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

[Freedom56]

89114XAJ2, might be an option for you ?

I put in an order for 89114XAJ2 (TD Bank 6% 4 year note). TD bank pays quarterly which is also good. The 6% corporates are becoming more common now. Which is a good thing.

 

[imbatman]

That is better, but if you are in a state/local area with high taxes you are better to get 3130AWF88 (FHLB 5.94% semiannual pay) 12/22/2023 first call......only downside is worst case it could go to maturity at 10-years if rates go higher (and the TD above would mature in 4 years, worst case)

 

[Echard]

There are nuances to bond taxation. If you want to geek out…
https://s3.amazonaws.com/static.con...ents/990086a6-d87e-46df-bdb4-681554969ee5.pdf

Ugh. This is the document I originally found several months ago, and if you read it regarding taxable bonds, it talks about the discount gain on taxable bonds being ordinary income, not capital gains (up to par). This document is what started all of the confusion for me. So, a) am I reading something wrong or b) is the document wrong or c) is the document right and everyone who says taxable bond appreciation is a capital gain is wrong?

 

[Echard]

why do taxable municipal bonds on Fidelity have no bids? And if you are interested in purchasing, do you have to meet the ask price, or can you bid? Finally, given there are no bids, wouldn't it be very difficult to sell them if you wanted/needed to? Cocheese, I know you mentioned you buy these occasionally.

 

[Vincenzo Corleone]

I put in an order for 89114XAJ2 (TD Bank 6% 4 year note). TD bank pays quarterly which is also good. The 6% corporates are becoming more common now. Which is a good thing.

Thanks for the heads-up. I was able to grab the last bunch from VG.

 

[COcheesehead]

why do taxable municipal bonds on Fidelity have no bids? And if you are interested in purchasing, do you have to meet the ask price, or can you bid? Finally, given there are no bids, wouldn't it be very difficult to sell them if you wanted/needed to? Cocheese, I know you mentioned you buy these occasionally.

Look at the short duration ones, almost all have bids. You can bid on anything. I occasionally will get a lower price. Just depends.
I have also sold taxable munis for profit too, but generally buy to hold.

 

[Born2Fish]

89114XAJ2, might be an option for you ?

I put in an order for 89114XAJ2 (TD Bank 6% 4 year note). TD bank pays quarterly which is also good. The 6% corporates are becoming more common now. Which is a good thing.

Thanks - I put in an order for 89114XAJ2

 

[PhotoAviation61]

First time poster here. I just wanted to add that I also purchased some of the TD 6% offering today. Thank you for bringing that particular offering up for discussion.

I just signed onto Fidelity and noticed a new FFCB in the new issues section. FFCB 6.375% 6/21/38 first call in 3 months. I am in a state with a 5% state income tax so for me that is a TEY of 6.71%. Yes please.

 

[nelsonowe]

Ugh. This is the document I originally found several months ago, and if you read it regarding taxable bonds, it talks about the discount gain on taxable bonds being ordinary income, not capital gains (up to par). This document is what started all of the confusion for me. So, a) am I reading something wrong or b) is the document wrong or c) is the document right and everyone who says taxable bond appreciation is a capital gain is wrong?

I don't think the document is wrong. What is wrong is the idea that ANY gain on a bond held for more than a year bond is ALWAYS taxed at capital gains rates. If you buy at a deep enough discount (lower than the di minimis threshold of .25% per year left to maturity, call, or sale), any gain (up to par) is treated as imputed interest (payable yearly in pieces or in lump sum at the end (maturity or sale)), and taxed as interest income at ordinary rates. Gains beyond that are taxed at normal capital gains rates (short- or long-term depending on holding period).

Fidelity has a fairly clear paper on it here:
https://www.fidelity.com/bin-public...documents/fixed-income/de-minimis-dilemma.pdf

These guys are the real tax experts. The give advice to CPAs.
https://www.thetaxadviser.com/issues/2007/oct/taxtreatmentofmarketdiscountbonds.html

Though it is usually discussed in a municipal bond context (because it makes the most difference there), it applies to all bonds (debt instruments). Not entirely sure what happens with Treasuries, though. Complicated for sure.

 

[imbatman]

welcome to the board @photoaviation61! Nice find on 3133EPNE1.....the 3 months is annoying but the 6.375% is pretty hard to beat

 

[Echard]

I don't think the document is wrong. What is wrong is the idea that ANY gain on a bond held for more than a year bond is ALWAYS taxed at capital gains rates. If you buy at a deep enough discount (lower than the di minimis threshold of .25% per year left to maturity, call, or sale), any gain (up to par) is treated as imputed interest (payable yearly in pieces or in lump sum at the end (maturity or sale)), and taxed as interest income at ordinary rates. Gains beyond that are taxed at normal capital gains rates (short- or long-term depending on holding period).

Fidelity has a fairly clear paper on it here:
https://www.fidelity.com/bin-public...documents/fixed-income/de-minimis-dilemma.pdf

These guys are the real tax experts. The give advice to CPAs.
https://www.thetaxadviser.com/issues/2007/oct/taxtreatmentofmarketdiscountbonds.html

Though it is usually discussed in a municipal bond context (because it makes the most difference there), it applies to all bonds (debt instruments). Not entirely sure what happens with Treasuries, though. Complicated for sure.

This is the same view I had that started this whole discussion both here and on Bogleheads. Posters here, and my accountant (who i don't quite trust), have said it's capital gains. Two other accountants, and Bogleheads folks state exactly what you've stated. Thus the confusion. I just don't understand why this issue can't get resolved clearly. We all can just read the IRA guidelines, and they seem to align with what you've stated.

edit: by the way, it seems that the Fidelity paper you referenced is municpal bonds. Everyone agrees on munipal bonds. It's corporate bonds where there is disagreement.

 

[ShokWaveRider]

I cannot see any 6% noted on Schwab, am I missing something or not looking in the right place.

 

[imbatman]

Can you not search by CUSIP (they gave it above)? I know in FIDO, new issues are in a different place.....

 

[ShokWaveRider]

Can you not search by CUSIP (they gave it above)? I know in FIDO, new issues are in a different place.....

I guess I am not sure how.

 

[Freedom56]

I cannot see any 6% noted on Schwab, am I missing something or not looking in the right place.

Under the fixed income offerings, click on "retail notes". All new corporate note offerings will appear. The one from TD Bank is the first on the list. The offerings change weekly.

 

[ShokWaveRider]

Under the fixed income offerings, click on "retail notes". All new corporate note offerings will appear. The one from TD Bank is the first on the list. The offerings change weekly.

Thank you. Free. I completely missed that.

 

[Freedom56]

This is the same view I had that started this whole discussion both here and on Bogleheads. Posters here, and my accountant (who i don't quite trust), have said it's capital gains. Two other accountants, and Bogleheads folks state exactly what you've stated. Thus the confusion. I just don't understand why this issue can't get resolved clearly. We all can just read the IRA guidelines, and they seem to align with what you've stated.

edit: by the way, it seems that the Fidelity paper you referenced is municpal bonds. Everyone agrees on munipal bonds. It's corporate bonds where there is disagreement.

With all due respect, Bogleheads are not the best and brightest in this country. They are part of a cult that spread financial misinformation. Those people are still earning 1.5%-2.6% on their passive bond funds despite the reality that cash is earning 5% in MM funds today. Most of them don't even understand why and still believe that earning 1.5-2.6% will somehow make them whole. They clearly don't understand basic arithmetic.

As for tax treatment of corporate bonds, here is a copy of one of many 1099B's I received for corporate bonds that matured in 2022. One was called early and the other matured. Both were purchased below par at a time when rates were approaching zero. You can clearly see that it is reported to the IRS as long term gains. For short term gains, it is treated as ordinary income, for long term gains, the long term capital gains rate applies.

I hope this clears up the matter once and for all.

 

[Phroig]

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

This is the same view I had that started this whole discussion both here and on Bogleheads. Posters here, and my accountant (who i don't quite trust), have said it's capital gains...

Well, I looked up IRS Pub. 550, which is as confusing as one might expect. (I think) Pub. 550 says that the accrued market discount portion of any gain is interest income; the rest of the gain is capital gain. One simple calculation for accrued market discount is the market discount at purchase/days to maturity*days owned. This amount is to be shown as an adjustment to cost basis on Form 8949, and as interest income on Schedule B. I didn't see any mention that this treatment only applies to municipal bonds.

I think we need Cathy to chime in on this. I must say I'm glad I only own bonds in tax-deferred accounts.

 

[jazz4cash]

Yeah, I’m always skeptical until Cathy weighs in. I actually had this figured out once I think but I must’ve decided it was not pertinent to me so I forgot about it.

 

[MichaelB]

With all due respect, Bogleheads are not the best and brightest in this country. They are part of a cult that spread financial misinformation. Those people are still earning 1.5%-2.6% on their passive bond funds despite the reality that cash is earning 5% in MM funds today. Most of them don't even understand why and still believe that earning 1.5-2.6% will somehow make them whole. They clearly don't understand basic arithmetic.

You clearly disagree with some of the investing advice advocated by some Bogleheads. Why not just say you disagree and leave it at that? There’s no call for this level of rudeness, especially the accusation of misinformation.

I know quite a few people there, find most of them quite smart and well informed on finance and investing.

 

[lordjust]

759351AR0 is this one not callable? i cannot seem to see a callable date other than 6/15/2033. so ~6% until 2033

Reinsurance Group of 6% 09/15/2033 Callable

Call Details Callable in whole or part Daily beginning 06/15/2033 with 10 days notice.

 

[imbatman]

759351AR0 is this one not callable? i cannot seem to see a callable date other than 6/15/2033. so ~6% until 2033

Reinsurance Group of 6% 09/15/2033 Callable

Call Details Callable in whole or part Daily beginning 06/15/2033 with 10 days notice.

Yes that is correct but that is a "lower" rated (BAA1/A) bond (in the mid-medium grade) than others so you are getting a higher rate for taking on more credit risk over the next 10 years. Also a little smaller company ($9B market cap) than I sometimes buy from myself as don't have time to do all the due diligence (and they aren't covered by any of the analysts/brokers I follow).

 

[Freedom56]

You clearly disagree with some of the investing advice advocated by some Bogleheads. Why not just say you disagree and leave it at that? There’s no call for this level of rudeness, especially the accusation of misinformation.

I know quite a few people there, find most of them quite smart and well informed on finance and investing.

Sorry there is a lot of misinformation spread on Boglehead forums regarding bond funds. That is a statement of fact as other Bogleheads have started to realize that they were impacted by the misinformation. Most don't even understand that bond funds are not bonds.

Here are some quotes from a recent thread (12 months after the start of rate hikes) where some are questioning the validity of the statements and theories promoted by Bogleheads:

"Simply saying I’ve seen a lot of confusion on this forum about how bond funds work…, and how they never lose money, because they’re always self-replenishing to keep up with inflationn"

"A lot of bond fund investors seem to have heard the myth that if they hold to duration they'll get their money back."

"It is terrible that this kind of misinformation gets propagated the way it does.

The mathematical origin of that fallacy, of course, is the example that sometimes is used to illustrate the concept of duration that if there is a step change increase in a previously constant interest rate, followed by no further change in interest rate, then there is indeed a point of indifference after time equal to the duration passes. Since a single step change in interest rate over long times never happens, that example is of no practical relevance.

I personally think the best resolution is to somehow shout down the idea that investing in bond funds can somehow be made risk free by some manipulation or placing of conditions on one's use of the investment. I personally think is is much easier and more practical to recognize that investing is risky and deal with it than to try to have one's cake and eat it too by claiming to invest without taking risk."


https://www.bogleheads.org/forum/viewtopic.php?t=399556&start=50

These are their own words, not mine, as they reflect on what has occurred over the past year. You can find even more misinformation with respect to what a bond fund actually earns as many Bogleheads have realized the SEC and YTM (versus distribution yield) are by no means what a fund actually earns.

 

[jazz4cash]

But this was not a bonds vs. bond funds opinion from Bogleheads. It seems the Boglehead opinion cited was consistent with the opinions cited here (including yours) and elsewhere on taxation of gains for individual bonds

 

[Montecfo]

I have regularly pointed out how the regular demonizing of "bogleheads", "Dumb bond fund managers", "dumb bond fund investors" etc is not additive to the thread. However, nothing has worked to this point.