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

[freedom2022]

I am sold on this golden period.
Similar to investment in stocks, I suppose we want to diversify the investment in bonds as well.
So, what is the percentage limit for each corporation?
For example, let say I want to invest in Proctor Gamble bonds. If I decide on 4% limit, then I only have 4% maximum PG bonds in my assets.

I apologize if this has been discussed. If so, please kindly let me know.
I did search with key word "bond diversification" and got the result about bond funds, not individual fund.
Thanks.

 

[Freedom56]

I am sold on this golden period.
Similar to investment in stocks, I suppose we want to diversify the investment in bonds as well.
So, what is the percentage limit for each corporation?
For example, let say I want to invest in Proctor Gamble bonds. If I decide on 4% limit, then I only have 4% maximum PG bonds in my assets.

I apologize if this has been discussed. If so, please kindly let me know.
I did search with key word "bond diversification" and got the result about bond funds, not individual fund.
Thanks.

It depends on the corporation and risk tolerance. With a company like Procter and Gamble, the risk of default is nil. I sometimes go as high as 15% for short duration notes if the yield is right. I limit my risk by avoiding sectors that are full of serial bankruptcy filers such as airlines, autos, energy, retail, and so on.

Powell pretty much signaled last week that the "golden period" is going to last for a while. With the one month treasuries yielding more than bond funds like BND, the exit out of bond funds will likely accelerate. Just sit back and lock in good yields and make sure you get a healthy premium with corporate bonds/notes to treasuries with the same duration.

 

[JoeWras]

Anyone trying to buy corporates on the Vanguard platform?

I have no problem using VG for CDs or Treasuries, but I find their corporate bond presentation "thick". Any hints? I'd at least try my toe in the water to get familiar. I'm honestly probably more comfortable with Treasuries, but it is worth being knowledgeable about the corporate bond world too.

Or should I finally open up that Fidelity brokerage account I've been considering the last few years?

 

[lawman]

. Just sit back and lock in good yields and make sure you get a healthy premium with corporate bonds/notes to treasuries with the same duration.

For high grade corporates, treasuries and C.D.'s what duration looks good?

 

[lawman]

What is the difference between corporate notes and corporate bonds?

 

[Dash man]

Treasuries auction:

26 week: 3.334%

13 week: 2.941%

 

[Freedom56]

What is the difference between corporate notes and corporate bonds?

The terms 'bonds' and 'notes' are used interchangeably. There is no legal difference between the terms. Notes tend to be issued either continuously or intermittently with shorter maturities and bonds issued in a discrete large offering with a longer maturity.

 

[Freedom56]

For high grade corporates, treasuries and C.D.'s what duration looks good?

One to three years and not more than 5 years. You are basically locking in a yield until maturity. If the Fed keeps rates around their target Fed funds rate, the call risk is all but gone. So if you lock in 4.5%-5%+ for high grade notes like those that were offered recently, you should be good to go until maturity. If the Fed moves up rates to the 4% target Fed funds rate, bond funds will likely fall at least another 12-15%. The math is the math. Bond fund distribution yields are far too low versus zero risk treasuries, CDs, and low risk individual high grade corporate notes that are being issued.

 

[RetiredAndLovingIt]

Anyone trying to buy corporates on the Vanguard platform?

I have no problem using VG for CDs or Treasuries, but I find their corporate bond presentation "thick". Any hints? I'd at least try my toe in the water to get familiar. I'm honestly probably more comfortable with Treasuries, but it is worth being knowledgeable about the corporate bond world too.

Or should I finally open up that Fidelity brokerage account I've been considering the last few years?

If interested I think this $100 promo is still good for new accounts

https://www.fidelity.com/go/starter-pack

 

[JoeWras]

If interested I think this $100 promo is still good for new accounts

https://www.fidelity.com/go/starter-pack

Thanks. I think I'm just gonna do it.

 

[baseman250]

coupon interest payments

Now that I (and it looks like a few others) have been looking into adding corporate bonds to their portfolios, I have a specific question about scheduled interest payments.

What if an interest payment is missed for whatever reason? Does the brokerage house (Fidelity or Vanguard in my case) throw an alert to our inbox? Anything? I am considering some HY stuff, but don't plan to go too far onto the fringe, but I assume there is still a possibility this could happen (or worse, the issuer goes into bankruptcy.)

Just wondering how to monitor this other than setting my own calendar reminders and watching the settlement account's transaction activity.

 

[COcheesehead]

Now that I (and it looks like a few others) have been looking into adding corporate bonds to their portfolios, I have a specific question about scheduled interest payments.

What if an interest payment is missed for whatever reason? Does the brokerage house (Fidelity or Vanguard in my case) throw an alert to our inbox? Anything? I am considering some HY stuff, but don't plan to go too far onto the fringe, but I assume there is still a possibility this could happen (or worse, the issuer goes into bankruptcy.)

Just wondering how to monitor this other than setting my own calendar reminders and watching the settlement account's transaction activity.

Go under Bond Tools at Fidelity. There are some good reports I use to manage over 200 bonds. You can also sign up for notices on all your bonds.

 

[GravitySucks]

Now that I (and it looks like a few others) have been looking into adding corporate bonds to their portfolios, I have a specific question about scheduled interest payments.



What if an interest payment is missed for whatever reason? Does the brokerage house (Fidelity or Vanguard in my case) throw an alert to our inbox? Anything? I am considering some HY stuff, but don't plan to go too far onto the fringe, but I assume there is still a possibility this could happen (or worse, the issuer goes into bankruptcy.)



Just wondering how to monitor this other than setting my own calendar reminders and watching the settlement account's transaction activity.

I never had an interest payment missed, but Fidelity did send an email when a bond I owned was downgraded. They also notified me whenever one was called.

 

[Freedom56]

Now that I (and it looks like a few others) have been looking into adding corporate bonds to their portfolios, I have a specific question about scheduled interest payments.

What if an interest payment is missed for whatever reason? Does the brokerage house (Fidelity or Vanguard in my case) throw an alert to our inbox? Anything? I am considering some HY stuff, but don't plan to go too far onto the fringe, but I assume there is still a possibility this could happen (or worse, the issuer goes into bankruptcy.)

Just wondering how to monitor this other than setting my own calendar reminders and watching the settlement account's transaction activity.

If a coupon payment is delayed, it's usually due to the trustee (usually DTC) delaying the payment by a day or two but those cases are rare. I have filed many complaints with the SEC regarding DTC delaying coupon payments a few years ago and miraculously it suddenly stopped happening. Schwab is notorious for holding coupon payments back on their own. For example if a coupon payment is due on a Friday before a holiday weekend. You won't see it in your account until close of business Tuesday. Fidelity is pretty good about crediting coupon payments. Sometimes if a coupon payment is due Monday, it will show up in your account sometimes on Friday close of business. I recommend that you keep a spreadsheet with all your bond holdings in rows and the months of the year in columns and keep a sum of how much is coming in every month and on which day.

As far as high yield goes, I would avoid the retail sector and a company like Bed Bath and Beyond no matter how tempting this 72% YTM on this note with about a 23 month duration is.

https://finra-markets.morningstar.com/BondCenter/BondDetail.jsp?ticker=C614513&symbol=BBBY4144687

Unlike the stock market casino that bids up BBBY stocks to absurd valuations, the bond market is usually more sensible and looks at how solvent the company is.

 

[pb4uski]

Treasuries auction:

26 week: 3.334%

13 week: 2.941%

Wow... a year ago who would have thought a 26 week Treasury would be yielding 3.334%? Not me.

 

[Mulligan]

If a coupon payment is delayed, it's usually due to the trustee (usually DTC) delaying the payment by a day or two but those cases are rare. I have filed many complaints with the SEC regarding DTC delaying coupon payments a few years ago and miraculously it suddenly stopped happening. Schwab is notorious for holding coupon payments back on their own. For example if a coupon payment is due on a Friday before a holiday weekend. You won't see it in your account until close of business Tuesday. Fidelity is pretty good about crediting coupon payments. Sometimes if a coupon payment is due Monday, it will show up in your account sometimes on Friday close of business. I recommend that you keep a spreadsheet with all your bond holdings in rows and the months of the year in columns and keep a sum of how much is coming in every month and on which day.

As far as high yield goes, I would avoid the retail sector and a company like Bed Bath and Beyond no matter how tempting this 72% YTM on this note with about a 23 month duration is.

https://finra-markets.morningstar.com/BondCenter/BondDetail.jsp?ticker=C614513&symbol=BBBY4144687

Unlike the stock market casino that bids up BBBY stocks to absurd valuations, the bond market is usually more sensible and looks at how solvent the company is.

Freedom, this past year I had a like a 3 week delayed trust debt interest issue payment from a preferred stock. I emailed trustee and she said they sent it to DTC over a week ago. She actually gave me a DTC hotline number. I got a DTC rep on phone and explained situation and he said, “you are not allowed access to this phone number and we cant talk to shareholders directly about anything”. He then asked,” how the heck did you get this number? “
He was actually pretty nice and we talked 5 minutes as he must have had nothing to do. But bottom line DTC can not be held accountable by the actual owners of the issues.

 

[Freedom56]

Freedom, this past year I had a like a 3 week delayed trust debt interest issue payment from a preferred stock. I emailed trustee and she said they sent it to DTC over a week ago. She actually gave me a DTC hotline number. I got a DTC rep on phone and explained situation and he said, “you are not allowed access to this phone number and we cant talk to shareholders directly about anything”. He then asked,” how the heck did you get this number? “
He was actually pretty nice and we talked 5 minutes as he must have had nothing to do. But bottom line DTC can not be held accountable by the actual owners of the issues.

You have to wonder how often funds are getting stiffed on coupon payments. Some funds have almost 10,000 holdings and in the sleazy world of Wall Street with employees acting as auditors glued to their smartphones not their work, there has to be a lot of misappropriation of coupon/dividend payments. I had a case where DTC shorted the coupon payment by 8% which prompted an investigation by the issuer and then the SEC and the problem was resolved. The investigation cited a clerical error. However, I wondered why the same clerical error did not occur for the ten prior payments. An individual investor can keep track of their coupon and dividend payments, I wonder if all funds do? Given that funds lose so much "other peoples money", do they even care?

 

[NomDeER]

I'm a newbie when it comes to bonds. I'm seeing bonds from banks that are foreign for me as an American, such as Canadian or British banks. I would guess that provides some diversification. I'm wondering, though, if it's a pain when it comes to doing your taxes? Does anybody here have any experience with foreign bonds and taxes or other insights regarding foreign bonds?

 

[Freedom56]

I'm a newbie when it comes to bonds. I'm seeing bonds from banks that are foreign for me as an American, such as Canadian or British banks. I would guess that provides some diversification. I'm wondering, though, if it's a pain when it comes to doing your taxes? Does anybody here have any experience with foreign bonds and taxes or other insights regarding foreign bonds?

Canadian banks provide more than diversification. They are much safer than their U.S. counterparts from a credit risk perspective. Take a look at the equity performance of Canadian Banks versus the major U.S. and other international banks. None required bailouts during the 2008/9 financial crisis. None of the Canadian banks cut their dividends. These note issues are in US dollars and will receive the same treatment as U.S. banks. (i.e. reported in the 1099-INT).

 

[NomDeER]

Canadian banks provide more than diversification. They are much safer than their U.S. counterparts from a credit risk perspective. Take a look at the equity performance of Canadian Banks versus the major U.S. and other international banks. None required bailouts during the 2008/9 financial crisis. None of the Canadian banks cut their dividends. These note issues are in US dollars and will receive the same treatment as U.S. banks. (i.e. reported in the 1099-INT).

Thanks! Does this mean that they are treated as if they are domestic bonds? Would I have to treat them as foreign investments on my U.S. taxes or pay Canadian taxes or file a Canadian tax return?

 

[savory]

I apologize upfront if the answer is somewhere in this thread.

I am ready to dip my toe into the secondary bond market. But, I need to gain a better understanding.

I am looking for some basic principles that will guide a reasonably safe purchase. For example, what is the minimum bond rating (for the conservative investor) that should be considered? Once the rating is considered, should an investor dig more deeply into the company or can one be confident that the rating folks did that? Are callable bonds typically called or is it more of an insurance policy that is rarely used? It seems the secondary market is one of, I (the seller) thinks I know something you do not know, so I hope you buy my bond so I can make another investment? Or, is it a group of people who simply want to cash out their bonds at this time? Are there other questions I should be asking but I have not?

If this is crazy complicated and you have a website/other recommendation, that would be great too. Also, if you have a recommendation for a good buy right now, I would look forward to learning about that while I am building my education.

Thanks

 

[Dash man]

I apologize upfront if the answer is somewhere in this thread.



I am ready to dip my toe into the secondary bond market. But, I need to gain a better understanding.



I am looking for some basic principles that will guide a reasonably safe purchase. For example, what is the minimum bond rating (for the conservative investor) that should be considered? Once the rating is considered, should an investor dig more deeply into the company or can one be confident that the rating folks did that? Are callable bonds typically called or is it more of an insurance policy that is rarely used? It seems the secondary market is one of, I (the seller) thinks I know something you do not know, so I hope you buy my bond so I can make another investment? Or, is it a group of people who simply want to cash out their bonds at this time? Are there other questions I should be asking but I have not?



If this is crazy complicated and you have a website/other recommendation, that would be great too. Also, if you have a recommendation for a good buy right now, I would look forward to learning about that while I am building my education.



Thanks

I suggest you read through the last couple of weeks posts on this thread. Focus on posts by Freedom56. He added some great information.

 

[Freedom56]

Thanks! Does this mean that they are treated as if they are domestic bonds? Would I have to treat them as foreign investments on my U.S. taxes or pay Canadian taxes or file a Canadian tax return?

If they are issued here by a U.S. investment bank, they are treated like domestic corporate bonds.

 

[Freedom56]

I apologize upfront if the answer is somewhere in this thread.

I am ready to dip my toe into the secondary bond market. But, I need to gain a better understanding.

I am looking for some basic principles that will guide a reasonably safe purchase. For example, what is the minimum bond rating (for the conservative investor) that should be considered? Once the rating is considered, should an investor dig more deeply into the company or can one be confident that the rating folks did that? Are callable bonds typically called or is it more of an insurance policy that is rarely used? It seems the secondary market is one of, I (the seller) thinks I know something you do not know, so I hope you buy my bond so I can make another investment? Or, is it a group of people who simply want to cash out their bonds at this time? Are there other questions I should be asking but I have not?

If this is crazy complicated and you have a website/other recommendation, that would be great too. Also, if you have a recommendation for a good buy right now, I would look forward to learning about that while I am building my education.

Thanks

Anything BBB+ and above is considered conservative in the financial and technology sectors. I would avoid AA and AAA corporates as they are overpriced and really don't offer any more security over BBB+ and A rated debt. Their yields are similar to CDs so there is no point in buying them over CDs. Stick to money center banks like JP Morgan, Bank of America, Wells Fargo, Citigroup or brokers like Goldman Sachs. The six major banks in Canada are extremely safe investments. E-commerce companies such as Ebay are also safe investments for corporate notes/bonds. Avoid the retail and mall sectors. There are far too many retail stores and malls in this country. Also avoid consumer discretionary companies. Callable bonds do get called when the issuer can refinance 1.5-2 points lower. If you want protection from callable bonds, there are many that are "make whole call" which forces the issuer to pay the holder a premium over par for the remainder of the term of the bond minus the prevailing treasury rate.

If you are starting out. Play it safe with A/BBB+ rates bonds from the major financial firms. Stay short term 1-3 years or 5 years maximum. New issues should revert up to the 5%/5 year coupons that we saw in June for new corporate issues. These issues rarely trade as most investors hold them to maturity and the issue sizes are relatively small but they occur frequently. At 5% coupons you would be earning twice what a typical bond fund yields but with capital protection that a bond fund will never provide.

 

[Montecfo]

^^^ another reason to buy lower rated corporates is they can benefit from upgrades.