Fidelity Fixed Income Analysis Tool Alternative

[Happyras]

I was hoping to find the Fixed Income Analysis tool on Fidelity to have more value. At first review, it shows all your Bonds, CD's etc in one view and it shows current price/value and market Yields on what you own.

What is miss leading and missing is your cost basis and actual yield to maturity. It is really a dangerous tool if you do not understand its purpose. It shows the estimated yields for your holdings if you bought them today, which is far from what they really will yield to maturity and even less if you sold them today. I was hoping for better visibility of our holdings.

In the cash flow calculation tab, it shows Average Maturity and Estimated yield. I was feeling pretty good until I did my own calculations and found my Average Maturity was much higher and Estimated net yield to Maturity very much lower. This is all because they do not use your Basis, but the market Ask price instead. Basically, it is worthless unless you use it to buy more of the same.

Fortunately, I do understand this for what it is, but it is really misleading for those who can not read the fine print and basis of their calcs. I actually am quite that this could be misleading.

Another issue is the purchase of zero coupon treasuries. Fidelity shows the YTM higher than if you do the math. They claim the new issue I bought would yield 1.47% on the confirmation, but doing the math on actual days held my yield is 1.37%. Not a lot of difference, but certainly larger than expected. On some CD's and Bonds this is not the case, but all my recent t-bills and notes are off some fraction of percent.

So I am looking for better tools and hoping I do not have to reinvent a spread sheet to better manage bonds. In this rising rate time, its hard to know when to go out for longer duration, and its clearly a loss to sell bonds before maturity in most cases, but not all.

 

[COcheesehead]

It works great for understanding maturity dates, call dates and what amount of interest or maturing bond proceeds will be deposited into my cash account every two weeks. That’s what matters most to me. It’s certainly not “dangerous”.

 

[pb4uski]

I'm not sure that I agree with your premise. Your cost basis and your purchase YTM are not meaningful. Expected coupons is meaningful from a cash flow perspective. Current value and current YTM are relevant in deciding to "trade" an existing bond for a different bond.

There is a good tool to "know when to go out got longer duration" but they are very rare and hard to find. I had one but my crystal ball cracked and I can't find a new one... even on Amazon!

 

[Happyras]

Current value and current YTM are relevant in deciding to "trade" an existing bond for a different bond.

There is a good tool to "know when to go out got longer duration" but they are very rare and hard to find. I had one but my crystal ball cracked and I can't find a new one... even on Amazon!

I recently was trying to sort out selling a short term tbill and simply putting the cash into a MM at 2.3% at Marcus. If I used the Fido tool, it said the YTM was 1.89%, but the value was less than I paid and that did not show. My actual YTD was still positive if sold, basically .9% gain. So that tool was worthless to me. My original YTM was 1.37%, but now I could take less sooner and get 2.4% going forward. No help from this tool, I had to use my own basis and yield calc to determine if the loss was worth the gain on the remaining term at the higher rate. It is a simple spread sheet to build, but I would think this would be built into the FIDO tool to help make such moves on multiple issues to save time.

As for that crystal ball tool, my spreadsheet skills are limited to 2016 tech, but when yield curves are inverted there is some history to play with on choosing durations. Firecalc is a crystal ball on investment returns using historical data, why not something for bond durations using historical trends?

Had I waited to buy even short term t-bills and kept cash in MM accounts, I would have been farther ahead now, but more so in the next few months but who knows?

 

[COcheesehead]

I recently was trying to sort out selling a short term tbill and simply putting the cash into a MM at 2.3% at Marcus. If I used the Fido tool, it said the YTM was 1.89%, but the value was less than I paid and that did not show. My actual YTD was still positive if sold, basically .9% gain. So that tool was worthless to me. My original YTM was 1.37%, but now I could take less sooner and get 2.4% going forward. No help from this tool, I had to use my own basis and yield calc to determine if the loss was worth the gain on the remaining term at the higher rate. It is a simple spread sheet to build, but I would think this would be built into the FIDO tool to help make such moves on multiple issues to save time.

As for that crystal ball tool, my spreadsheet skills are limited to 2016 tech, but when yield curves are inverted there is some history to play with on choosing durations. Firecalc is a crystal ball on investment returns using historical data, why not something for bond durations using historical trends?

Had I waited to buy even short term t-bills and kept cash in MM accounts, I would have been farther ahead now, but more so in the next few months but who knows?

FireCalc is NOT a crystal ball - quote directly from the FireCalc site -

“How can FIRECalc predict future returns from past performance?
It can't. And it doesn't try.”

When should you go longer duration? For me it’s simple, it’s based on a goal of how long I want the income stream to last. For me it’s a bridge to social security so I invest to that duration. Right now I have been buying 10 year duration munis for my ladder and I am very glad to have them. Many yield - double tax free 4%-4.5%.

 

[pb4uski]

I recently was trying to sort out selling a short term tbill and simply putting the cash into a MM at 2.3% at Marcus. If I used the Fido tool, it said the YTM was 1.89%, but the value was less than I paid and that did not show. My actual YTD was still positive if sold, basically .9% gain. So that tool was worthless to me. My original YTM was 1.37%, but now I could take less sooner and get 2.4% going forward. No help from this tool, I had to use my own basis and yield calc to determine if the loss was worth the gain on the remaining term at the higher rate. It is a simple spread sheet to build, but I would think this would be built into the FIDO tool to help make such moves on multiple issues to save time.

As for that crystal ball tool, my spreadsheet skills are limited to 2016 tech, but when yield curves are inverted there is some history to play with on choosing durations. Firecalc is a crystal ball on investment returns using historical data, why not something for bond durations using historical trends?

Had I waited to buy even short term t-bills and kept cash in MM accounts, I would have been farther ahead now, but more so in the next few months but who knows?

So, for discussion purposes, let's say that your original purchase was for $100 for 2 years at 1.37% and that there is a year left. If you hold, at the end of the two year original term, or one year from now, you will have $102.76 ($100*(1+1.37%)^2).

OTOH, you could sell today for $100.85 ($102.76/(1+1.89%)^1) and reinvest the proceeds at 2.3% and in a year will have $103.17 ($100.85*(1+2.3%)^1).

$103.17>$102.76.

All this assumes no income taxes and you could factor that in, but the key question becomes if you hold or sell and reinvest the proceeds at 2.3%, which one will result in more money at maturity?

It is really as simple as 2.3%>1.89%.

 

[njhowie]

...and simply putting the cash into a MM at 2.3% at Marcus.

No such thing. Marcus 3 year CD will get you 2.5%. High yield savings account will get you 1.2%. Marcus does not offer a money market product.

Are you using MM to mean something different than money market?

 

[Happyras]

No such thing. Marcus 3 year CD will get you 2.5%. High yield savings account will get you 1.2%. Marcus does not offer a money market product.

Are you using MM to mean something different than money market?

Posted before on this forum but not this thread I currently get 2.3% at Marcus in their money market I would be glad and overjoyed To share the link with you so that you can get the additional 1% interest on all of your accounts at Marcus.

Currently they provide 1.2% on their base money market account and additional .1% for AARP, and an additional 1% for three months for each person who signs up using the link. It’s a total of 2.3% until October 1 for me unless someone wants to use my link and it’ll add another three months for each person that wants to use it and they will also get a 1% additional on their account if they open a new account it doesn’t work for people that already have accounts at Marcus you have to use the referral to get others to join .

 

[Happyras]

It is really as simple as 2.3%>1.89%.

You are a very smart person and I always respect your posts. It’s actually doing the math to calculate what yield you would otherwise get holding the T-bill versus selling the T-bill for a loss and getting the 2.3% at Marcus.

If I hold it to maturity I get the 1.37% total if I sell it I get 2.3% going forward but only .97% on my initial investment to date. My head is pounding now trying to figure out how the 1. 89% is ever coming in to play. Maybe I’m missing a simple step in the math please help me.

That’s why I think a tool would be nice to have so you don’t have to do the math each time. I have options on SPY I can choose to roll them out or roll them up or roll them up and out etc. to me it’s easier to see that in practice online at Fidelity then doing a bond roll out or T-bill roll out.

 

[pb4uski]

Post #6 is the math, but let me flesh it out more extending the example that I used before.

The $100 invested at 1.37% for two years has a "book value" of $101.37 after one year... but because market rates have increased, the fair value is only $100.85, so there is a $0.52 loss in value as a result of the increase in interest rates from 1.37% to 1.89%, reducing your return for the first year from 1.37% to 0.86%

Economically, that loss, realized or not, is common to both alternatives.

If you sell the t-bill you'll receive $100.85 because that is the fair value today. It doesn't matter whether this is a loss or a gain... what matters is that based on today's fair value that you'll earn 1.89% from now to maturity. OTOH, if you sell today and invest in Marcus you'll get 2.3%.

Or think of it this way... if you stay with the t-bill it is the same as earning 1.37% for year 1, selling for a loss and reinvesting the proceeds in the same t-bill and earning 1.89% in year 2. If you switch to Marcus it is the same as earning 1.37% for year 1, selling for loss and investing the proceeds in Marcus and earning 2.3% in year 2. Earning 1.37% for the first year and selling for a loss are common to both alternatives... so the only difference between the two alternatives is earning 1.89% in year 2 or earning 2.3% in year 2.

	(1) At purchase	(2) Year 1	(3) Year 2-Tbill	(4) Year 2-Marcus	Buy and hold (2 + 3)	Switch (2+4)
XIRR	1.37%	0.86%	1.89%	2.30%	1.37%	1.58%
01/01/21	-100.00	-100.00			-100.00	-100.00
12/31/21		100.85	-100.85	-100.85
12/31/22	102.76		102.76	103.17	102.76	103.17

P.S. I fully realize that in the real world bonds would pay interest periodically but for the purpose of this illustration I have chosen to "assume" that they are zero coupon and pay principal and interest only at maturty to make the calculations and the XIRR illustation easier to understand. The economics would work similarly for a conventional semi-annual payment bond but the calculations are more complex.

 

[Happyras]

Post #6 is the math, but let me flesh it out more extending the example that I used before.
The economics would work similarly for a conventional semi-annual payment bond but the calculations are more complex.

You are so correct, I appreciate the kick in the head. I am so stuck on the adjusting for the loss that I missed your initial point. So in that light, one can use the Fido tool to directly compare cutting ones losses and buying into a higher yielding bond. Of course you have to consider trade spreads, and cost/bond fees which are not shown clearly.

I am still confused on the stated yield on trading new issue t-bills, versus actual. I am assigned a bond person at Fido, and he could not explain why the actual yield is lower than the trade confirmation stated/expected yield. He only conceded to say it was in some details for a methodology he did not have access to. It is what it is, I assume.....

 

[njhowie]

... and an additional 1% for three months for each person who signs up using the link.

So again, it is not a money market account, but their savings account as Marcus does not offer any money market products.

And you cannot get higher unless you spam or recruit others.

The additional 0.1% for AARP is limited only for 2 years.

If you are unclear as to the differences between the savings account and a money market account, Marcus can explain for you:
https://www.marcus.com/us/en/resources/investing/what-are-money-market-mutual-funds

 

[pb4uski]

Actually, now that I think of it, why fool around with Marcus when 1-3 month CDs are at 2.2%, 4-6 month CDs are at 2.5%, 7-9 month CDs are at 2.75% and 10-12 month CDs are at 3.00%?

 

[Happyras]

The Marcus savings account is fully liquid and pays interest upon initiation of transfer pull from wherever you want to pull it from. As it was pointed out but not very relevant it is not a money market account it is a savings account that happens to pay 2.3% if you work the system. Since it’s FDIC, it’s a nice safe Harbor to pull from and put two while buying other investments. My only other fully liquid higher yielding account uses FZDXX at Fidelity but most people can’t use that because they haven’t initiated that $100,000 minimum. It’s my only alternative for full liquidity at a higher yield that I’m comfortable with for IRA cash. It pays currently 1.44% so it acts like a one or two months T-bill but I have way too much cash there which I need to decide where to put after the next round of Fed moves.

I was using it as an example as I have several bond investments and I was trying to figure out how to best use that Fidelity analysis tool to roll out in short duration while I await a higher rate longer-term investment.

I’m not used to having so much money in cash or so-called short term treasury investments so it is kind of relevant to get the best yield with liquidity and low risk.