Fixed Income Investing II

[copyright1997reloaded]

Yeah I’m still amazed how many folks are savoring current MM rates as if they can’t drop as quickly as they rose. Same for folks that feel 3 yrs is long term. The inversion has people piling into the short end. My favorite term now is ten years. I need to reinvest in late Jan and I expect there will still be decent availability for 10 yr corporates BB or better >5%.

I feel pretty confident that rates won't be much or at all lower in 5 years. I'm more concerned about my long term inflation hedges over all other aspects of my investments. But we each must play this game the best we can. (OTOH, I don't have a ton of my fixed in MM funds, my weighted days till maturity is right around a year on my non-preferred fixed investments.)

 

[COcheesehead]

I feel pretty confident that rates won't be much or at all lower in 5 years.

Based on what? The 10 year has dropped from almost 5% to 3.975% in about a month. Gundlach is saying we reach 3% next year.

 

[copyright1997reloaded]

Based on what?

I think the ever increasing fiscal spending is yet to be broken (and not likely to be broken). There will also be spending to revamp/resupply our military assets, higher costs due to tensions with China (and others), a gradual but increasing move away from the dollar. All of these factors will be long term inflationary (in terms of decreased purchasing power of my stash which is mostly denominated in dollars).

Everyone was celebrating today because the Fed has supposedly engineered a soft/no landing, similar to the post WW-II inflation (as compared to the 70's stagflation). I think it is too soon to celebrate, and the stock market cheers might turn to cries. We are also seeing increased "tensions" around the world, including the new the Brazil / Venezuela / Guyana territory dispute.

Five years is a long time, we can easily be through a fed easing cycle and back to a new and "improved" tightening cycle fueled by more and more US Government debt.

In the meantime, happy days are (almost) here again and my portfolio is looking better.

ETA: I am not saying that the 10 year can't drop to 3% next year. My statement was looking out 5 years.

 

[jazz4cash]

You realize BB is considered top of junk or speculative grade. Duration at that level is sketch.

I misspoke, I should have said BBB+ which I think is 2 notches above junk.

 

[jazz4cash]

Exploring things that might guide me to the next way to find value in fixed income. Can I buy deeply discounted, low coupon bonds in my Roth to avoid de minimus rules ? How about taxable munis ?

 

[COcheesehead]

Exploring things that might guide me to the next way to find value in fixed income. Can I buy deeply discounted, low coupon bonds in my Roth to avoid de minimus rules ? How about taxable munis ?

It’s a 100% tax free upon withdrawal account.

 

[Montecfo]

I do not accept the soft landing/no landing premise. Recession remains on the table.

But it really does not matter much for investors. Growth has slowed and will continue to. The only question is how slow we go.

Defensive stocks will become more valuable and growth will take a back seat for a time. Until the market begins to perceive and discount new growth. Then things unwind and go the other way.

Yields have peaked and the easy money on bonds was made earlier in the year. But there is still opportunity.

Folks who believed yields would go higher and higher and stay there for longer as we were told here many times (but not recently) are perhaps gaining a more realistic perspective though with some pain.

 

[dobig]

Based on what? The 10 year has dropped from almost 5% to 3.975% in about a month. Gundlach is saying we reach 3% next year.

Cheese, Gundlach also believes once we hit that we'll start seeing interest rates rise again due to the inflationary response to fighting the next recession which he expects early to mid next year.

See 5:50 in video.

 

[COcheesehead]

10 year is down again! If you are holding duration and yield, you are making serious money on bonds right now. Over a 100 basis point move in 6 weeks.

 

[pb4uski]

^^^ That's great! Too bad that Im one of those hold-to-maturity types.

 

[COcheesehead]

^^^ That's great! Too bad that Im one of those hold-to-maturity types.

I am too mostly, but it is nice to get equity like returns on your bonds.

 

[njhowie]

Exploring things that might guide me to the next way to find value in fixed income. Can I buy deeply discounted, low coupon bonds in my Roth to avoid de minimus rules ? How about taxable munis ?

Preferred stock in smaller banks are still a bargain...
BWBBP
FGBIP
CCNEP
DCOMP
FRMEP

They are beginning to move, but still bargains at current prices.

Taxable munis in your Roth will get around de minimus rules. However, during just this week, inventory has plummeted. Not much quality available for 6%+ now, where there was plenty just last week.

 

[imbatman]

yes I have had to redo all my screens, it is really incredible how everything is gone. And there aren't many more munis scheduled this year and Jan is usually slow too

 

[Chuckanut]

May you all have gone longer duration prior to today or really the last month. The swiftness of happened to bonds has been shock and awe.

Certainly there have been enough warnings about the risks of being too greedy on the assumption that rates will continue up or hold firm at worst. IIRC, Mulligan had a very good take on those risks.

 

[11522914]

May you all have gone longer duration prior to today or really the last month. The swiftness of happened to bonds has been shock and awe.

I couldn't have been more wrong about my expectations on rates and inflation in the 4th quarter.

I did pick up a bunch of those 5 year non-callable Wells Fargo cds at 5.05% in case I was wrong. Glad I at least did that.

I even tiptoed into preferred stocks buying only $770 worth. I planned on increasing that significantly but am amazed at how quickly they went up. I'm up 6.72% on my tiny preferred portfolio that I bought back in late October with average yields over 7%.

This has been quite the learning experience watching how fast rates and preferreds can move. Amazing.

I still have 40% of my investment portfolio invested in MM. As I am no longer interested in stocks I'm not quite sure what to do with that 40% so right now I'll just leave it in MM.

 

[COcheesehead]

I was looking at what I bought since late October. I plan to keep them because I am an income investor first, but some of those buys are up over 10% in principle. I have never seen anything like that in my time investing in fixed income.
I bought duration and bought above market coupons 6%+ to 7.75% I will now draw income from those for 10+ years.

 

[COcheesehead]

Certainly there have been enough warnings about the risks of being too greedy on the assumption that rates will continue up or hold firm at worst. IIRC, Mulligan had a very good take on those risks.

I just watched the bond market. Big coupons and longer durations were getting harder to buy already in late October, early November. I figured if I was 75% right on the timing, I would be fine. Little did I know that right around the corner the music would stop, but I already had a good sturdy chair to sit on.

 

[Texas Proud]

I was looking at what I bought since late October. I plan to keep them because I am an income investor first, but some of those buys are up over 10% in principle. I have never seen anything like that in my time investing in fixed income.
I bought duration and bought above market coupons 6%+ to 7.75% I will now draw income from those for 10+ years.

I am really shocked how quickly the market has turned... wished I had been able to have invested in the 3X treasury fund a few days ago... costing me a bit..


I have a number of cap gains of 14%.. with one being 36% since July/August when I purchased them... kinda weird the speed this has happened..


I bought mostly long duration so I am really happy to hold to maturity... my only concern is ratings drop... I have one now that I will see if I want to sell... I have a loss on it but the yield is good..

 

[COcheesehead]

I am really shocked how quickly the market has turned... wished I had been able to have invested in the 3X treasury fund a few days ago... costing me a bit..


I have a number of cap gains of 14%.. with one being 36% since July/August when I purchased them... kinda weird the speed this has happened..


I bought mostly long duration so I am really happy to hold to maturity... my only concern is ratings drop... I have one now that I will see if I want to sell... I have a loss on it but the yield is good..

What is the drop, from what to what? It may not matter.

 

[COcheesehead]

Just reading a few other forums I post on. The panic is palpable. People asking how to lock in 5% CDs for 10 years. Ouch.
I fear too many have been caught short term.

 

[Texas Proud]

What is the drop, from what to what? It may not matter.

It was junk before at BB+ and now is CCC+... it is an office building REIT preferred...


Only down about 7% right now... will have to check out the REIT itself...

 

[Montecfo]

Just reading a few other forums I post on. The panic is palpable. People asking how to lock in 5% CDs for 10 years. Ouch.
I fear too many have been caught short term.

They received advance notice, here at least. But perhaps not enough to counter the now distant predictions of "higher and higher" and "higher for longer" (remember that??).

 

[GhostofTomJoad]

I have never, ever heard of bond FUNDS doing what they did today for me. I own junk funds, TUHYX and PRCPX. I suffered through the lows since last year and through this year... The yields have been ridiculously good, and I just continue to reinvest them all. Both were up on 14 Dec '23 by over 1 full percent: + 1.28% and +1.34%. That's crazy nuts. But I like it. Yields will fall, but what the hell. I'll be making better than 5% CDs for the foreseeable future. Morningstar still shows over 7% yield for both, tonight.

 

[COcheesehead]

It was junk before at BB+ and now is CCC+... it is an office building REIT preferred...


Only down about 7% right now... will have to check out the REIT itself...

You live on the edge. I would never have bought that low. The rating is low, the sector is sketch. Now a downgrade. I would be looking for a bid soon.

 

[Fotodog]

I would love to hear some thoughts on selling bonds, since the process is different than selling stocks. I bought a couple of bonds from small financial institutions with nice yields before the SVB fiasco which are on the low end of investment grade. I’m considering selling these.

How do you determine if selling a bond makes financial sense? I would assume it would need to be worth more now than when it was bought, and a good replacement is available. How do you know the price for which you can sell it? Do you take a look at recent transactions and offer an ask price? Or do you look at the bids and accept one? Will you also receive accrued interest, and if so how do you determine what that is?

Thanks to all of the experienced bond investors who have helped with my education.