Corporate Bonds, (not bond funds) buys and sells.

[Montecfo]

Personally, I do not find the risk premium of corporate bonds (or BDCs) attractive here- especially with the uncertainty of tariffs & threat of a potential significant recession looming. I view #1 goal for my FI AA as stability of principle & income (inflation-adjusted) so sticking to T-bills & Govt Agencies (long with ~1yr call dates) for now.
YMMV.

I like corporates, US, agencies and munis. They are not all attractive at the same time typically.

But like you I view my bond portfolio as ballast. I am primarily an equity investor. So I tend to stay in the mid to high investment grade rungs and avoid things like junk that are highly correlated to equities, in my FI portfolio.

But I am interested in what others like and are buying.

 

[Texas Proud]

Thanks... I think I will sell my ATLCL which is in the low 6% range and buy some... my invested yield is higher but I can sell and up the yield...

Probably will keep my ATLCP @8.35% as it does not mature...

THANKS... did a switch and increased my yearly payout by almost 46%... and increased maturity by a few years... SWEET!!

 

[pb4uski]

As posted on the preferred thread I run a concentrated portfolio based on ideas borrowed from others and researched to check for suitability and safety. Thusly I have one bond (baby bonds the name kept in my IRA since the interest is fully taxable. The winner is .... ATLCZ, a 9.25% five year senior note issued Jan 2024 and maturing Jan 31, 2029. It is callable earlier with additional interest paid for early calling (see Quantumonline for details).
One reason I like this bond is that the only risk is if the company Atlanticus goes bankrupt and they have survived since 1999 including the GFC and Covid recessions. You can think of the company as a cross between an AI and a loan shark in that their major business is issuing credit cards to folks with relatively low credit scores who live paycheck to paycheck. For those interested I suggest visiting the Atlanticus website and reading the Q4 2024 presentation.
Another reason I like the bond is that it trades on the Nasdaq with an average volume of 28K/day making it liquid enough for my portfolio.
The company had a headwind until recently as the CFPB was planning to cap late fees for credit card issuers. However, now that the CFPB has had their activities mostly shut down and with the prospect of even greater deregulation for the next four years, the headwind has now become a tailwind.
Finally the maturity date of 1/31/2029 coincides with a new administration which may not be so favorable to finance companies.

Why ATLCZ rather than C-N? I know one is a baby bond and the other is a preferred, but C-N is higher yielding (1% higher) and much more creditworthy (Baa3/BB+ vs NR/NR). While C-N is technically callable, my understanding is that there would be a big tax hit to C if they did call it so they won't be calling it. Not only that, that juicy yield will continue to 2040 (vs 2029) if it isn't called.

 

[pb4uski]

For some reason baby bonds are often included in preferred discussions. Two big differences are that many preferred stocks offer qualified dividends making them suitable for taxable accounts while baby bonds pay fully taxable interest making them more suitable for TIRAs or ROTHs. Also baby bonds sit higher in the capital stack and have a better chance of being worth something in case of bankruptcy. Thus in many cases they are lower risk than preferred stocks. For these two reasons I consider them to be quite different types of securities. Finally baby bonds often have relatively short maturities while many preferred stocks are perpetual giving them longer duration on average with higher interest rate sensitivity.

I don't consider any of those to be "big" differences, at least for me. Now I principally buy investment grade credits so at that level there isn't a "big" difference in where they sit in the capital stack IMO. The tax attribute differences are not significant in that some are in a Roth and even for baby bonds in taxable I manage my income so I'm in lower tax brackets.

Also, it is interesting that baby bonds trade flat like preferreds rather than price plus accrued interest for bonds and baby bonds are alpha tickers rather than alpha/numeric CUSIPs. Might that suggest that at least the market views them as more simiar to preferreds than to bonds?

 

[Montecfo]

I don't consider any of those to be "big" differences, at least for me. Now I principally buy investment grade credits so at that level there isn't a "big" difference in where they sit in the capital stack IMO. The tax attribute differences are not significant in that some are in a Roth and even for baby bonds in taxable I manage my income so I'm in lower tax brackets.

Also, it is interesting that baby bonds trade flat like preferreds rather than price plus accrued interest for bonds and baby bonds are alpha tickers rather than alpha/numeric CUSIPs. Might that suggest that at least the market views them as more simiar to preferreds than to bonds?

I think most bond investors view liquidating position/quality of the credit as paramount. But you are right, it does not matter unless things go south. Then nothing matters more.

And for most folks tax attributes matter also. Because that may help determine where we will be holding the credit.

And respectfully, do you think you might be over relying on credit reports? When things start melting down these things can deteriorate rapidly-usually after problems have become obvious. And if you are holding over multiple cycles trusting today's rating implicitly may be unwise.Just another view.

The credit rating is better at identifying weak credits to avoid than assuring credit quality down the line,

 

[aja8888]

Why ATLCZ rather than C-N? I know one is a baby bond and the other is a preferred, but C-N is higher yielding (1% higher) and much more creditworthy (Baa3/BB+ vs NR/NR). While C-N is technically callable, my understanding is that there would be a big tax hit to C if they did call it so they won't be calling it. Not only that, that juicy yield will continue to 2040 (vs 2029) if it isn't called.

Yes, if Citi were to call C-N they would be looking at liquidating almost 90 million units at $25, at $2,250,000,000.00 outlay, which is pretty steep. I'm not sure what kind of tax hit they (Citi) would face, if any, but they would be laying out a big chunk of dollars.

 

[pb4uski]

Gotta love AI.

Why Citi Is Not Calling C-N (C/PRN) Preferred Stock​

Summary:
Citigroup (Citi) has not called (redeemed) its C-N (C/PRN) preferred stock, despite it being callable since 2015, primarily due to economic and accounting reasons that make an immediate redemption financially unattractive for the company.
Key Reasons Citi Has Not Called C-N:

• Accounting Loss on Redemption:
  The C-N preferred stock (Citigroup Capital XIII 7.875% Fixed Rate/Floating Rate Trust Preferred Securities) is carried on Citi’s balance sheet at about $1.5 billion, while the face value is $2.2 billion. If Citi were to redeem these securities at par ($25 per share), it would have to recognize an immediate accounting loss of over $700 million. This substantial one-time hit to earnings is a strong disincentive.
• Ongoing Cost vs. Lump-Sum Loss:
  Citi continues to pay a high yield on these securities (currently over 10%), which is expensive compared to other preferreds. However, the annual net cost of not calling the notes is estimated at about $90 million per year. Citi appears to prefer this ongoing expense over the immediate, larger loss that would result from redemption.
• Strategic Use of Capital:
  The funds raised from issuing these notes are still being used by Citi. The decision to keep the preferreds outstanding suggests Citi believes it is more advantageous to continue paying the high yield than to absorb the large accounting loss and potentially have to raise replacement capital at less favorable terms.
• Market and Regulatory Considerations:
  Companies often call preferred stock to lower funding costs if market rates drop, but in this case, the unique accounting treatment and the high cost of redemption have outweighed those incentives. Additionally, Citi’s decisions are influenced by regulatory capital requirements and overall market conditions, but there has been no regulatory or market-driven imperative strong enough to force a call.

Contrast With Other Citi Preferred Redemptions

• Citi has recently announced the full redemption of other preferred stock series (e.g., Series P), citing reasons such as enhancing funding efficiency, regulatory changes, and market conditions. However, these redemptions did not involve the same large accounting loss as C-N, making them more economically viable.

Conclusion:
Citi’s decision not to call the C-N (C/PRN) preferred stock is primarily a result of the significant accounting loss that would be incurred upon redemption, making it more cost-effective in the short term to continue paying the high coupon rather than take the immediate earnings hit. This situation is unusual and tied to the specific circumstances of the C-N issue and its treatment on Citi’s balance sheet.

 

[aja8888]

Gotta love AI.

Thanks, good information for us holders of C-N.

 

[pb4uski]

.... And respectfully, do you think you might be over relying on credit reports? When things start melting down these things can deteriorate rapidly-usually after problems have become obvious. And if you are holding over multiple cycles trusting today's rating implicitly may be unwise.Just another view.

Perhaps. But the same rapid deterioration could happen if I wasn't relying on credit reports and reading SEC filings, etc. What do you rely on? Do you read the 10-Ks and 10-Q's and other filings for all your credits? If so, then you are much better than me. Is what I do any worse than just buying PFF and relying on the management of PFF to vet hat preferreds the fund invests in?

Much of my career was reading and writing SEC filings and I'm really not interested on doing a lot of reading of registrant SEC filings, analysis of results, etc. Besides, that is what the credit rating agencies do along with much more so it seems silly to replicate their work. I do check to see that the ratings are relatively recent and not totally stale and I'll skim through the rating reports. I also do a fair amount of financial reading so if a credit that I own is making news then I would probably pick up on it. Lastly, I limit the amount invested in any one credit to 0.5% of my portfolio and my target for preferreds/baby bonds is 30% of the total so I usually have 50-60 different tickers at any given point in time.

 

[Mulligan]

For some reason baby bonds are often included in preferred discussions. Two big differences are that many preferred stocks offer qualified dividends making them suitable for taxable accounts while baby bonds pay fully taxable interest making them more suitable for TIRAs or ROTHs. Also baby bonds sit higher in the capital stack and have a better chance of being worth something in case of bankruptcy. Thus in many cases they are lower risk than preferred stocks. For these two reasons I consider them to be quite different types of securities. Finally baby bonds often have relatively short maturities while many preferred stocks are perpetual giving them longer duration on average with higher interest rate sensitivity.

When one deals with a “baby bond” (also known as ETN’s, exchange traded notes) it is important for one to understand what capital stack it really is and terms via the prospectus. Many are junior subordinated notes which for all intent are preferreds with the company keeping the tax deduction. As these are in general treated by the rating agencies as a preferred (50% equity/50% debt assignment, as frequently long dated ones have a deferral feature ). Babys can also be senior unsecured or even senior secured. I own a long dated ~2066 ish mortgage backed baby bond issue for example. Many can be shorter dated but a lot have very long dated duration with 5 year call provisions by the company. So along with your points, it goes back to “knowing and understanding” what one owns.

 

[Texas Proud]

Why ATLCZ rather than C-N? I know one is a baby bond and the other is a preferred, but C-N is higher yielding (1% higher) and much more creditworthy (Baa3/BB+ vs NR/NR). While C-N is technically callable, my understanding is that there would be a big tax hit to C if they did call it so they won't be calling it. Not only that, that juicy yield will continue to 2040 (vs 2029) if it isn't called.

Well, I already have a big slug of C-N...

Traded one ATLC for another with higher yield..

Well, had to look... have less than I thought... but also variable so not fixed... but might take a swing at getting a bit more.. at current divi it is 9.6%... with Fed probably reducing rates it should go down...

 

[Montecfo]

Much of my career was reading and writing SEC filings and I'm really not interested on doing a lot of reading of registrant SEC filings, analysis of results, etc.

Lack of interest is probably a more honest reason to not research than to say research doesn't matter.

I use the credit reports to highlight risks which I can then way over time for my own purposes. The risks are what are likely to bite you if something goes wrong.

Is what I do any worse than just buying PFF and relying on the management of PFF to vet hat preferreds the fund invests in?

Not recommending PFF but I absolutely think an active manager can do a better job than either of us because they are in the market everyday and understand the credits far better than you and I ever will in my opinion.

Limiting the amount invested in any one issue is wise. It sounds like you are viewing preferreds as your "equity" and I think that is the right way to do it.

My approach to preferreds is I usually think of them as a midterm trade. I buy using CEFs at a discount and hold to par or premium depending on where we are in rate and credit cycles.

I think the rate risk is unacceptable for a long-term holding-for me-since these are in essence the antithesis of buying individual bonds: no maturity in most cases and very very long or infinite duration. And you do have call risk in many cases.

 

[Mulligan]

Lack of interest is probably a more honest reason to not research than to say research doesn't matter.

I use the credit reports to highlight risks which I can then way over time for my own purposes. The risks are what are likely to bite you if something goes wrong.


Not recommending PFF but I absolutely think an active manager can do a better job than either of us because they are in the market everyday and understand the credits far better than you and I ever will in my opinion.

Limiting the amount invested in any one issue is wise. It sounds like you are viewing preferreds as your "equity" and I think that is the right way to do it.

My approach to preferreds is I usually think of them as a midterm trade. I buy using CEFs at a discount and hold to par or premium depending on where we are in rate and credit cycles.

I think the rate risk is unacceptable for a long-term holding-for me-since these are in essence the antithesis of buying individual bonds: no maturity in most cases and very very long or infinite duration. And you do have call risk in many cases.

For clarity, PFF is anything but active management. Its a prisoner to its willy nilly, constantly changing preferred index it must mirror. So in turn dumps issues frequently to get less than optimal sells, and buys at times raising the price while buying. Just an abysmal record. Owning CDs past 10 years would have netted as much money without the volatility and worry of this pitiful fund.

 

[Texas Proud]

For me I view the preferred and baby bonds as my bond holdings... they do not act like equity..

I actually have very few real bonds...

 

[Semi-Retyrd]

Why ATLCZ rather than C-N? I know one is a baby bond and the other is a preferred, but C-N is higher yielding (1% higher) and much more creditworthy (Baa3/BB+ vs NR/NR). While C-N is technically callable, my understanding is that there would be a big tax hit to C if they did call it so they won't be calling it. Not only that, that juicy yield will continue to 2040 (vs 2029) if it isn't called.

Thanks for pointing this alternative out. I did some investigation as I am always looking for new ideas. I think C-N is safer than ATLCZ given that Citi is a systemically important bank. So zero bankruptcy worries. My two concerns are 1) since it is floating rate C-N's yield will decline if the Fed reduces short term rates and 2) since it is callable and selling well above par one could suffer a loss if C-N is called any time soon. I'm sure your analysis on why it hasn't been called is correct and the rational part of my brain accepts this. However, I feel uneasy buying a security well above par if it is callable. Probably more important is that I believe the Fed will reduce rates over the next two years either due to tamer inflation or to soften the effects of recession. Hence my opinion is the somewhat higher yield of C-N over ATLCZ is fleeting. Of course I could be dead wrong as I have been many times in the past. For the moment I'll sleep better with ATLCZ.

 

[Texas Proud]

I did not try and calculate, but the YTM for CN is not the same... you are going to lose that premium..

 

[Phroig]

I should've bought C-N when I first looked at it three years ago. Anybody who's owned it for more than a couple years has done well. However, I don't know if purchasing now makes sense. If the SOFR stays at its current level, C-N will pay about 30-40 cents more per quarter than fixed-rate bank preferreds, most of which are trading below par. This means C-N would need to be outstanding for 3-4 years (longer if the SOFR goes down) to recoup the $5 premium a buyer would pay today.
I don't know that an accounting loss prevents Citigroup from redeeming. (As an aside, why is a security trading for above par, carried at below par on C's balance sheet?) A loss from preferred stock redemption is easily explained as one-time, and excluded from the adjusted-EPS numbers that companies and analysts like to focus on. Citigroup's capital ratios seem fine. I don't see why replacement capital would need to be issued on unfavorable terms relative to C-N.
Of course, similar thoughts prevented me from purchasing C-N three years ago at a much lower price.

 

[Tacitus]

New purchase, NEWTG, a baby bond, NewtekOne, matures in 6/1/2029, callable 6/1/2027, yield about 8.5%, selling just under par.

 

[Phroig]

For clarity, PFF is anything but active management. Its a prisoner to its willy nilly, constantly changing preferred index it must mirror. So in turn dumps issues frequently to get less than optimal sells, and buys at times raising the price while buying. Just an abysmal record. Owning CDs past 10 years would have netted as much money without the volatility and worry of this pitiful fund.

PREF is an active preferred ETF from Principal. Last time I checked, the yield was under 5% - very unattractive.

 

[Tacitus]

F-D, which a Ford baby bond, selling below par, offers at current market close a yield of 7.46%. One of things like to check is risk of bankruptcy per e.g. macroaxis or value investing and as one could imagine quite low. If interest rates drop over time can sell for profit too, or if not, absent default, keep collecting about 7.5%. Best held in tax advantaged account.

 

[Tacitus]

As alternative to Money market, or multi year agency, bought short term investment bond, Bunge, negligible chance of distress matures in 3.5 months (8/17), selling just under par, yield 4.775%, cusip 120568BB5

 

[pb4uski]

I did not try and calculate, but the YTM for CN is not the same... you are going to lose that premium..

Yes, but the lost premium is in the YTM. As of today at $29.50 and redemption in 2040 at $25 I get 10.28% IRR and Schwab shows a yield of 10.29%. Of course, that assumes that it isn't called. I normally would not touch a callable issue with such a huge premium but I think this is a specal situation so I'm willing to take a chance. Also, I presume many other holders are thinking similarly given what it is trading at. I just hope that Citi doesn't screw us by calling it but it seems like they have plenty of good reasons not to call it.

​	10.28%​
05/09/25​	-29.50​
07/30/25​	0.76​
10/30/25​	0.76​
01/30/26​	0.76​
04/30/26​	0.76​
07/30/26​	0.76​
10/30/26​	0.76​
01/30/27​	0.76​
04/30/27​	0.76​
07/30/27​	0.76​
10/30/27​	0.76​
01/30/28​	0.76​
04/30/28​	0.76​
07/30/28​	0.76​
10/30/28​	0.76​
01/30/29​	0.76​
04/30/29​	0.76​
07/30/29​	0.76​
10/30/29​	0.76​
01/30/30​	0.76​
04/30/30​	0.76​
07/30/30​	0.76​
10/30/30​	0.76​
01/30/31​	0.76​
04/30/31​	0.76​
07/30/31​	0.76​
10/30/31​	0.76​
01/30/32​	0.76​
04/30/32​	0.76​
07/30/32​	0.76​
10/30/32​	0.76​
01/30/33​	0.76​
04/30/33​	0.76​
07/30/33​	0.76​
10/30/33​	0.76​
01/30/34​	0.76​
04/30/34​	0.76​
07/30/34​	0.76​
10/30/34​	0.76​
01/30/35​	0.76​
04/30/35​	0.76​
07/30/35​	0.76​
10/30/35​	0.76​
01/30/36​	0.76​
04/30/36​	0.76​
07/30/36​	0.76​
10/30/36​	0.76​
01/30/37​	0.76​
04/30/37​	0.76​
07/30/37​	0.76​
10/30/37​	0.76​
01/30/38​	0.76​
04/30/38​	0.76​
07/30/38​	0.76​
10/30/38​	0.76​
01/30/39​	0.76​
04/30/39​	0.76​
07/30/39​	0.76​
10/30/39​	0.76​
01/30/40​	0.76​
04/30/40​	0.76​
07/30/40​	0.76​
10/30/40​	25.76​

 

[pb4uski]

PREF is an active preferred ETF from Principal. Last time I checked, the yield was under 5% - very unattractive.

I think you are confusing PREF with PFF... two totally different ETFs.

 

[DrRoy]

I own a lot of individual bonds. Will chime in as needed.
My advice:
Always look at the equity behind the bond and take that into consideration
Ladder to minimize interest rate risk
Judge on YTW

This fits me exactly. I used to prefer munis, but after RE my taxable income went down and the AT return of BBB corporates was better. Now I am approaching RMD’s in -6 years and our bracket will go back up, so I’m going back to munis. DW is inheriting some $ this year and that’s where it will go. I’m also raising the target rating to A.

 

[COcheesehead]

This fits me exactly. I used to prefer munis, but after RE my taxable income went down and the AT return of BBB corporates was better. Now I am approaching RMD’s in -6 years and our bracket will go back up, so I’m going back to munis. DW is inheriting some $ this year and that’s where it will go. I’m also raising the target rating to A.

It’s much easier to find A, AA or AAA munis than corporates in my opinion. Also there is more scrutiny over the bonds and likely better revenue flow if choosing GO bonds.