Fixed Income Investing II

[mrfeh]

I think I see the confusion; mrfeh's graph shows the gain if you bought Jan 1. I'm not sure that's a useful number. If you bought at the low of the year, that graph would show something like 7% return. It indicates to me that bond funds are not like bonds as much as they are like dividend stocks.

We were discussing annual returns. What other dates would one use besides 1/1 and 12/31?

Bond funds should be bought for their dividends. That's the whole point of a bond fund, not NAV gyrations.

 

[Echard]

I have a question for those of you that use the Fidelity Full View feature, that allows you to see all of your assets, even if they are held outside Fidelity. It's a good tool (from emoney advisor, who Fidelity bought). However, when I plug in my BBB bonds, it shows them as high yield rather than investment grade. Anyone else have this issue? Thoughts?

 

[mathjak107]

not saying they should be judged that way but BBB. is considered the most riskiest level of bond investing .

as moody says it’s the last rung of investment grade and one slip in a downturn and every insurer , fund , pension fund , etc that is required to hold investment grade only has to dump them and right now in the non govt sector it has the most money of any segment because it’s the sweet spot for rates .

moody’s says it’s 10x the size it was in that segment then 2008 and that can be the elephant in the room in a downturn.

the mass dumping that will be required scares the analysts.

so not sure if fidelity is being proactive or just classified wrong .

in fact in reality high yield is less risky since it won’t be the sector having to be dumped with a slip in rating

 

[Spock]

I have a question for those of you that use the Fidelity Full View feature, that allows you to see all of your assets, even if they are held outside Fidelity. It's a good tool (from emoney advisor, who Fidelity bought). However, when I plug in my BBB bonds, it shows them as high yield rather than investment grade. Anyone else have this issue? Thoughts?

Fidelity's own bond analysis tool (not in FullView) can't figure out the credit rating on CD's and groups them in "other".
One thing to check is the different ratings agencies score on the same bonds. FullView might be using Moody's which doesn't have a BBB score (and seems to actually rate bonds higher) rather than SP (or Fitch).

 

[Texas Proud]

not saying they should be judged that way but BBB. is considered the most riskiest level of bond investing .

as moody says it’s the last rung of investment grade and one slip in a downturn and every insurer , fund , pension fund , etc that is required to hold investment grade only has to dump them and right now in the non govt sector it has the most money of any segment because it’s the sweet spot for rates .

moody’s says it’s 10x the size it was in that segment then 2008 and that can be the elephant in the room in a downturn.

the mass dumping that will be required scares the analysts.

so not sure if fidelity is being proactive or just classified wrong .

in fact in reality high yield is less risky since it won’t be the sector having to be dumped with a slip in rating

There are a LOT of grades below BBB... now if you said riskiest for investment grade you would be right...


I have a number of bonds/pref that is below BBB...

 

[mathjak107]

There are a LOT of grades below BBB... now if you said riskiest for investment grade you would be right...


I have a number of bonds/pref that is below BBB...

BBB is the last rung of investment grade .

one slip down in rating and it is no longer investment grade .

so moody’s is very worried about that sector and liquidity if it takes a hit .

junk is already not investment grade so that won’t be an issue like all these institutions that can only hold investment grade stuff and now have to dump it with fewer takers

 

[Montecfo]

With credit spreads so tight, the highest quality seems most investible.

 

[copyright1997reloaded]

With credit spreads so tight, the highest quality seems most investible.

This.
I just don't get chasing yields to things that might be severely impacted in a real downturn. I am not saying that I wouldn't invest in lower quality bonds (I have), but only when we are *already* in the midst of that down turn so that the yield spread risk premium is much wider than today.

If I want risk, I have equities because I also have potential reward. Here's a link to a FRED data chart showing BBB spreads:
https://fred.stlouisfed.org/series/BAMLC0A4CBBB

To those loading up on BBB's to grab that extra yield, max out the chart to see where things are relative to 2000 or 2008/9 or even 2002. THAT's what will happen if/when we have a real, not propped up by fiscal madness situaton.

 

[mathjak107]

keep in mind today BBB has ten times more in that sector then 2008.

so a mass dumping is what moody’s calls the equal to the debacle in the credit default swap markets back in 2008

 

[Texas Proud]

BBB is the last rung of investment grade .

one slip down in rating and it is no longer investment grade .

so moody’s is very worried about that sector and liquidity if it takes a hit .

junk is already not investment grade so that won’t be an issue like all these institutions that can only hold investment grade stuff and now have to dump it with fewer takers

Yes... and I know that and I know YOU know that... but that is not what you said..


Originally Posted by mathjak107
not saying they should be judged that way but BBB. is considered the most riskiest level of bond investing .





BBB is not the riskiest level... it is the riskiest investment grade level...

 

[pb4uski]

+2, not close to riskiest level

 

[Echard]

I guess what confuses me is I look at a lot of these BBB bonds and they are from companies like Oracle, Allstate, etc. Are people saying they aren't comfortable with corporate bonds and want to stick to just mostly government?

In general, I'm struggling on my bond strategy. I didn't like the bond mutual funds, like BND, so I sold out of those a few years ago. That ended up being a good, lucky decision because I missed the downturn in those funds.

However, I replaced that over time with the ladder of corporates, treasuries, and CD's. I"m about 50% corporate and 50% treasury and CD's. The corporates are about 50% BBB because I used iShares Ibonds to build the ladder. Now, I'm concerned based upon this thread that I have too much risk in corporate BBB's. Thoughts? I'm on the verge of just blowing up my ladder and just dumping in BND I'm so tired of thinking about ladder management. Also, I had a loss in another investment area so I'm extra sensitive right now.

 

[Texas Proud]

Here is a default rate table...

 

[jldavid47]

Since somebody needs to post here after 2+ months...

I was busy the past 2 days locking in some rates with some duration in our IRAs as the bond market has rallied since Wednesday. I bought a 1-year brokered CD paying 5.4%, an 18-month paying 5.2% and a 2-year paying 5.1%. All non-callable. I also bought a callable 10-year 6% FHLB bond with 6 months of call protection. As usual, if it gets called I don't care as it is easy to redeploy into other FHLB bonds. (So far, nothing yielding 6% or below in my agency bond allocation has been called). Most of the money came from maturing CDs and treasuries, some from MM funds. I don't think rates will come down significantly, but it doesn't hurt to lock in some good yields while I can.

 

[aja8888]

Since somebody needs to post here after 2+ months...

I was busy the past 2 days locking in some rates with some duration in our IRAs as the bond market has rallied since Wednesday. I bought a 1-year brokered CD paying 5.4%, an 18-month paying 5.2% and a 2-year paying 5.1%. All non-callable. I also bought a callable 10-year 6% FHLB bond with 6 months of call protection. As usual, if it gets called I don't care as it is easy to redeploy into other FHLB bonds. (So far, nothing yielding 6% or below in my agency bond allocation has been called). Most of the money came from maturing CDs and treasuries, some from MM funds. I don't think rates will come down significantly, but it doesn't hurt to lock in some good yields while I can.

I re-bought a preferred stock that I owned before rates fell (SR/PA). It's currently yielding near 6.2%.

 

[Mulligan]

Aja, I recently reentered some fixed perpetuals, getting a bunch of UEPEM recently at $64. But like David mentioned I have in past week bought 3 different CDs. Two noncallable monthly payers from Wells Fargo CDs paying 5.05% and 5.10% 2 year durations. And this morning I found a secondary market CD from Morgan Stanley with a 3 year noncallable 6/1/27 duration for 5.1%.

 

[aja8888]

Aja, I recently reentered some fixed perpetuals, getting a bunch of UEPEM recently at $64. But like David mentioned I have in past week bought 3 different CDs. Two noncallable monthly payers from Wells Fargo CDs paying 5.05% and 5.10% 2 year durations. And this morning I found a secondary market CD from Morgan Stanley with a 3 year noncallable 6/1/27 duration for 5.1%.

Mulli, I have a bunch of CD's going out to 2027 that I picked up last year that are 5 to 5.4 % non-callable. I'm light on cash and waiting for my treasury bills to mature before I go back into more CDs or even some preferreds.

The Bank of Canada lowered their policy rate today to 4.75% from 5% and that may be a canary in the coal mine for the FED to start thinking about thinking about (LOL) lowering rates (especially with the election coming up this Fall).

So maybe it's time to look at grabbing some preferreds while they are under par and still providing a good yield?

Oh, nice to see you posting here again!

 

[Montecfo]

Mulli, I have a bunch of CD's going out to 2027 that I picked up last year that are 5 to 5.4 % non-callable. I'm light on cash and waiting for my treasury bills to mature before I go back into more CDs or even some preferreds.

The Bank of Canada lowered their policy rate today to 4.75% from 5% and that may be a canary in the coal mine for the FED to start thinking about thinking about (LOL) lowering rates (especially with the election coming up this Fall).

So maybe it's time to look at grabbing some preferreds while they are under par and still providing a good yield?

Oh, nice to see you posting here again!

I think so.

 

[Mulligan]

Mulli, I have a bunch of CD's going out to 2027 that I picked up last year that are 5 to 5.4 % non-callable. I'm light on cash and waiting for my treasury bills to mature before I go back into more CDs or even some preferreds.

The Bank of Canada lowered their policy rate today to 4.75% from 5% and that may be a canary in the coal mine for the FED to start thinking about thinking about (LOL) lowering rates (especially with the election coming up this Fall).

So maybe it's time to look at grabbing some preferreds while they are under par and still providing a good yield?

Oh, nice to see you posting here again!

Aja, the damn app quit working and frustrating me, so I would have to log in via internet and it was a pain, and then over time I forgot. I got an app that works now again and stays logged in so I should more often now!
I got a fair slug of plus 5% CDs in March of 2023. But that was the peak for noncallables and I should have bought more. But there have been the plus 5% issues still for 2-3 year duration so that is what I have bought. I just personally dont buy callable CDs, and my preference are those monthly payers.
Back in ZIRP I basically was all in fixed perpetuals for better part of 10 years. When Fed started hiking I basically got out. I have maybe 20-25% in fixed perps now. Basically all of them mostly Ameren ones, probably have around 10 or so of them. Mostly bought in 6.25% recent range and 30-40% below par. It makes no sense to me to own any issue around 6% or so trading at par, when you can get these utilities at same yield 30-40% below par. Because if rates do ever slide down these have room for cap appreciation. While the others would be anchored to par past call, and likely redeemed right when you wanted the income.

 

[Chuckanut]

The latest TIPS Watch blog entry supported the idea of locking in a 2% fixed rate that is available today.

 

[Echard]

I ended up moving some of my ladder into total bond funds and into some 6 and 8 year term inflation etfs. I left the part of the bond ladder that goes to six years. This is a nice compromise. It’s a bit easier to manage than a ten year ladder, and I moved the average maturity of the portfolio out a bit. I still don’t have long term bonds past ten years because there is still too much interest rate risk to lock in that far out imo.

 

[Markola]

It’s a refreshing change to watch the total bond index fund values rise again.

For VBTLX:
YTD: +2.28%
1 Year: +5.89%

After a brutal plunge in 2022, I’ll take it!

 

[mrfeh]

It’s a refreshing change to watch the total bond index fund values rise again.

For VBTLX:
YTD: +2.28%
1 Year: +5.89%

After a brutal plunge in 2022, I’ll take it!

That's just the NAV change.

YTD total return is 4.3%.

1 year is 9.6%

 

[Chuckanut]

It’s a refreshing change to watch the total bond index fund values rise again.

For VBTLX:
YTD: +2.28%
1 Year: +5.89%

After a brutal plunge in 2022, I’ll take it!

My Psssssssst Wellesley is slowly creeping up.

 

[Koolau]

My Psssssssst Wellesley is slowly creeping up.

You made me look!

The chart looks very nice here of late. We've been just letting Wellesley ride down and now back up somewhat. I think we'll just keep things the way there are with it.