Bonds - holding to maturity vs. trading

[Yipper]

With all the news and hand wringing that's going on re. treasury bond yields soaring... I've come to think most bonds (even shorter term) aren't being held until maturity.

I realize there are underlying concerns around the unsustainable path that US spending and debt are on which is part of the angst out there, but for the average bond holder, are they typically in for the speculation on bond pricing?

I'm probably just being super naive as I figured bond trading isn't something most "average" non-pro investors are doing.

 

[COcheesehead]

My goal with my bonds is income, so I hold 90% of my bonds to maturity. However there are opportunities to flip bonds occasionally and I will do that. It’s actually pretty easy. This morning I sold two agency bonds paying in the 5% range, continuously callable, made a few hundred bucks if you include interest already paid and I flipped them into two, quality corporate bonds paying in the 7% range with longer no call periods. It’s just taking advantage of what the market offers. It’s not for everyone, but I enjoy adding to my income in a relatively easy way.

 

[Yipper]

Thanks for that - totally makes sense to "cherry pick" a few that are doing well and flip if things are moving in the right direction. I guess like any investment it depends on your goals. Income or speculation.

 

[Mulligan]

Thanks for that - totally makes sense to "cherry pick" a few that are doing well and flip if things are moving in the right direction. I guess like any investment it depends on your goals. Income or speculation.

One can catch a few opps to trade bonds. But largely are meant to be held to maturity, because the deck is stacked against you. The bond desk thieves dont allow much of a consistent opportunity because of the spreads. Almost equivalent to trying to buy and sell a home every three months to live in. The real estate agents kill you on the commissions and grind you down.

 

[COcheesehead]

One can catch a few opps to trade bonds. But largely are meant to be held to maturity, because the deck is stacked against you. The bond desk thieves dont allow much of a consistent opportunity because of the spreads. Almost equivalent to trying to buy and sell a home every three months to live in. The real estate agents kill you on the commissions and grind you down.

It’s all visible to the trader. Some offers make no sense, some make perfect sense. It’s not a guess, it’s just math.

 

[Mulligan]

It’s all visible to the trader. Some offers make no sense, some make perfect sense. It’s not a guess, it’s just math.

Except the math is more controlled (dictated basically) for many retail brokerages. You cant make a bid and you cant set a price…..Take it or leave it. That being said I do take some. Being very light on long end, I just this week bought me a 2044 Spire senior unsecured at 7.35% YTM.

 

[OldShooter]

It’s all visible to the trader. ...

I would say that it's mostly visible to the big banks' trading desks. To the pipsqueek retail customer, not so much.

Old rule: When the ant goes to bed with the elephant, it's dangerous for the ant even if the elephant doesn't have any bad intentions.

 

[Yipper]

I've only recently started dabbling in individual bonds after doing a lot of learning from the smart people here at ER and other sources, and settled into a buy and hold to maturity perspective.

 

[pb4uski]

With all the news and hand wringing that's going on re. treasury bond yields soaring... I've come to think most bonds (even shorter term) aren't being held until maturity. ...

I'll bet you $100 that someone is holding them to maturity.

I'd guess that I hold to maturity 90% of the time, perhaps even more.

 

[COcheesehead]

Except the math is more controlled (dictated basically) for many retail brokerages. You cant make a bid and you cant set a price…..Take it or leave it. That being said I do take some. Being very light on long end, I just this week bought me a 2044 Spire senior unsecured at 7.35% YTM.

Not true for where I trade, Fidelity. I can bid and ask. I can control the price.

 

[COcheesehead]

I would say that it's mostly visible to the big banks' trading desks. To the pipsqueek retail customer, not so much.

Old rule: When the ant goes to bed with the elephant, it's dangerous for the ant even if the elephant doesn't have any bad intentions.

This statement isn’t correct.

 

[Mulligan]

Not true for where I trade, Fidelity. I can bid and ask. I can control the price.

Thus why I said many, not all… The three I deal with dont allow price setting or taking. But since I mostly hold bonds and dont trade its not worth the time for me to set up an IB account.

 

[Mulligan]

I would say that it's mostly visible to the big banks' trading desks. To the pipsqueek retail customer, not so much.



Old rule: When the ant goes to bed with the elephant, it's dangerous for the ant even if the elephant doesn't have any bad intentions.

Funny you said that…Just now on CNBC they were discussing bonds. And a long time money manager just said there really is “no such thing as a bond market. Its much more opaque than that.”

 

[Texas Proud]

I just recently bought some bonds so holding to maturity...


I have bought and sold some preferred shares that were bought for income... but most of them had no maturity...


I DO have some savings bonds that mature next year... and holding to maturity...


But I did get a savings bond as inheritance and it was not a guaranteed 4% bond so cashed it in... not a lot of money though...

 

[COcheesehead]

Funny you said that…Just now on CNBC they were discussing bonds. And a long time money manager just said there really is “no such thing as a bond market. Its much more opaque than that.”

At Fidelity I can see every previous sale of a bond. The sale price, the yield, the date and I can see today’s mark to market price. The spread. There is not much else I would really want to know.

 

[OldShooter]

At Fidelity I can see every previous sale of a bond. The sale price, the yield ... There is not much else I would really want to know.

The buzz from the rating agencies? Rumors of a whale planning to buy or sell the issue? The buzz on the issuer's likelihood of calling the bond? Market pressures on entities with large holdings? Personal pressures on individual traders? I think there is lots of stuff.

From Rick Ferri's "All About Asset Allocation" : "There is a classic saying on Wall Street, 'What everybody already knows is not worth knowing.' "

 

[Mulligan]

At Fidelity I can see every previous sale of a bond. The sale price, the yield, the date and I can see today’s mark to market price. The spread. There is not much else I would really want to know.

I use FINRA to find that data. Vanguard will show recent trades and inter dealer shuffling prices too. But put a bid or an ask out there? No way.

 

[pb4uski]

The buzz from the rating agencies? Rumors of a whale planning to buy or sell the issue? The buzz on the issuer's likelihood of calling the bond? Market pressures on entities with large holdings? Personal pressures on individual traders? I think there is lots of stuff.



From Rick Ferri's "All About Asset Allocation" : "There is a classic saying on Wall Street, 'What everybody already knows is not worth knowing.' "

^^^ Sounds like overthink to me.

 

[COcheesehead]

The buzz from the rating agencies? Rumors of a whale planning to buy or sell the issue? The buzz on the issuer's likelihood of calling the bond? Market pressures on entities with large holdings? Personal pressures on individual traders? I think there is lots of stuff.

From Rick Ferri's "All About Asset Allocation" : "There is a classic saying on Wall Street, 'What everybody already knows is not worth knowing.' "

I have access to the latest rating agency report. I see market activity. I see how many are for sale. All one needs to know. All the other things you mentioned are reflected in the those.

 

[COcheesehead]

I use FINRA to find that data. Vanguard will show recent trades and inter dealer shuffling prices too. But put a bid or an ask out there? No way.

I’ve heard that about Vanguard. I would never use them for fixed income. They handcuff you.

 

[Mulligan]

I’ve heard that about Vanguard. I would never use them for fixed income. They handcuff you.

I just dont do enough trading make it worth moving around. With many retail brokerages best price discovery is just not there in bond market compared to say an ETD. The bid and ask of an ETD will be uniform across all brokerages. A bond on the bond market isnt so. I have access to 4 brokerages (not that I am wealthy enough to need 4 though) and many times all 4 have different pricing to purchase. Heck even TD and Schwab wont have same pricing as their departments havent consolidated yet.

 

[OldShooter]

^^^ Sounds like overthink to me.

Could be. As you know I am not a bond guy. I have learned, however, to maintain a healthy respect for my own ignorance when tempted to play with the elephants.

 

[COcheesehead]

I am going to make low six figures off my fixed income this year. 97% of which is in individual bonds. So if I am not doing it right, as the old saying goes I guess it is better to be lucky than good.

Last I will add to this topic. I love it when someone says you can’t do what you are already doing.

 

[GravitySucks]

I hold till Maturity, even at times like now where I’m adjusting my holdings from short term corporates to longer treasuries / TIPS.

Keeps me honest to myself and I don’t think I’m smart enough to out perform professional bond traders.

 

[rk911]

We have a municipal bond ladder with 1-5 yr maturity (20+ munis in total). We hold them all to maturity. All income is used to purchase additional and replacement bonds.