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

[Spock]

Disclaimer: I am not not a bond person by any stretch. I have followed this extremely long and confusing thread since it's inception. I haven't started buying bonds, but I did at least get out of my bond funds at a good time. So thanks for that.

I have some rental real estate that I've substituted for bonds in my asset allocation, although I also held a VG short term bond fund until last year. But I've been sitting on a fair amount of cash, trying to decide whether to start buying bonds or to wait and buy CDs, since my (often faulty) logic told me that if bond rates were increasing, CD rates should follow. It sounds like I may have waited too long on the bond issue, but that's not a bid deal for me. Recently I've been buying CDs, mostly at 5%.

My question is, what's the difference between me buying CDs at Ally or whichever bank I choose, vs the CDs y'all talk about that you are buying from brokers. I know the brokered CDs are a secondary market, some with call dates and earlier maturity dates. So why do you buy them from a broker rather than directly from the bank that is offering them? It seems like you're adding cost and complexity to the process. But I freely admit there could be things I don't understand about it. I would appreciate any clarity any or you could provide. Thanks.

1. Some times the rates at the broker are significantly higher. Case in point is right now discover.com is 4.1% for a 5yr but at the broker discover cd's are 5% (until gone).
2. My IRA and other account stay put but can buy CDs from any institution choosing to sell brokered CDs.
3. I can mix in treasuries/agencies in with the CDs to fill rungs on the ladder.

 

[copyright1997reloaded]

Disclaimer: I am not not a bond person by any stretch. I have followed this extremely long and confusing thread since it's inception. I haven't started buying bonds, but I did at least get out of my bond funds at a good time. So thanks for that.

I have some rental real estate that I've substituted for bonds in my asset allocation, although I also held a VG short term bond fund until last year. But I've been sitting on a fair amount of cash, trying to decide whether to start buying bonds or to wait and buy CDs, since my (often faulty) logic told me that if bond rates were increasing, CD rates should follow. It sounds like I may have waited too long on the bond issue, but that's not a bid deal for me. Recently I've been buying CDs, mostly at 5%.

My question is, what's the difference between me buying CDs at Ally or whichever bank I choose, vs the CDs y'all talk about that you are buying from brokers. I know the brokered CDs are a secondary market, some with call dates and earlier maturity dates. So why do you buy them from a broker rather than directly from the bank that is offering them? It seems like you're adding cost and complexity to the process. But I freely admit there could be things I don't understand about it. I would appreciate any clarity any or you could provide. Thanks.

1. Brokered CD's can be bought as new issues, not just secondary.
2. I bought twelve different CDs today across eight different issuers. Some clicks and done. The hardest part was updating my spreadsheet of T-bills, CD's, other fixed instruments. (One of those was directly at a bank, the Ally no-penalty 11-month CD.) Easy, and I got to diversify my risk, pick my terms, pick the best rates across multiple institutions.

No, it does not add cost, and in terms of complexity it is only as much as my goal to diversify banks and terms that adds complexity, and managing them from fewer accounts also lessens complexity.

 

[COcheesehead]

Brokered CDs are simple interest. Bank CDs compound.
Brokered CDs have to be sold on the secondary market.
Bank CDs, just have an interest penalty for early withdrawal.

 

[Spock]

Brokered CDs are simple interest. Bank CDs compound.

I have all of my bank CDs payout to the savings account. no compounding.

 

[COcheesehead]

I have all of my bank CDs payout to the savings account. no compounding.

Your choice.

 

[harley]

OK, thanks. Good information there. Especially the point about buying the CDs in your IRAs. I'm off to do some of that through VG right now.

I still don't see why rates would be higher for a brokered CD. But the simple vs. compound interest aspect is interesting and makes sense. Is that difference the reason for the potentially higher rates?

 

[Montecfo]

I have all of my bank CDs payout to the savings account. no compounding.

Well your money is compounding at the rate of return of your savings.

 

[COcheesehead]

OK, thanks. Good information there. Especially the point about buying the CDs in your IRAs. I'm off to do some of that through VG right now.

I still don't see why rates would be higher for a brokered CD. But the simple vs. compound interest aspect is interesting and makes sense. Is that difference the reason for the potentially higher rates?

Brokered CDs are bought in mass,then sold from there. Think wholesale vs retail.

 

[copyright1997reloaded]

Brokered CDs are bought in mass,then sold from there. Think wholesale vs retail.

Yep.
Also (related), potentially less overhead in terms of customer account setup, support, call center, 1099 generation, etc.

Also potentially faster in terms of filling the pipe. Put the offering out there in the major brokerages, with a decently aggressive offer they can get it wrapped up in a week...done.

 

[audreyh1]

OK, thanks. Good information there. Especially the point about buying the CDs in your IRAs. I'm off to do some of that through VG right now.

I still don't see why rates would be higher for a brokered CD. But the simple vs. compound interest aspect is interesting and makes sense. Is that difference the reason for the potentially higher rates?

To spell it out: it actually costs a bank less to offer CDs wholesale through a brokerage even though they pay the brokerage to do it. The brokerage takes care of all the retail customer paperwork and tracking/distribution and tax reporting. Plus no compounding, rollover, etc. simplifies things for both. Thus the banks are able to offer a better rate to the brokerage customer even though they are paying the brokerage. They also limit the number of CDs being offered instead of it being open ended.

 

[RetireAge50]

Now that CD rates are higher than treasuries does it make sense to sell all my treasuries and replace them with CD’s?

 

[Freedom56]

View attachment 45404
Now that CD rates are higher than treasuries does it make sense to sell all my treasuries and replace them with CD’s?

Only if you can sell your treasuries at par or higher and are able to buy CDs before they run out at higher yields. Don't forget that your treasury interest is not subject to state taxes.

 

[RetireAge50]

I do have some over par now and the others I can calculate the yield to maturity and compare that to the CD’s. I guess I have some homework to do. Dang it, I don’t want this fixed income stuff to start making me have to work. [emoji3]

 

[Mulligan]

Brokered CDs are simple interest. Bank CDs compound.
Brokered CDs have to be sold on the secondary market.
Bank CDs, just have an interest penalty for early withdrawal.

They also various terms of payout. Some pay interest monthly, some twice a year, and some annually. I dont remember running across a quarterly payer.

 

[Mulligan]

I am not sure what brokerage you use, but I can also put asks on the market for almost every bond I hold. I have found I can sell direct better than the brokerage bids.

I cant. TD controls that. Well on a bid they will let you bid .99875 of the ask. Try any lower and they reject it.

 

[COcheesehead]

I cant. TD controls that. Well on a bid they will let you bid .99875 of the ask. Try any lower and they reject it.

Bummer

 

[GenXguy]

My plan was to buy 2 and 3 year treasurys, but in the days passing of getting funds moved around, they dropped like a rock, so I ended up settling for 3 and 2 year CDs in the 4.95% to 5.25% range. But I still have additional funds I'm waiting to settle. Hoping I don't miss out before the rates for CDs fall like they did for treasurys.

 

[Freedom56]

The "golden period" 5%+ non-callable CDs at TDA are available now. The same ones that sold out at Fidelity very fast. 3 year 5.1%, 4 year 5.05%, 5 year 5%

Limited quantities available. The 5 year/5% is going fast.

 

[harley]

I do have some over par now and the others I can calculate the yield to maturity and compare that to the CD’s. I guess I have some homework to do. Dang it, I don’t want this fixed income stuff to start making me have to work.

That's actually the main reason I didn't start buying individual bonds. It seemed too much like buying, tracking, managing, and selling individual stocks. I do a little of that in my Roth as a hobby (sort of like playing fantasy football), but in general it's more work than I want to do. YMMV.

 

[Freedom56]

That's actually the main reason I didn't start buying individual bonds. It seemed too much like buying, tracking, managing, and selling individual stocks. I do a little of that in my Roth as a hobby (sort of like playing fantasy football), but in general it's more work than I want to do. YMMV.

He could just keep the original treasuries that he bought and wait for them to mature. The treasuries on his list are paying over 2 times the yield of a bond fund and you get your original capital back.

 

[COcheesehead]

Trying to outpace FZDXX by picking up bits and pieces of 3 month taxable munis around 5.4%.
This is from new cash. The ladders are locked and loaded.

 

[Mulligan]

The "golden period" 5%+ non-callable CDs at TDA are available now. The same ones that sold out at Fidelity very fast. 3 year 5.1%, 4 year 5.05%, 5 year 5%



Limited quantities available. The 5 year/5% is going fast.

Yes, the 5 year was long gone by open this morning. I took a little slice of the 4 year one though with no complaints. I have just about enough safe monies locked away. Will focus more on the bouncy baby bond debt. DTE energy baby bond CMSD dropped 5% yesterday in sympathy with the bank preferred crap and I got a bunch at $22.40 for a nice 6.6% yield. Its already back up a buck already.

 

[copyright1997reloaded]

Yes, the 5 year was long gone by open this morning. I took a little slice of the 4 year one though with no complaints. I have just about enough safe monies locked away. Will focus more on the bouncy baby bond debt. DTE energy baby bond CMSD dropped 5% yesterday in sympathy with the bank preferred crap and I got a bunch at $22.40 for a nice 6.6% yield. Its already back up a buck already.

I was able to get a small order for the 5-year in at 5:30AM in my TD Ameritrade account. It has been filled, according to the status on my account (but does not yet show in positions.) I was pretty limited in what I could put at it as that account isn't where the majority of my funds are at.

We are having a big northeaster winter storm at the moment, I was up that early to see what was going on (and to find one tree down in the front already).

 

[Mulligan]

I was able to get a small order for the 5-year in at 5:30AM in my TD Ameritrade account. It has been filled, according to the status on my account (but does not yet show in positions.) I was pretty limited in what I could put at it as that account isn't where the majority of my funds are at.



We are having a big northeaster winter storm at the moment, I was up that early to see what was going on (and to find one tree down in the front already).

That is where me being a rookie in buying after market CDs was exposed. I put in a bid last night after Freedom posted it. But I got this big warning banner about transaction wouldnt occur until market opened and price could change. While I didnt think they could or would change the terms it scared me off until market opened so I would know for sure what I was buying. A 4 year is fine for me though.

 

[Freedom56]

The 5% plus CDs will be around all this week into next week until they run out according to a specialist at Fidelity's HNBD. There are still a lot of 2 year 5.25% 3 year 5% notes available this morning from even Amex bank. The yields on those 5%+ CDs were higher than high grade corporate notes with the same duration and call protection. The next batch will reset to lower rates once these run out. The same for corporate notes. Corporate notes worth buying ran out like a flash. The large banks are now seeing a surge in deposit so it's not clear how much liquidity they need moving forward. We were on track to get even higher yields, but then SBV and SBNY happened. Both were avoidable if they had competent bankers who understood basic risk management. It's not like no one knew that rates were going to rise. Short term rates have pretty much peaked for now but long term rates are still too low. The Fed could hold rates where the are now and let the curve normalize pushing long term rates up. We also have the debt ceiling drama coming up.