Verify my understanding of secondary market brokered CD

[Earl E Retyre]

Looking at Vanguard secondary market brokered CDs and I see the attached one available. My understanding is that this would be a 5.5 year CD (maturing 5/2030) which is being offered at a worst-case-scenario to yield 4.5%. The current highest bidder is offering 5.7%.

So, it is possible I could offer 5% and it is possible my bid gets taken. If so, it would essentially give me a 5%, 5+ year CD.

While it is callable, since the face value is $1.60 it should never be called.

Am I understanding this all correctly?

Would this not be a good deal at 5%? Even at the asking price of 4.5%, that seems to be a decent deal based on new offers right now.

Or am I totally confused in understanding secondary CD markets?

 

[Surewhitey]

That's what I see, but I'm not an expert. Curious of other's inputs too.

 

[Martlet]

The yield to maturity is mainly the final payment at face value. For the next five years you’d get approximately a 2% annual yield on your roughly $80 investment.
My experience has been that the broker will accept prices within a few cents of the posted ask price but not dollars adrift.
Whether this is a good deal for you depends on whether you’re happy to wait five years for most of the gain to be crystallized.

 

[Finance Dave]

I'm not sure I understand your statement "the face value is $1.60". The 1.60 appears to be the coupon rate, not the face value...right?

 

[Earl E Retyre]

The yield to maturity is mainly the final payment at face value. For the next five years you’d get approximately a 2% annual yield on your roughly $80 investment.
My experience has been that the broker will accept prices within a few cents of the posted ask price but not dollars adrift.
Whether this is a good deal for you depends on whether you’re happy to wait five years for most of the gain to be crystallized.

Ah ... this is very helpful and I think I understand. My annual yield is low (2%), but when the CD matures, I would get the value of the CD as if I paid $100 (even though I only paid $80) which makes the average of all the years come out to the yield to worst (e.g., 5%). I get less cash flow for the 5 years but as long as I am holding until the end, then it is not a bad deal.

 

[Earl E Retyre]

I'm not sure I understand your statement "the face value is $1.60". The 1.60 appears to be the coupon rate, not the face value...right?

Yes, should have said coupon rate.