We are entering a "Golden Period" for fixed income investing

[finnski1]

I put my order in at 10 this morning and it now says "execution pending" so I'm assuming I'm going to get it. Was just an open order all day until market close.

Well it's 4 days later and now it only says "open order." It originally said execution pending.

Seems like I'm even further away from actually getting this one. Anybody get theirs filled?

 

[Montecfo]

I'm struggling to establish the right bond laddering strategy. Would be interested in what others think. Here are a few random thoughts:

1. I have very little fixed income with maturities past two years, except for a small amount of high yield bonds. I've seen Freedom56 and others suggest not stretching out past 5 years, at least for the bulk of funds to be invested. Thoughts?

2. Just looking at a 5 year maturity, buying anything with call dates within the next 24 months doesn't seem to deliver that much of a premium as compared to short-term Treasuries. You take the risk of rising rates stranding your funds in a below market 5 year security, but only get ~0-.75% better rates for that risk for A-rated corporate and agency bonds. Doesn't seem worth it to me. Now if you drop down into the Baa and BBB, the spreads are better, but of course more risky.

3. A few weeks ago looked A LOT better. It doesn't seem worth a move into 5 year corporates right now. Thoughts?

inflation has fallen hard. Interest rates peaked in October, for now at least.

Time to extend maturities and ladder. Can't stay wedded to rates that have gone, and miss rates that may soon be.

 

[swk7907]

Well it's 4 days later and now it only says "open order." It originally said execution pending.

Seems like I'm even further away from actually getting this one. Anybody get theirs filled?

My assumption is that since they are still offering it you can cancel the order. When the market closes and they aren't offering it any longer it goes to execution pending and then in the morning the market opens and they list it again it goes back to Open.

Once they permanently close the order it will go back to Pending (again just my guess) and we will no longer be able to cancel and then will get the fill.

 

[Freedom56]

Well it's 4 days later and now it only says "open order." It originally said execution pending.

Seems like I'm even further away from actually getting this one. Anybody get theirs filled?

It will execute on the 27th. They are offering more.

 

[olympic]

Non-callable 7yr CD 4.75. On Vanguard. Going fast.

32110YB38 First Natl Bk Amer East Lans Conditional Puts - Death Of Holder, FDIC#17438 01/31/2030 4.750

 

[Freedom56]

I'm struggling to establish the right bond laddering strategy. Would be interested in what others think. Here are a few random thoughts:

1. I have very little fixed income with maturities past two years, except for a small amount of high yield bonds. I've seen Freedom56 and others suggest not stretching out past 5 years, at least for the bulk of funds to be invested. Thoughts?

2. Just looking at a 5 year maturity, buying anything with call dates within the next 24 months doesn't seem to deliver that much of a premium as compared to short-term Treasuries. You take the risk of rising rates stranding your funds in a below market 5 year security, but only get ~0-.75% better rates for that risk for A-rated corporate and agency bonds. Doesn't seem worth it to me. Now if you drop down into the Baa and BBB, the spreads are better, but of course more risky.

3. A few weeks ago looked A LOT better. It doesn't seem worth a move into 5 year corporates right now. Thoughts?

Rates ebb and flow but the trend is up. Bond traders have been buying up the long end like they were in early 2021 but ended up losing a lot of other peoples money. It will happen again. With corporate bonds, the longer the duration, the higher the risk. If you aren't rewarded with a higher coupon for a longer duration, you should not be buying that corporate note. Since June 2022, I have been buying 1-5 year durations primarily. The only exceptions were the two RBC callable notes (6% and 5.2%). AAA and AA corporates are overpriced and don't offer any benefit over treasury yields. So for high grade bonds you have to stick with BBB+ to A+ corporate bonds/notes. Just float your cash in a MM fund like FZDXX (yielding 4.27%) and wait for the opportunities. Corporations are rushing to get their issues out in the first quarter while there is demand for bonds.

 

[Vincenzo Corleone]

I bought a brokered CD at Fidelity a while back that matures in late March 2023 and is yielding less than what FZDXX is currently yielding. Would anyone recommend selling and putting the proceeds in FZDXX until the next bond opportunity arises?

 

[Freedom56]

I bought a brokered CD at Fidelity a while back that matures in late March 2023 and is yielding less than what FZDXX is currently yielding. Would anyone recommend selling and putting the proceeds in FZDXX until the next bond opportunity arises?

You may lose too much selling it on the secondary market. I would just hold it to maturity and then re-invest the proceeds in whatever best at that time.

 

[jldavid47]

I bought a brokered CD at Fidelity a while back that matures in late March 2023 and is yielding less than what FZDXX is currently yielding. Would anyone recommend selling and putting the proceeds in FZDXX until the next bond opportunity arises?

I agree with freedom56.

The comparison you need to make is between the current yield based on the current value of the CD (i.e. what you could sell it for) vs FZDXX. The original interest rate on the CD is irrelevant (except as a determinant of current price for the CD).

Brokered CDs are different animals from directly issued bank CDs. There is no "you can cash them in for X months interest penalty and get your principal back" with brokered CDs. With brokered CDs you sell them at whatever the current bid price is for them. In this environment that is usually below what you paid many months ago.

 

[pb4uski]

I bought a brokered CD at Fidelity a while back that matures in late March 2023 and is yielding less than what FZDXX is currently yielding. Would anyone recommend selling and putting the proceeds in FZDXX until the next bond opportunity arises?

What is the interest rate on the brokered CD? What would you get if you sold it now? And what will the proceeds grow to at the FZDXX 7-day yield between now and the CD maturity date? And how does that compare to the maturity proceeds, including interest? You should go through these calculations.

But I think it highly likely that you will be better off holding to maturity but hard to know with so little details.

Are there any bids on the brokered CD?

 

[Montecfo]

Rates ebb and flow but the trend is up.

What rates do you see trending up?
Rates peaked in late Oct and have trended down since, which is one driver of the rally in equities.

 

[Vincenzo Corleone]

What is the interest rate on the brokered CD? What would you get if you sold it now? And what will the proceeds grow to at the FZDXX 7-day yield between now and the CD maturity date? And how does that compare to the maturity proceeds, including interest? You should go through these calculations.

But I think it highly likely that you will be better off holding to maturity but hard to know with so little details.

Are there any bids on the brokered CD?

Thanks for mentioning the things I should check to make an informed decision. I'll look into it when the market opens tomorrow.

 

[COcheesehead]

I bought a brokered CD at Fidelity a while back that matures in late March 2023 and is yielding less than what FZDXX is currently yielding. Would anyone recommend selling and putting the proceeds in FZDXX until the next bond opportunity arises?

You’ll likely have to make it priced attractively for a buyer which means not so attractive for you. Hold it until maturity.

 

[soylentgreen]

Another Canadian bank, semi-annual coupon. This one look ok to folks?

06374VCN4
US06374VCN47
BANK MONTREAL MEDIUMSER I MTN
5.25000% 01/30/2026

Call Date Call Price Call Type
07/30/2023 100.000 Par Call
01/30/2024 100.000 Par Call
07/30/2024 100.000 Par Call
01/30/2025 100.000 Par Call
07/30/2025 100.000 Par Call

 

[Montecfo]

^^^ doubt that will be out there long. Almost immediately callable.

it is a good credit.

 

[Freedom56]

What rates do you see trending up?
Rates peaked in late Oct and have trended down since, which is one driver of the rally in equities.

All rates are in an uptrend for the past year. Take a look at the charts. Dumb Wall Street bond traders also bid up rates last July only to get clobbered in October. They are making the same mistake again. Don't assume that Wall Street bond traders are the best and brightest. They are the same idiots that bought 10 year notes at 0.6% coupons in 2021. They risk other peoples money not their own capital. Buying 10 year notes at 3.5% is absolutely insane. The grim reality is that the funds they are buying for have average coupons of 2-2.8% and they are desperately attempting to drive rates down to stop investors from dumping their loser funds.

 

[Echard]

All rates are in an uptrend for the past year. Take a look at the charts. Dumb Wall Street bond traders also bid up rates last July only to get clobbered in October. They are making the same mistake again. Don't assume that Wall Street bond traders are the best and brightest. They are the same idiots that bought 10 year notes at 0.6% coupons in 2021. They risk other peoples money not their own capital. Buying 10 year notes at 3.5% is absolutely insane. The grim reality is that the funds they are buying for have average coupons of 2-2.8% and they are desperately attempting to drive rates down to stop investors from dumping their loser funds.

I've seen a broad-based view from many that rates have peaked for the intermediate-term bonds, but I love the fact that you are consistently taking an opposite position. Will be interesting to see what happens over the next few months.

 

[Freedom56]

I've seen a broad-based view from many that rates have peaked for the intermediate-term bonds, but I love the fact that you are consistently taking an opposite position. Will be interesting to see what happens over the next few months.

I was a heavy buyer in March 2020 but when rates went to zero in late 2020 through 2021, bonds, CDs, were not investible and I stopped buying. However, Wall Street fixed income traders continued to buy and their funds are now loaded up with low coupon debt. Right now buying low coupon bonds over 10 year duration is total insanity. I'm having lunch tomorrow with a Goldman Sachs fixed income VP. I'll get his perspective even though he focusses primarily in the Muni bond market.

 

[jazz4cash]

I've seen a broad-based view from many that rates have peaked for the intermediate-term bonds, but I love the fact that you are consistently taking an opposite position. Will be interesting to see what happens over the next few months.

Yes we've seen "a" peak, but not necessarily "the" peak. At this point, I'm just laddering out 6-10 years and I'm including MYGA's in my FI ladder.

 

[CoAndy]

Just opened a 17 month CD at 5% at my credit union.

 

[Spock]

Had a 5.95% GSE bond I bought 6 weeks ago called this morning.
No notice (that I noticed). The funds were sitting in pending this morning for a redemption dated today.
Went to find a replacement. New issues had a 5.65% GSE with very similar maturity but when I went to buy Fido said my qty was greater than # available.
So I surf the secondary market and find the same bond at 99.90 and a 0.10 fee making it $100 even... same as if I had bought it "new".
I suspect all of my callables are going to vaporize as on the first call date. I'm going to start laddering non-callables out to 2032. They're only 4%, but that 4% looked good back when rates were zip.

 

[COcheesehead]

I have callables past their call dates. Coupons are 4.8% to low 5%.
I stress tested my callable bonds. If all get called, based on reinvesting funds close to 5%, I will lose $7000 a year in income. Not worth worrying about. I am way over funded.

 

[Montecfo]

All rates are in an uptrend for the past year. Take a look at the charts. Dumb Wall Street bond traders also bid up rates last July only to get clobbered in October. They are making the same mistake again. Don't assume that Wall Street bond traders are the best and brightest. They are the same idiots that bought 10 year notes at 0.6% coupons in 2021. They risk other peoples money not their own capital. Buying 10 year notes at 3.5% is absolutely insane. The grim reality is that the funds they are buying for have average coupons of 2-2.8% and they are desperately attempting to drive rates down to stop investors from dumping their loser funds.

I would be curious how you think rates, outside the 1 year and less, can rise once again.

The reason rates have turned down is the rate of inflation has declined.

If Fed continues to raise we get recession and even lower mid to long rates.

For rates to rise above the October highs, we need the Fed to suddenly stop raising, inflation to spike, and the Fed to ignore this. I do not see that happening and, since you place a lot of trust in the Fed, I assume you don't either since JPowell has been resolute in fighting inflation. He does not want to be the Arthur Burns of the new millennium.

You deride bond traders but most market observers do not share your view that they are "dumb". Quite the contrary.

And many observers have said the market usually wins. And the market is saying lower.

And by the way, even the Fed dot plots see rate cuts in 2024, and that is less than a year away.

The market knows this.

The market could change, as anything can happen but why mischaracterize where we sit today?

 

[NomDeER]

I suspect all of my callables are going to vaporize as on the first call date. I'm going to start laddering non-callables out to 2032. They're only 4%, but that 4% looked good back when rates were zip.

I don't have any short-term callable, so I'm assuming that the majority of my callable bonds will get called on the first call date. The interest rates definitely have gone down for 5-year bonds over the last few months and I'm not counting on them spiking up.

I think some people are in a position where they are fine with calls and are more interested in higher short-term yields and less concerned with reinvestment risk. This is a great time for them.

There are others who are more concerned with reinvestment risk and preservation of capital. If someone is more comfortable locking in longer rates, that is what is right for them. I'm not willing to go out for ten years for most corporate bonds because of the risk. (For lower risk bonds, like the Canadian banks, I am willing to buy a bit of those if they are available and aren't callable for at least a few years. )

I would like some four or five year bonds for my ladder, but there aren't many good ones. Some bank CDs are offering better yields than non-callable bonds and without the risk. I'm not sure who is buying those bonds. Even the corporate bonds with three-year call protection don't offer much of a premium over what 3-year bank CDs are offering.

 

[lawman]

I have a question about U.S. Treasuries..I've been buying some lately and I've noticed that when I place my order the cost comes up as a number less than the amount I am buying. For example if I buy $25,000.00 worth the cost will be something over $24,000.00 but less than $25,000.00..I thought that was the way zero's worked..These I am buying are not zero's but are priced like zero's as far as I can tell..I would expect a $25,000.00 treasury to cost $25,000.00..What's the deal?