Fixed Income Investing II

TickTock said:
ERhoosier,

Well thought out. 👍

I'm in the process of buying a 5-year MYGA. ~160 basis points above USTs.
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Where did you get your quote for the MYGA at? Are you OK with providing more details?
 
ERhoosier said:
Just ran across this thread. Forgive me if this has already been covered, but I am finding Gov't Agency bonds interesting (Farm Credit, Fed Home Loan Bank, etc.) as part of my FI AA. Past few months I've bought some long (20-30yr) Agencies still paying almost 5.7-6% YTW with ~1yr call dates. I figure they are likely to get called & view them as ~175 basis points better yield alternative to 1 yr Treasuries with minimal added risk (AA+ rated and (IMHO) low chance of big sustained spike in interest rates within the next year that would 'stick' me with a 20-30yr bond). Most (not all) have been called a bit after their 'first call' and I have been replacing them with new Agency bonds of similar coupon/call features (though YTMs are down a bit from some months ago).
Any comments welcome.
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I have a slug of different agencies as well, about 16% of my total portfolio. Since they are all callable and very likely to be called, I buy many different CUSIPs since there are so many to chose from. figuring that there is less chance that many will be called at the same time. That way, when the calls that do happen I have lower amounts to have to reinvest than if I was concentrated into fewer CUSIPs and had a call.
 
G-Man said:
Where did you get your quote for the MYGA at? Are you OK with providing more details?
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Stantheannuityman.com AM Best A rating. 5% withdrawal each year without penalty. This is a partial refill of year 5 of our bond ladder.

This is my first MYGA (or annuity, for that matter). The process is more involved than buying/selling CDs, bonds, or funds in the brokerage account. But the tax deferral and extra basis points make it worth it to me.

There are others here more knowledgeable on MYGAs than me.
 
I am trying to understand and aquire some muni bonds to start with
if i may ask what parameters typically take priority for your consideration in the search?
i I am 62 and want to move towards 50/50 AA
increasing bond allocation in my ira
am i crazy to consider 4% for 15 yrs in this environment? Tax eqiv in ca think its about 6.3 %
should i maybe temper myself with earlier call date than 5 years from now
does the lower coupon hurt if wanted to sell early?
is the BDS issue worth the extra?
figured out how to edit my criteria and i have 300 utilities on a list
 
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I keep hearing that munis in the 15-20 yr range arexbery attractive right now. I’d prefer to stay <15 yrs and ladder. I’m finding some better deals but nothing stellar. If you are in a high tax state buying home state bonds is a plus. I try to get a mix of GO and revenue bonds but avoid thevobscure ones likevhousing authority issues. I haven’t bought any taxable munis. I can’t envision any circumstance that I would sell before maturity. I think we have a thread dedicated to munis
 
LTSTRYAGIN said:
am i crazy to consider 4% for 15 yrs in this environment? Tax eqiv in ca think its about 6.3 %
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I generally don't go out more than 5 years with the current yield curve. But I'd definitely take a chunk of the 5-year ladder rung and put it in 6.3% for a high-quality bond.

I had some 6-year remaining duration FHLB bonds yielding 5.78% bought at a very slight discount, but they got called in October of 2024. 😢
 
LTSTRYAGIN said:
I am trying to understand and aquire some muni bonds to start with
if i may ask what parameters typically take priority for your consideration in the search?
i I am 62 and want to move towards 50/50 AA
increasing bond allocation in my ira
am i crazy to consider 4% for 15 yrs in this environment? Tax eqiv in ca think its about 6.3 %
should i maybe temper myself with earlier call date than 5 years from now
does the lower coupon hurt if wanted to sell early?
is the BDS issue worth the extra?
figured out how to edit my criteria and i have 300 utilities on a list
Click to expand...
You are correct in looking at after tax equivalent. That’s why you buy a muni.
In regard to coupon, muni’s to begin with are illiquid. Adding a low coupon makes it worse.
I buy non call or long call issues because I want resilient income vs something like an agency that can be called at almost any time.
Muni’s are second to treasuries in terms of safety. They form a nuclear event basis in my portfolio. Boring, safe, sleep at night issues. I add risk on top to juice my income to where I want it.
 
Maybe this should be a separate thread or even a poll, but I'm curious how much faith and trust you put in the Moody's/S&P/Fitch credit ratings when deciding which bonds to buy for fixed income.

I bought a higher yielding bond that S&P had rated as BBB (Investment grade, middle of "moderate credit risk"). Yet the Moody's rating is a full SEVEN notches lower at B3 (non-investment grade, bottom of "substantial credit risk" tier). The Moody's report made it sound like "why would anybody buy this", while I assume the higher S&P rating was based on the issuer being backed by the government.

I'm also curious at how GSIB/"too big to fail" major banks like BoA, Morgan Stanley, Goldman Sachs have bond ratings of BBB- the very bottom of investment grade, while other non-GSIB banks are considered higher risk because they are not GSIBs yet they have higher credit ratings than the GSIBs!

I guess I've always looked sideways at the ratings. After the congressional hearings from the sub-prime debacle where bottom grade mortgages were lumped together and sold as A-something investment grade and the ratings companies complicity in the debacle.

In deteriorating economic conditions with rising loan write-offs, aren't the ratings for the car loan arms of Ford and credit card companies supposed to be doing DOWN and not UP? (a small Discover card bond I held was just upgraded by Fitch in March).

How much weight do you put into these opinions of the rating companies when buying bonds?
 
I built a 5 year Muni bond ladder in my taxable account when I retired 3 years ago with the proceeds from the sale of my work condo. This will fund the first 5 years of retirement as the bonds mature each year. This strategy helps reduce sequence of returns risk since I don’t have to touch my stock funds during this time, and that is exactly what happened in 2022 when the S&P 500 was down 27% at one point.

Like you I’m in California and my 4%+ Munis have an equivalent yield of over 6%. Just be aware that not all California Munis are both federal and state tax free. This information is shown on my brokerage website, I assume they all do. When searching for bonds I use a filter to exclude those that aren’t fully tax deductible.
 
Spock said:
Maybe this should be a separate thread or even a poll, but I'm curious how much faith and trust you put in the Moody's/S&P/Fitch credit ratings when deciding which bonds to buy for fixed income.

I bought a higher yielding bond that S&P had rated as BBB (Investment grade, middle of "moderate credit risk"). Yet the Moody's rating is a full SEVEN notches lower at B3 (non-investment grade, bottom of "substantial credit risk" tier). The Moody's report made it sound like "why would anybody buy this", while I assume the higher S&P rating was based on the issuer being backed by the government.

I'm also curious at how GSIB/"too big to fail" major banks like BoA, Morgan Stanley, Goldman Sachs have bond ratings of BBB- the very bottom of investment grade, while other non-GSIB banks are considered higher risk because they are not GSIBs yet they have higher credit ratings than the GSIBs!

I guess I've always looked sideways at the ratings. After the congressional hearings from the sub-prime debacle where bottom grade mortgages were lumped together and sold as A-something investment grade and the ratings companies complicity in the debacle.

In deteriorating economic conditions with rising loan write-offs, aren't the ratings for the car loan arms of Ford and credit card companies supposed to be doing DOWN and not UP? (a small Discover card bond I held was just upgraded by Fitch in March).

How much weight do you put into these opinions of the rating companies when buying bonds?
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The dates of the reports matter. Issuer events matter. The equity behind the bond matters. You need to take it all into account.
 
Spock said:
Maybe this should be a separate thread or even a poll, but I'm curious how much faith and trust you put in the Moody's/S&P/Fitch credit ratings when deciding which bonds to buy for fixed income. ...
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I put a lot of credence in Moody's and S&P credit ratings for a couple reasons. First, Im lazy and despite a career writing and reading financial statements and SEC reports I have zero interest in spending any time doing so in retirement. Second, one of my employers in the 1990s was rated by S&P, Moody's and Fitch and I was somewhat involved in the ratings process and all told, I think the did a pretty credible job.

However, I do hedge my bets a tad. While I make exceptions for good opportunities, I try to buy only bonds that are rated by both S&P and Moody's and are at least BBB/Baa2 (so one notch better than the lowest investment grade ratings) and I look for ratings no older than a year.
 
Spock said:
Maybe this should be a separate thread or even a poll, but I'm curious how much faith and trust you put in the Moody's/S&P/Fitch credit ratings when deciding which bonds to buy for fixed income.
Click to expand...
My experience: Bought a Credit Suisse London bond in 22ish. Was rated aa2 or a2. A month later Credit Suisse nearly went under (and was talking about very low or no payout for many of their bonds), and was only saved by UBS. Finally sold it last fall for about break even, and that was a pain with whole "auction/bid" thing. Never again.

I'm fine with 4+% in VMFXX. If the 6 month or 1 year treas notes/bonds go appreciably above VMFXX, I might look at starting a ladder.
 
pb4uski said:
I put a lot of credence in Moody's and S&P credit ratings for a couple reasons. First, Im lazy and despite a career writing and reading financial statements and SEC reports I have zero interest in spending any time doing so in retirement. Second, one of my employers in the 1990s was rated by S&P, Moody's and Fitch and I was somewhat involved in the ratings process and all told, I think the did a pretty credible job.

However, I do hedge my bets a tad. While I make exceptions for good opportunities, I try to buy only bonds that are rated by both S&P and Moody's and are at least BBB/Baa2 (so one notch better than the lowest investment grade ratings) and I look for ratings no older than a year.
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PB, I like to read the prose summary for their reasons behind the rating. That helps me more than the actual minutia of all the numbers. Look for recent debt trends, future capitalization needs, regulatory climate of the state, a cost pass through abilities. So of course I am more geared to utility senior unsecured bonds. My preference with the preferreds is the subsidiary debt, but I am fine with low IG parent debt that in effect sits behind the preferreds. But like you said I want a rating summary that is either new or affirmed recently.
 
Update: The MYGA was issued on 5/19! 5-year, 5.6% interest. 5-year USTs are in the neighborhood of 4.1%.

(I also learned that Vanguard *really* doesn't want to do a wire transfer to a bank account that's not in the investors' name. But that's a rant for another thread...)
 
That’s a great rate on the annuity. Who did you buy the annuity from?
 
Savings Bank Mutual Life Insurance Company of Mass. Available insurers will depend on your state of residence.
 
Spock said:
Maybe this should be a separate thread or even a poll, but I'm curious how much faith and trust you put in the Moody's/S&P/Fitch credit ratings when deciding which bonds to buy for fixed income.

I bought a higher yielding bond that S&P had rated as BBB (Investment grade, middle of "moderate credit risk"). Yet the Moody's rating is a full SEVEN notches lower at B3 (non-investment grade, bottom of "substantial credit risk" tier). The Moody's report made it sound like "why would anybody buy this", while I assume the higher S&P rating was based on the issuer being backed by the government
Click to expand...
I trust the rating agencies but also factor my risk tolerance (ex. not so interested in a long term bond in ports in FL/LA which may get wiped out next hurricane season).

I have noticed that some agencies factor in insurance and others don't, so I have more than a few bonds that are "B" rated but "A1 and up" when the insurance is added on top of it.
 
I have a question for the board on how to think about bond etf's. I'm trying to get a better sense as to the "potential" returns for bond etf in the future. I realize that is a loaded question. But stick with me for a minute. When thinking about future returns of a bond etf, you can look at distribution rates, coupon rates, current yield rates, or average yield to maturity. There is a problem with each of these measures in trying to get a feel for future returns, but YTM is probably the closest, recognizing that as rates changes in the future, the returns on reinvested dividends will change too. Anyway, if we look at YTM and if a bond etf has a current average yield to maturity of say, 4.5%, there is an inherent assumption that dividends are reinvested at the YTM rate, I believe. But for retirees, there is a very good chance the dividends are going to be used to pay living expenses, rather than be reinvested. So the current actual future return based on the current moment in time won't be 4.5%, it will be something less. And that something less is more significant the longer the maturity/duration of the bond etf. Has anyone ever sat down and tried to do an in the moment calculation of that lesser amount? With no face value of a bond etf, the calculations I think get tricky.
 
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