involved with the bond desks.
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Material events reports are also found on Schwab when you pull up the bond details. I read them and anyone who buys bonds ought to do the same thing.
 

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Some short duration issues that are being sold as we cross below one year duration. Passive funds will sell these to maintain their duration requirements.

Use limit orders for these issues and remember that one year treasuries yield 4.7% now. So you want to do much better than that. Don't get ripped off by the Schwab trading desk.

First up is INTERNATIONAL PAPER CO Coupon Rate: 6.875 Maturity Date: 11/01/2023

Buy it at or below par. Your YTM should be 6.875% or better.

https://finra-markets.morningstar.c...13297&startdate=11/30/2021&enddate=11/30/2022

https://finra-markets.morningstar.com/BondCenter/BondDetail.jsp?ticker=C13297&symbol=IP.GP


Next up is KANSAS CITY SOUTHN Coupon Rate: 3.850 Maturity Date: 11/15/2023
They are owned by Canadian Pacific Railways.

Buy this one at a YTM of 6.9% or better.

https://finra-markets.morningstar.c...56809&startdate=11/30/2021&enddate=11/30/2022

https://finra-markets.morningstar.com/BondCenter/BondDetail.jsp?ticker=C656809&symbol=CP4386922
 
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Tried to buy the last two Freedom recommended. They’re not in Fidelity’s inventory. Will call bond desk tomorrow.
 
Letj said:
Tried to buy the last two Freedom recommended. They’re not in Fidelity’s inventory. Will call bond desk tomorrow.
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I'm going to call tomorrow and place a limit order for the first one from International Paper. It crosses the 1 year mark tomorrow.
 
njhowie said:
Based on the recent trade history, you're not going to get anyone selling to you at/below 100.

The maturity is 11/1/2023 - that's 11 months, not 1 year.
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My mistake, 11 months. It has been trading above and below par for the last two months and as low as $98.799. Despite another bear market rally today, nothing has fundamentally changed with respect to rates and forward earnings. In fact Powell signaled that the next rate hike would be around 50 basis points which is what the market has been pricing for the last few weeks. Tax loss selling should start to pick up. At $99.7-$99.9 there is a pretty good chance of getting this one.
 
Retired2021 said:
I'm in the Mulligan camp, started rebuilding my 10 year ladder end of October unbeknownst to this message thread. My void is in the 8 and 9 year period. Weighted average yield is 3.63% with many near term maturities i'm looking forward to improve on.
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Loading up on the long end of the yield curve was definitely the play a bit over a month ago when long end bond prices were dropping with short end . This is why one shouldnt just focus on short end of curve as one risks getting eventually left with no yield or cap gains. I am glad I did. Some have recoiled almost a 100 bps in yield since purchase. The ladder process certainly helps mechanically. But the train left the station on the long end it appears.
 
Mulligan said:
Loading up on the long end of the yield curve was definitely the play a bit over a month ago when long end bond prices were dropping with short end . This is why one shouldnt just focus on short end of curve as one risks getting eventually left with no yield or cap gains. I am glad I did. Some have recoiled almost a 100 bps in yield since purchase. The ladder process certainly helps mechanically. But the train left the station on the long end it appears.
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I've said this many, many times. As rates go higher, folks focus way, way too much on the short end, playing for tenths and proclaiming they've found "the sweet spot" somewhere in the 2 to 4 year range because the spread is best...at that moment. They ignore and become afraid to go longer term for fear of locking the money up, and rates go even higher. Others, set their focus on a particular yield and won't do anything until they can get it. Saw a number of folks saying they were going to load the truck with 5 year CDs when they hit 6%...and were extremely confident they would, because the Fed said they would keep raising rates. Never happened.

It's best to spread the money out, doesn't even need to be laddered, just diversify, taking medium and longer term yields you could be happy with no matter what happens to rates. It shouldn't have been too difficult considering where we've been for the past 10 years.

I bought medium and longer term CDs and munis all along and am very happy with how things have played out thus far. Picked up some very nice high quality stuff in the high 5% to mid 7% range for short, medium, and long term that folks were simply tossing.

I think there may be one more opportunity this year during the last two weeks of the month to find some bargains as funds and institutions finish their window dressing maneuvers for end of year. Keep some dry powder.
 
Credit Suisse 6 month YTM 12.992% and the best bid for it wants 15.997%
 
Freedom56 said:
My mistake, 11 months. It has been trading above and below par for the last two months and as low as $98.799. Despite another bear market rally today, nothing has fundamentally changed with respect to rates and forward earnings. In fact Powell signaled that the next rate hike would be around 50 basis points which is what the market has been pricing for the last few weeks. Tax loss selling should start to pick up. At $99.7-$99.9 there is a pretty good chance of getting this one.
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Good luck. I still say you're not going to get them below 100.

Your post seemed to imply that there was something special about crossing over the 1 year mark.
 
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njhowie said:
I've said this many, many times. As rates go higher, folks focus way, way too much on the short end, playing for tenths and proclaiming they've found "the sweet spot" somewhere in the 2 to 4 year range because the spread is best...at that moment. They ignore and become afraid to go longer term for fear of locking the money up, and rates go even higher. Others, set their focus on a particular yield and won't do anything until they can get it. Saw a number of folks saying they were going to load the truck with 5 year CDs when they hit 6%...and were extremely confident they would, because the Fed said they would keep raising rates. Never happened.

It's best to spread the money out, doesn't even need to be laddered, just diversify, taking medium and longer term yields you could be happy with no matter what happens to rates. It shouldn't have been too difficult considering where we've been for the past 10 years.

I bought medium and longer term CDs and munis all along and am very happy with how things have played out thus far. Picked up some very nice high quality stuff in the high 5% to mid 7% range for short, medium, and long term that folks were simply tossing.

I think there may be one more opportunity this year during the last two weeks of the month to find some bargains as funds and institutions finish their window dressing maneuvers for end of year. Keep some dry powder.
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I am like you and dont specifically “ladder”. I just use the word as it seems a bit more uniform in terms of use and understanding. I definitely have more of my money on more longer duration now. I cant say its anything systematic though, it was just a few ute bonds on longer end came open at a good relative price so I bought. Laddering is certainly an excellent method though. Im just not precise enough to follow it.
 
COcheesehead said:
You are the king of the limit order. :LOL: I bet you have a few sitting out there right now.
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Won't touch it. It's also a 250 bond lot. A bit more than I'm comfortable with :cool:

Just moved to 13.189% now...for 6 months and nobody wants it.
 
njhowie said:
I've said this many, many times. As rates go higher, folks focus way, way too much on the short end, playing for tenths and proclaiming they've found "the sweet spot" somewhere in the 2 to 4 year range because the spread is best...at that moment. They ignore and become afraid to go longer term for fear of locking the money up, and rates go even higher. Others, set their focus on a particular yield and won't do anything until they can get it. Saw a number of folks saying they were going to load the truck with 5 year CDs when they hit 6%...and were extremely confident they would, because the Fed said they would keep raising rates. Never happened.

It's best to spread the money out, doesn't even need to be laddered, just diversify, taking medium and longer term yields you could be happy with no matter what happens to rates. It shouldn't have been too difficult considering where we've been for the past 10 years.

I bought medium and longer term CDs and munis all along and am very happy with how things have played out thus far. Picked up some very nice high quality stuff in the high 5% to mid 7% range for short, medium, and long term that folks were simply tossing.

I think there may be one more opportunity this year during the last two weeks of the month to find some bargains as funds and institutions finish their window dressing maneuvers for end of year. Keep some dry powder.
Click to expand...

Too much low coupon debt was issued since the end of 2020. You have to be crazy to buy 20-30 year corporate bonds with coupons in the 2-3% range. The treasuries and muni bonds issued during that period were even worse. Despite the discounts from par, those bonds are not investable. When the yield curve normalizes, those bonds will get clobbered once again. I would wait for higher coupon long duration bonds to be issued. Investing in the 1-5 year duration has been the smart play thus far and laddering though the year, if you are interested in cash flow and risk management. By laddering since June, I may have caught the peak rates with those 6.25-6.75% 5 year high grade corporates or 5 year 5% non-callable CD or I may not have. But I know that even the lowest yielding note that I bought this year carries a far higher coupon that what was available last year. Those who are holding out for higher yielding CDs are free to do so. This is what makes a market. They are certainly better off sitting in cash at 3.8% and rising than holding onto a bond fund that will continue to pay substandard yields and depreciate over time. We have had these fixed income market corrections in 2013, 2015, 2016, 2018, 2020 and now 2022 so why torture yourself with long durations unless you have reasonable coupons that can protect you on the downside. The frequency of these correction which is more than likely to continue, is the primary reason why I will shrink my ladder down from the current 8 years to 5 years. At one point my ladder extended out to 15 years with corporate notes. It makes no sense to do that while long term coupons remain low. This is also the reason why I don't hold investment grade preferred stocks that are perpetual. They go through repeated cycles of 20-30% or more drops as the funds dump them every time there is a rate hick up. Here is the reality of today's fixed income market:

1- Cash in a money market fund yields more than 90% of bond funds regardless of duration.

2- 1-5 year duration CDs, treasuries, corporates yield more than cash.

4- A 10 or 30 year treasury now yields less than cash in a money market.

3- The Fed will continue to raise rates into 2023 and hold into 2024

So when the Fed does start cutting rates, those long term yields will start to rise as the yield curve normalizes.
 
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Freedom56 said:
... Here is the reality of today's fixed income market:

1- Cash in a money market fund yields more than 90% of bond funds regardless of duration.

2- 1-5 year duration CDs, treasuries, corporates yield more than cash.

4- A 10 or 30 year treasury now yields less than cash in a money market.

3- The Fed will continue to raise rates into 2023 and hold into 2024

So when the Fed does start cutting rates, those long term yields will start to rise as the yield curve normalizes.
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I still have very little bonds - less than 1 or 2%. Outside of the 60% stock, much of the remaining 40% is in a stable value fund, I bonds, and TSTXX, a short-term T-bill fund that is like a money market fund.

The stable value fund paid 0.79% for the month of October (9.5% annualized).

Our total I bonds paid 9.2% annualized for October.

TSTXX last 7-day yield is 3.57%. This fund is treated like cash by my brokerage to back cash-covered puts that I sell. I picked up several additional percents with the put premium.
 
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Freedom56 said:
Too much low coupon debt was issued since the end of 2020. You have to be crazy to buy 20-30 year corporate bonds with coupons in the 2-3% range. The treasuries and muni bonds issued during that period were even worse. Despite the discounts from par, those bonds are not investable. When the yield curve normalizes, those bonds will get clobbered once again. I would wait for higher coupon long duration bonds to be issued. Investing in the 1-5 year duration has been the smart play thus far and laddering though the year, if you are interested in cash flow and risk management. By laddering since June, I may have caught the peak rates with those 6.25-6.75% 5 year high grade corporates or 5 year 5% non-callable CD or I may not have. But I know that even the lowest yielding note that I bought this year carries a far higher coupon that what was available last year. Those who are holding out for higher yielding CDs are free to do so. This is what makes a market. They are certainly better off sitting in cash at 3.8% and rising than holding onto a bond fund that will continue to pay substandard yields and depreciate over time. We have had these fixed income market corrections in 2013, 2015, 2016, 2018, 2020 and now 2022 so why torture yourself with long durations unless you have reasonable coupons that can protect you on the downside. The frequency of these correction which is more than likely to continue, is the primary reason why I will shrink my ladder down from the current 8 years to 5 years. At one point my ladder extended out to 15 years with corporate notes. It makes no sense to do that while long term coupons remain low. This is also the reason why I don't hold investment grade preferred stocks that are perpetual. They go through repeated cycles of 20-30% or more drops as the funds dump them every time there is a rate hick up. Here is the reality of today's fixed income market:

1- Cash in a money market fund yields more than 90% of bond funds regardless of duration.

2- 1-5 year duration CDs, treasuries, corporates yield more than cash.

4- A 10 or 30 year treasury now yields less than cash in a money market.

3- The Fed will continue to raise rates into 2023 and hold into 2024

So when the Fed does start cutting rates, those long term yields will start to rise as the yield curve normalizes.
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You are a bond trader. You readily admit that. Much of what you do is timing, and if you are able to always time the bond market, wonderful. The bond market continues telling a different story than what you are indicating here.

Personally, I have no difficulty taking medium and longer term issues that will let me lock in solid yields of 5%, 6%, 7%, or more. I have no need to sell prior to maturity, as my retirement horizon is much longer than most folks here. It's certainly not "torture".

My belief is that what we have at this time is an aberration. Have things all of a sudden reversed course from the last 50 years? I don't believe so. Long term yields are already reflecting that the Fed is going to lower rates, and folks are racing to get what's left before it's too late. That does not lead to the conclusion that when the Fed does lower rates that the long end of the yield curve is going to move higher to "normalize". It may simply stay the same or go even lower, as short term rates move lower...and as was the case over the past 10 years; as folks were willing to accept lower yields for long term bonds.

We'll see.
 
Yield up to call

Having trouble evaluating the return or yield on a bond that might be called early. Sorry if this has already been covered..i'm just unclear.

If a bond gets called early, like 3133ENY95 which is callable 05/09/2023 [FEDERAL FARM CR BKS BOND 6.98000% 11/09/2037], when it is called is there a yield loss from the call? Or does one still collect the yield up until that call date?

I guess I'm thrown by the Fidelity yield price calc. Here's an example of buying 10 bonds of the above CUISP:

EDIT: typo updated price. Makes more sense now!
 

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soylentgreen said:
Having trouble evaluating the return or yield on a bond that might be called early. Sorry if this has already been covered..i'm just unclear.

If a bond gets called early, like 3133ENY95 which is callable 05/09/2023 [FEDERAL FARM CR BKS BOND 6.98000% 11/09/2037], when it is called is there a yield loss from the call? Or does one still collect the yield up until that call date?

I guess I'm thrown by the Fidelity yield price calc. Here's an example of buying 10 bonds of the above CUISP:
Click to expand...

Absolutely you're going to have a negative YTC if you purchase at 109 in this scenario.

Yes, you will collect the interest up to the call date, but you are only going to receive 100 for the bond you paid 109 for. Will you have collected sufficient interest (the 9 points) to cover the capital loss through the call date? In this case, no. So you have a net loss, or negative YTC.
 
soylentgreen said:
Having trouble evaluating the return or yield on a bond that might be called early. Sorry if this has already been covered..i'm just unclear.

If a bond gets called early, like 3133ENY95 which is callable 05/09/2023 [FEDERAL FARM CR BKS BOND 6.98000% 11/09/2037], when it is called is there a yield loss from the call? Or does one still collect the yield up until that call date?

I guess I'm thrown by the Fidelity yield price calc. Here's an example of buying 10 bonds of the above CUISP:
Click to expand...

If a bond is called you receive the par value plus any interest owed up to the call date. If you pay a premium, you risk losing the premium.
 
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