Fixed Income Investing II

[Spock]

Bought Tucson Electric Power bonds yielding 5.45% senior unsecured A3/A- paper due 3-15-25. Callable beginning 12-15-24 at 100 or make whole.

Paid 96 and change. Coupon 3.05%. Call unlikely.

For bond stepladder.

Having just moved from Tucson, I would hesitate to touch TEP. The Tucson city council is bouncing off the rails with wild proposals such as setting up their own electric utility, interfering with transmission line construction and location, and are way over the top on pushing ESG which TEP seems to be saluting (and making campaign contributions to candidates for city council). TEP did get a recent rate hike approved, so there should be cash flow to make up for it... but I'd feel like I need to take a shower every TEP made an interest payment.

 

[Montecfo]

It looks like with all the treasury "supply" we may get another chance at some slightly better rates.

I have noticed some very slight increases in the bonds I fish for (18 month to about 10 years maturities).

 

[Mulligan]

It looks like with all the treasury "supply" we may get another chance at some slightly better rates.

I have noticed some very slight increases in the bonds I fish for (18 month to about 10 years maturities).

So have I but not enough to add yet. On some illiquid bonds, I am hoping for a spike in yield to get them sold.

 

[Surewhitey]

I'm looking at a 10yr CD at FIDO. Callable in 2 years @ 5.2%. If yields normalize & longs go up, maybe no-call? In the meantime, 2 yrs are only around 5%, so win win situation, right? Am I missing something?

I wouldn't mind the 10 yr commitment or selling if had to...

 

[COcheesehead]

I'm looking at a 10yr CD at FIDO. Callable in 2 years @ 5.2%. If yields normalize & longs go up, maybe no-call? In the meantime, 2 yrs are only around 5%, so win win situation, right? Am I missing something?

I wouldn't mind the 10 yr commitment or selling if had to...

If your are a belt and suspenders kinda investor, but you can get better no call yields with a little more risk.

 

[COcheesehead]

So have I but not enough to add yet. On some illiquid bonds, I am hoping for a spike in yield to get them sold.

I don’t understand this comment. If yields spike, your value drops on the illiquid bonds. Wouldn’t you want it to go the other way?

 

[Gumby]

I don’t understand this comment. If yields spike, your value drops on the illiquid bonds. Wouldn’t you want it to go the other way?

Mulligan can speak for himself, but I would compare it to lowering your asking price to get your house sold.

 

[Surewhitey]

If your are a belt and suspenders kinda investor, but you can get better no call yields with a little more risk.

I was thinking about a no-risk cash allocation... We got at least 30 years to go, so 10 years isn't forever...

 

[MichaelB]

So have I but not enough to add yet. On some illiquid bonds, I am hoping for a spike in yield to get them sold.

I don’t understand this comment. If yields spike, your value drops on the illiquid bonds. Wouldn’t you want it to go the other way?

I understood his point to be he intends to buy and is waiting for a lower price.

 

[COcheesehead]

I understood his point to be he intends to buy and is waiting for a lower price.

It’s confusing with the term “get them sold”

 

[aja8888]

It’s confusing with the term “get them sold”

I also thought he meant to sell them as well.

 

[COcheesehead]

I was thinking about a no-risk cash allocation... We got at least 30 years to go, so 10 years isn't forever...

I just did a scan on 2-10 year no call, high investment grade bonds and there are 217 of them available on Fidelity with yields over 5.5%.

It just goes back to how safe you want to go. My view, and I am not saying others need to have it as well, is that my safety is in reliable cashflow itself rather than the cash sitting somewhere. Happy investing.

 

[Surewhitey]

I just did a scan on 2-10 year no call, high investment grade bonds and there are 217 of them available on Fidelity with yields over 5.5%.

It just goes back to how safe you want to go. My view, and I am not saying others need to have it as well, is that my safety is in reliable cashflow itself rather than the cash sitting somewhere. Happy investing.

Thanks for your feedback. I'll look at those too. Just never done any individual bonds...

 

[Chuckanut]

It just goes back to how safe you want to go. My view, and I am not saying others need to have it as well, is that my safety is in reliable cashflow itself rather than the cash sitting somewhere. Happy investing.

I am interpreting the part I emphasized as the equivalent of “The best defense is a good offense”.
Or as my uncle used to say, “Don’t worry about saving the last cent. Just make the money”.

 

[Mulligan]

It’s confusing with the term “get them sold”

Yes, Micheal, Aja, Gumby are correct in what I was saying. Im just simply saying, watching for the price movement to drop to induce a buyer to purchase the bond. Which of course results in a higher yield. For instance a couple weeks ago a small 10 bond ($1000 par per bond) allotment of 5.75% 2033 PECO (Philadelphia Electric) kept dropping in price to get them sold. I pounced finally at a 6.55% yield which was significantly higher in yield than any ute issuance of that duration and credit quality. One can pluck deals on these types if patient. The counter point though is one better hold these illiquid bonds until maturity or the bond desk will steal you blind if you need to sell.

 

[Weathering]

What’s wrong with Jeffries (JEF) bonds?

Jefferies isn’t a bank, but their bonds sure seem to have been punished with the banks. They seem to be one of the highest yield-to-maturity companies in the BBB range (except for the banks). Jefferies stock is held by Berkshire Hathaway and a major Japanese bank, so that gives them credibility. Yet, the bid/ask spread on their bonds, which is huge, makes me think the bond brokers are skittish to own the bonds even for a short time.

I own $8k in Jefferies bonds, but cannot get myself to add any more unless I figure out why their bonds trade at a discount to other BBB bonds and have such a wide bid/ask spread compared to other investment grade bonds.

Hopefully the reason turns out to be the uniqueness of each Jefferies bond issuance - multi-step coupons with call options, etc. But, if it’s because their marketplace (Investment banking) won’t support the number of companies in it today, then I’ll need to strategically exit my small holding of their bonds.

 

[Montecfo]

Well rates have ticked up slightly. Good fishing. Time will tell if this is just another blip but will not last forever, that's for sure.

Looking for that safe north of 6% 5 year money. This could take a while but patient.

 

[COcheesehead]

Well rates have ticked up slightly. Good fishing. Time will tell if this is just another blip but will not last forever, that's for sure.

Looking for that safe north of 6% 5 year money. This could take a while but patient.

I am in forced patient mode. I won’t have any maturing bonds until Nov - Jan. We’ll see what the market gives me then.

 

[Montecfo]

I am in forced patient mode. I won’t have any maturing bonds until Nov - Jan. We’ll see what the market gives me then.

I have a large equity allocation that I will begin switching to bonds at the parameters I noted.

 

[Car-Guy]

A week from today Powell will speak again (Jackson Hole mtg) and should give us better insight as to what is coming at the next FOMC rate setting meeting in ~mid Sept.

I've got one big CD maturing between now and then (actually next Monday) so I'll be parking that cash in SWVXX at 5.2+% until they decide.

I'm still thinking another 1/4 point increase and then done. How long will that hold before rate decreases start is a real crap shoot IMO. But it will be very interesting to me to hear what he has to say about when that may start.

 

[Montecfo]

It seems they will prob hold tight in September as things look now.

I expect Powell will tap familiar themes and break little new ground at Jackson Hole. Inflation too high, remain vigilant, data driven etc. He wants to keep everything "live" for Sept.

This little supply-driven uptick in rates is doing some of the Fed's work and the inflation trends are very good now.

 

[COcheesehead]

I have a large equity allocation that I will begin switching to bonds at the parameters I noted.

All my taxable ladders already yield 6%+. The muni ladder as one would expect is below that.
I have only about 30% in equities currently. I don’t think I would rebalance out of those. I seem to do best by letting the ladder strategy unfold naturally.
If I had a bunch in equities, I would be chomping at the bit to roll some over to bonds and lock in some duration.

 

[Montecfo]

All my taxable ladders already yield 6%+. The muni ladder as one would expect is below that.

I have only about 30% in equities currently. I don’t think I would rebalance out of those. I seem to do best by letting the ladder strategy unfold naturally.

If I had a bunch in equities, I would be chomping at the bit to roll some over to bonds and lock in some duration.

I suspect our risk profiles are different.

 

[Healthy Lifestyle]

All my taxable ladders already yield 6%+. The muni ladder as one would expect is below that.
I have only about 30% in equities currently. I don’t think I would rebalance out of those. I seem to do best by letting the ladder strategy unfold naturally.
If I had a bunch in equities, I would be chomping at the bit to roll some over to bonds and lock in some duration.

I am sitting in similar position but in both ira and taxable.
What are you in to get 6%+ in taxable?

 

[COcheesehead]

I am sitting in similar position but in both ira and taxable.
What are you in to get 6%+ in taxable?

Mostly corporates, agency bonds and 4 taxable muni bonds - 29 holdings all together. The rest is tax free muni bonds.