Best CD & MM Rates Thread 2018 Archive

[njhowie]

Ding, ding, ding, ding...JPM is posting a new issue 2 year CD maturing 10/19/2020 at Fidelity for 3.0% this morning. It is callable, however, the extremely high probability is with interest rates scheduled to continue going higher in the near term, they won't be called.

 

[Debinnov a]

If it is called, would you get the interest due up to the date called? Any other negative impact? Could I find this at Vanguard or Merrill Edge?

Sent from my KFTHWA using Tapatalk HD

 

[audreyh1]

Ding, ding, ding, ding...JPM is posting a new issue 2 year CD maturing 10/19/2020 at Fidelity for 3.0% this morning. It is callable, however, the extremely high probability is with interest rates scheduled to continue going higher in the near term, they won't be called.

How about that!

Soon there will be noncallable CDs offered at that rate/duration.

 

[Dtail]

Ally now at 1.90%
I believe there are brokered 2 yr non callable CD's at Fidelity for Wells Fargo now at 3%.

 

[HI Bill]

That's pretty good then, their default it VMFXX which is yielding 1.88% and where my idle money is sitting...so may be worth it to buy VMMXX.

The after-tax 1-year return is showing a 0.10% difference between the two, but 5 and 10-year differences are only 0.06%.

 

[Another Reader]

Ally now at 1.90%
I believe there are brokered 2 yr non callable CD's at Fidelity for Wells Fargo now at 3%.

My guess is the rates will be higher at the end of the year than they are now. I'm pretty sure these rates aren't going to drop. Therefore I'm going to buy some four week treasuries and wait.

 

[Fedup]

Bh has a thread that Vanguard short term bonds fund is now paying 3%. Why are we bothering with CDs. I have one coming due in March that’s paying less than 3%. No more CDs for me then. At least this CD is only 1 year.

 

[audreyh1]

Bh has a thread that Vanguard short term bonds fund is now paying 3%. Why are we bothering with CDs. I have one coming due in March that’s paying less than 3%. No more CDs for me then. At least this CD is only 1 year.

Short-term bond funds aren't equivalent to CDs or money-market funds.

 

[Fedup]

Short-term bond funds aren't equivalent to CDs or money-market funds.

Mine is brokered CDs, which is like bonds in my portfolio.

 

[audreyh1]

Mine is brokered CDs, which is like bonds in my portfolio.

Unless it's a short-term treasury fund, a short-term bond fund will have credit risk as well as interest rate risk. They (usually) pay a higher interest rate to compensate the investor.

 

[Fedup]

Unless it's a short-term treasury fund, a short-term bond fund will have credit risk as well as interest rate risk. They (usually) pay a higher interest rate to compensate the investor.

Thank you. It shows I know nothing about bonds. Back to my brokered CDs then.

 

[njhowie]

Bh has a thread that Vanguard short term bonds fund is now paying 3%. Why are we bothering with CDs. I have one coming due in March that’s paying less than 3%. No more CDs for me then. At least this CD is only 1 year.

Are we talking about VBISX (https://investor.vanguard.com/mutual-funds/profile/performance/vbisx)?

If you look at the info, as audrey points out, there is risk in owning it as opposed to CDs or other cash-like instruments. This fund is currently holding 65% government securities and 35% corporate bonds.

Look at the performance page - YTD is a loss of 0.28% and 1-year performance is a loss of 0.5%, that includes your yield. Additionally, this fund lags its index in performance (which also shows a 1-year loss).

For that performance, as the overview indicates (https://investor.vanguard.com/mutual-funds/profile/overview/vbisx), the duration is 2.7 years. Additionally, you are paying 0.15% expenses.

For 2.7 years duration, you could have CDs paying ~3.2%, with no fees and with no risk.

Again, total return for the past year of the fund is a loss.

That is why you should bother with CDs.

 

[audreyh1]

The yield and total return are already after expenses - they are not in addition to anything.

CDs have expenses too. They are just not stated. People buy based mostly on yield and perhaps payment frequency and early withdrawal penalty.

Someone who bought a 2.5 to 3 year CD a year ago will also be facing a bit of a loss as as they are stuck getting much lower interest payments than are currently available.

 

[BrianB]

Fidelity is offering a brokered CD from Wells Fargo 24 months at 3.00% with monthly interest payments, non-callable.

https://fixedincome.fidelity.com/ftgw/fi/FILanding#tbcds|treasury|cd-new-issue (you have to log in to a Fidelity account to get full details).

Just saw it this morning, although it may have been released a few days ago.

 

[Fedup]

Are we talking about VBISX (https://investor.vanguard.com/mutual-funds/profile/performance/vbisx)?

If you look at the info, as audrey points out, there is risk in owning it as opposed to CDs or other cash-like instruments. This fund is currently holding 65% government securities and 35% corporate bonds.

Look at the performance page - YTD is a loss of 0.28% and 1-year performance is a loss of 0.5%, that includes your yield. Additionally, this fund lags its index in performance (which also shows a 1-year loss).

For that performance, as the overview indicates (https://investor.vanguard.com/mutual-funds/profile/overview/vbisx), the duration is 2.7 years. Additionally, you are paying 0.15% expenses.

For 2.7 years duration, you could have CDs paying ~3.2%, with no fees and with no risk.

Again, total return for the past year of the fund is a loss.

That is why you should bother with CDs.

Ouch! That’s not good. SEC yield is misleading.

 

[pb4uski]

.... SEC yield is misleading.

How so?

 

[njhowie]

How so?

If you look on the performance tab, the note for the SEC yield indicates "A — BASED ON HOLDINGS' YIELD TO MATURITY FOR PRIOR 30 DAYS; DISTRIBUTION MAY DIFFER"

So, they are basing the advertised SEC yield of 2.94% on yield to maturity of the holdings. However, if you go over to the distribution tab, you see that currently it's only distributing at an annual yield of 2.04%...that's less than VMMXX at 2.11%.

In my view, if they are distributing at less than the money market fund yield, and you have interest rate risk, in a rising interest rate environment it makes no sense to choose this short-term bond fund as opposed to the money market fund. Why would you?

 

[pb4uski]

But the income on the underlying bond portfolio is 2.94%... putting aside changes in the value of the portfolio due to changes in interest rates then any of that 2.94% of income that is not distributed would increase the NAV... if they receive $294 of income but distribute $204 then the $90 retained will be reflected in the increase in the NAV.

Given that, I don't get your statement that SEC yield is misleading. Whether VBISX is better then VMMXX is a totally separate question and you seem to be somewhat confusing the two.

I suspect that what fund management is doing is managing distributions to keep the NAV from bouncing around too much... in other words, they are stabilizing the NAV by partially offsetting the decline in NAV caused by increasing rates/decreasing bond prices by retaining some income... and that is why the distribution yield is less than the SEC yield.

 

[Dtail]

Fidelity is offering a brokered CD from Wells Fargo 24 months at 3.00% with monthly interest payments, non-callable.

https://fixedincome.fidelity.com/ftgw/fi/FILanding#tbcds|treasury|cd-new-issue (you have to log in to a Fidelity account to get full details).

Just saw it this morning, although it may have been released a few days ago.

yes 2 days ago.

 

[njhowie]

I suspect that what fund management is doing is managing distributions to keep the NAV from bouncing around too much... in other words, they are stabilizing the NAV by partially offsetting the decline in NAV caused by increasing rates/decreasing bond prices by retaining some income... and that is why the distribution yield is less than the SEC yield.

So long as interest rates continue to rise at (at least) the current pace, my belief that VBISX will continue to post total annual losses. As they have maturities, they are reinvesting them in newer higher yielding things. However, a shareholder will not be able to exit without net losses until rates are once again in decline.

As a holder of a CD, treasury, or other fixed income instrument, you have control over where the maturities are and should you decide to not reinvest when you have a maturity, your gains have been locked in. No such ability with the fund. VBISX is always going to have the duration at roughly 3 years whether today, or 5 years from now. Should you decide to exit VBISX, it is as if you are selling all of the maturities at that point in time. Again, you do not have the ability to simply let the holdings run off and lock in gains.

Maybe I'm missing something - how is this fund going to show gains in a rising interest rate environment? How does the investor profit?

 

[pb4uski]

You totally missed the point. I wasn't advocating VBISX over VMMXX or any other fund... I agree with you that this is not a good time to buy VBISX and VMMXX is a better buy... at this juncture given the likelihood of rising interest rates.... I own a lot of VMMXX.

The point was that you said that:

.... SEC yield is misleading.

and that just isn't true.... the SEC yield is supposed to tell you the current yield of the funds assets and it does that well... it is just that there are other factors that need to be considered (like duration/interest rate risk) in making a purchase decision.

For MM funds where they have a constant $1 price... is SEC yield misleading?

 

[njhowie]

and that just isn't true.... the SEC yield is supposed to tell you the current yield of the funds assets and it does that well... it is just that there are other factors that need to be considered (like duration/interest rate risk) in making a purchase decision.

For MM funds where they have a constant $1 price... is SEC yield misleading?

The MM fund, where NAV is a constant $1 is exactly why the SEC yield in the case of VBISX is misleading. Look, it's confused Fedup. He looked at the yield, saw almost 3% and figured why buy the CD for about the same yield without the liquidity. He neglected that performancewise the fund could still go down, and even produce a net loss.

Anyhow, you and I are on the same page.

 

[pb4uski]

I don't think that distribution yield tells you much more. Ditto for past performance (1, 3, 5 year total returns). Both of those could be misleading... especially in a rising rate environment.

I would look at SEC yield (income from the underlying portfolio) and duration (interest rate risk). The income will be ~2.94% and IF there is a 50bps increase in interest rates that will ding the portfolio by ~1.35% so that would be a net total return of ~1.6% over the next year... less that the 2%+ yield of VMMXX.

 

[Fedup]

Yes, it confused me. I think total return is what I’m looking for. I’m a newbie in bonds and bond funds in general.

Btw, I’m a female.

 

[Golden sunsets]

We need Audrey here to give us her reasoned approach to interpreting SEC yield vs other measures. I personally learned on this forum that SEC yield was the best measure of yield for a fund, as opposed to trailing market yield. The SEC yield plus factoring in duration is the best measure of a bond fund to inform decisions. In a rising intetest rate environment, like we are in now, the shorter the duration the better and SEC yield is always higher than TTM , and a more accurate measure of yields going forward. In a declining interest rate environment SEC yield is always less than TTM and a more realistic estimation of yield going forward.