Interest Rates and Bonds

[lawman]

The Fed now has short term interest rates set at .75% - 1%. Some Intermediate investment grade bonds with duration of 6 years are down as much as 9% or more. With bond values so low I wonder how much of the raising of rates is already cooked into bond prices. Will bond values go lower if the Fed raises rates another point over the next 2 - 3 months? How much more if any would these bond values drop if the Fed increases rates another 2% within 5 months?

 

[Rianne]

I don't know, but we're sitting on a bunch of cash. Maybe we'll see clearing through this mess soon. If so, we're going to buy stock index funds or ladder treasuries, it's a crapshoot. We've laddered about 25% of our cash in treasuries and will hold off the rest for a while.

 

[Dash man]

I had a CD mature and have put it into short term treasuries and munis. Beats the savings account rates.

 

[COcheesehead]

I am a ladder guy. I don’t care. If you follow the ladder process, it will treat you well. Maturing bonds give you fresh cash to invest at a higher rate or if rates go the other way, you have bonds yielding more on the long end and you get paid along the way …and get your face value at the end. Just don’t put your money in bond funds.

 

[Rianne]

Forgot to say, we're staying in all of our stock index funds, and have not touched them. So that 60% is still there, the bond index fund 40% is a different story.

 

[Freedom56]

I am sitting on a lot of cash and am not actively buying. My next maturities are in late 2023 and early 2024. Then 2025, 2027 and 2031. There is nothing wrong floating cash in a money market fund or with short term treasury notes waiting for those bargains to appear. I'm waiting again for that March 2020 moment before I aggressively buy. The FED is now taking about bringing the target rate up to 3.5% by the end of the year. Short term treasuries, CD, Muni bonds, and investment grade corporate notes are not reflecting that reality.

 

[lawman]

. Short term treasuries, CD, Muni bonds, and investment grade corporate notes are not reflecting that reality.

Here is my dilemma..I can draw .6% in my savings account or I can invest in 90 day treasuries for around .9%...I don't guess it really makes a lot of difference but it makes me crazy to leave money on the table..

 

[npage]

I noticed Brokered CD's popped a tiny bit this week up say .05 more than prior week. 2 years at 3%, 3yr at 3.15% and 5 yr at 3.25%.

 

[Freedom56]

Here is my dilemma..I can draw .6% in my savings account or I can invest in 90 day treasuries for around .9%...I don't guess it really makes a lot of difference but it makes me crazy to leave money on the table..

Or you can buy a safe JP Morgan preferred stock (JPM-C) now with par value of $25 for just under par today with coupon of 6% with call protection through March 2024. So the choice becomes what yield are you comfortable with. JP Morgan is very unlikely to suspend coupon payments. The 52 week trading range is $24.46-$28.87. The 52 week low was hit just 2 days ago. Like in the past, JP Morgan preferred shares can sell off down to a level where the yield rises to 7.5-8%. The difference between .6% and .9% on cash is moot when the objective is to get yields over 7.5% on very safe investments.

 

[npage]

Like in the past, JP Morgan preferred shares can sell off down to a level where the yield rises to 7.5-8%. The difference between .6% and .9% on cash is moot when the objective is to get yields over 7.5% on very safe investments.

Help me understand. If I bought this today and my yield based on my cost basis was 6%. The fact that the price drops later and yield is 7.5 to 8% would not be my yield. My own individual yield is really tied to my entry price assuming coupon payment stays same, correct?

 

[Freedom56]

Help me understand. If I bought this today and my yield based on my cost basis was 6%. The fact that the price drops later and yield is 7.5 to 8% would not be my yield. My own individual yield is really tied to my entry price assuming coupon payment stays same, correct?

That is correct, you would be locked in at today's yield. However, if you buy when the yield is 7.5-8% (well below the par value of $25), your actual yield to call is much higher as you will realize a capital gain when it is called at par. At the same time when you buy over par, you realize a loss when it is called. Buying high quality investment grade preferred stocks during market sell-offs is a great way to supercharge your returns. But you should only buy ones from the large money center banks. They are safe and these banks earn billions from the financially ignorant population and that won't change as we have a new generation that's even more ignorant.

 

[lawman]

Or you can buy a safe JP Morgan preferred stock (JPM-C) now with par value of $25 for just under par today with coupon of 6% with call protection through March 2024. So the choice becomes what yield are you comfortable with. JP Morgan is very unlikely to suspend coupon payments. The 52 week trading range is $24.46-$28.87. The 52 week low was hit just 2 days ago. Like in the past, JP Morgan preferred shares can sell off down to a level where the yield rises to 7.5-8%. The difference between .6% and .9% on cash is moot when the objective is to get yields over 7.5% on very safe investments.

Very confusing to me...How does one buy a preferred stock? There is no preferred stock listed under products on Schwab..I can find no results when I try to search a symbol


If I buy a preferred share at $10.00 and the price drops to $5.00 can that share be called (redeemed) by the issuer for $5.00? Is that the chance one takes for higher yields?

 

[npage]

To build on lawman's question, if the Board for whatever reason says we are not going to pay this coupon of preferred stock, presumably the value drops as well significantly. I've never really looked at these but they do seem interesting especially in a solid bank as you note who most of the time tend to act rationally.

What happens at end of call protected period of March 2024 in this case with JPM-C?

 

[COcheesehead]

Word to the wise. Don’t buy what you don’t understand.

 

[npage]

Word to the wise. Don’t buy what you don’t understand.

Agreed, but understanding starts with reading and talking to those who do understand.

 

[COcheesehead]

Agreed, but understanding starts with reading and talking to those who do understand.

…a stranger on the internet.

I agree you need to educate yourself. Just consider where the education comes from.

 

[Sunset]

Very confusing to me...How does one buy a preferred stock? There is no preferred stock listed under products on Schwab..I can find no results when I try to search a symbol


If I buy a preferred share at $10.00 and the price drops to $5.00 can that share be called (redeemed) by the issuer for $5.00? Is that the chance one takes for higher yields?

Don't buy before you understand preferreds, there is a preferred thread on this site.

The symbol is: jpm.prc (preferred symbols vary but googling will show you this one).

Preferred shares have a call price, this one is $25.00 , means if the price falls to $22 and after a few years the board/company wants to get rid of it, they have to pay $25.00 per share. Same thing happens if the price is $28/share and the company wants to get rid of it, they only have to pay $25.00.

So it's dangerous to overpay for a preferred share. This also limits the value increase along with other reasons compared to a common share.

 

[npage]

…a stranger on the internet.

I agree you need to educate yourself. Just consider where the education comes from.

Life advice from a stranger about strangers. Mind blowing. In all seriousness, no money will ever be spent based on internet advice, here for the discussion. And the same way I walk down the sidewalk everyday, head on a swivel and a healthy skepticism about everyone.

So back to the topic at hand.

 

[COcheesehead]

Life advice from a stranger about strangers. Mind blowing. In all seriousness, no money will ever be spent based on internet advice, here for the discussion. And the same way I walk down the sidewalk everyday, head on a swivel and a healthy skepticism about everyone.

So back to the topic at hand.

Good luck investing. Keep us updated.

 

[lawman]

The symbol is: jpm.prc (preferred symbols vary but googling will show you this one).

When I try to get a price on that symbol I get nothing

 

[Freedom56]

Very confusing to me...How does one buy a preferred stock? There is no preferred stock listed under products on Schwab..I can find no results when I try to search a symbol


If I buy a preferred share at $10.00 and the price drops to $5.00 can that share be called (redeemed) by the issuer for $5.00? Is that the chance one takes for higher yields?

Par value for preferred stocks are $25, $50, or $1000. When you buy investment grade preferred from a large money center bank, they can only call it at par. Don't buy unrated preferred stocks. Back in March 2020, I was aggressively buying preferred stocks from Citibank, Capital One, Bank of America, and JP Morgan. Some as low as $15 with yields over 9%. They recovered quickly and all of them were called at $25 as rates dropped and the same banks issues new preferred stocks at lower coupon rates.

Preferred stocks trade on the same exchanges as common stocks and commission is free. You can even set up "good til cancel" orders with lowball bids or price drop trigger alerts with your broker. . Each brokerage has a convention for symbols. For example JP Morgan common stock has the symbol JPM. Their C-series preferred stock has the symbol JPM/PRC or JPM-C depending on which broker you are using. When buying preferred stock, buy only high quality ones from money center banks. Always buy preferred investment grade preferred stocks below par. Buying below par also applies to callable bonds.

 

[Sunset]

When I try to get a price on that symbol I get nothing

To look at it, that's why I said google. The issue is there is a lack of conformity on symbol usage for preferred depending upon the broker you a using. Even the websites of financial stocks use different symbols.

https://www.wsj.com/market-data/quotes/JPMPRC

https://www.marketwatch.com/investing/stock/jpm.prc?mod=mw_quote_tab

https://www.nyse.com/quote/XNYS:JPMpC

 

[lawman]

To look at it, that's why I said google. The issue is there is a lack of conformity on symbol usage for preferred depending upon the broker you a using. Even the websites of financial stocks use different symbols.

https://www.wsj.com/market-data/quotes/JPMPRC

https://www.marketwatch.com/investing/stock/jpm.prc?mod=mw_quote_tab

https://www.nyse.com/quote/XNYS:JPMpC

Can you find it on Schwab?

 

[Sunset]

Can you find it on Schwab?

I'm not logged in right now, so no. Best if you chat them and ask how do they represent preferred shares, as they probably use the same manner for all preferred shares.

Often brokerages have a search function for searching a share, if you put in JPM it may show all the JPM shares available, including preferred ones.

 

[OldShooter]

…a stranger on the internet. ..

Yes. My favorite internet cartoon carries an important message:

https://en.wikipedia.org/wiki/On_th...ows_you're_a_dog#/media/File:Internet_dog.jpg

Re preferreds, the advice I give in my Adult-Ed investing class, too, is to not buy anything that you don't understand. The risk to following the rule is that you may miss kissing a prince once in a while but it will keep you from kissing a large number of expensive and time-consuming frogs.