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

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Montecfo said:
This is how regulators can classify notes for regulatory purposes.

None of the examples you cite refer to how securities are described in offering documents, which was my point.

And I do not think you will find it because words like "notes" and "bonds" have specific accepted meanings in the investment community. Those meanings are not flexible.
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No, they are described exactly the same way in the offering documents. It was very important to make sure that investors (all institutional investors) clearly understood that the interest and principal payments were subject to regulatory approval.

And no, notes and bonds do not have as specific meanings as you suggest, ergo the problem... the investor has to read the documents.
 
We are entering a "Golden Period" for fixed income investing

Montecfo said:
Trust preferreds were described as "trust preferred securities", not notes and not bonds.

That they were referred to as securities is consistent with what I am saying.
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I was not disagreeing just adding color. The trust preferreds are definitely debt though. As the subordinated debt was held inside the trust wrapper. And on banks books they are a liability not capital. Its just these were barely on the front side of common equity (well technically the preferreds are, but they would blow up together in an adverse event though and are generally treated as 50% equity by credit rating agencies) while the Co Cos were apparently just on the other side.
 
pb4uski said:
No, they are described exactly the same way in the offering documents. It was very important to make sure that investors (all institutional investors) clearly understood that the interest and principal payments were subject to regulatory approval.

And no, notes and bonds do not have as specific meanings as you suggest, ergo the problem... the investor has to read the documents.
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They read the documents. It is kind of absurd to suggest otherwise. All those investment banks, a new unique security, and no one read it. Very doubtful.

And the word "bond" has an accepted meaning. and it is different than "stock" or "equity" for obvious reasons.

But again, if you have offering docs describing equity as bonds I would definitely be interested in that.

Meantime the issue which is likely the subject of litigation is regulators did not follow the terms of the bonds. And apparently the bank was not insolvent.

I think regulators preferred litigation in this case. EU regulators have been distancing themselves from it.
 
Mulligan said:
I was not disagreeing just adding color. The trust preferreds are definitely debt though. As the subordinated debt was held inside the trust wrapper. And on banks books they are a liability not capital. Its just these were barely on the front side of common equity (well technically the preferreds are, but they would blow up together in an adverse event though and are generally treated as 50% equity by credit rating agencies) while the Co Cos were apparently just on the other side.
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No issue with that. They do not call them bonds for the reasons you describe.
 
We are entering a "Golden Period" for fixed income investing

Montecfo said:
No issue with that. They do not call them bonds for the reasons you describe.
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I must have missed something as I didnt call them bonds either…Debt securities. For all practical purposes anyone squeezing more yield out of a quality company by purchasing lowest rung debt securities like subordinated debt are effectively buying preferred stock. If they arent aware of it, they will find out the hard way at receivership, if that ever occurred ha.
 
Montecfo said:
They read the documents. It is kind of absurd to suggest otherwise. All those investment banks, a new unique security, and no one read it. Very doubtful.
...
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I don't think I ever suggested that the investors didn't read the documents, I said that they had to read the documents to understand the details of the notes, including that any payments of interest or principal were subject to regulatory approval and that we (and our counsel) to great care to make it clear in the document.
 
Mulligan said:
I must have missed something as I didnt call them bonds either…Debt securities. For all practical purposes anyone squeezing more yield out of a quality company by purchasing lowest rung debt securities like subordinated debt are effectively buying preferred stock. If they arent aware of it, they will find out the hard way at receivership, if that ever occurred ha.
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I think we are on the same page.
 
I don't care what you call them. They, like all "bonds," are a contract between the issuer and the purchaser, and the purchaser is entitled to the rights and remedies set forth in the contract. Period. I'm sure there will be litigation, but merely calling them "bonds" is not dispositive.
 
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Gumby said:
I don't care what you call them. They, like all "bonds," are a contract between the issuer and the purchaser, and the purchaser is entitled to the rights and remedies set forth in the contract. Period. I'm sure there will be litigation, but merely calling them "bonds" is not dispositive.
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Perhaps not. But regulators get very touchy about the terminology and making sure it is consistent with the security being offered.

Stated differently, they do care.
 
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Montecfo said:
Perhaps not. But regulators get very touchy about the terminology and making sure it is consistent with the security being offered.

Stated differently, they do care.
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Perhaps. I guess I am more familiar with the hurly burly of the bankruptcy court, where you get what you can convince the court to give you (and have it upheld on appeal).
 
Some interesting mark to market numbers on some thinly traded bonds popped up on my screen this morning. An example 06055JAA7 at $91.29 an almost 9% haircut overnight.
 
COcheesehead said:
Some interesting mark to market numbers on some thinly traded bonds popped up on my screen this morning. An example 06055JAA7 at $91.29 an almost 9% haircut overnight.
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Looks like a very small trade $2000 with a single buy/sell at 11:16 yesterday. Somebody got fleeced on their small holding?

ETA: I tried putting a bid in on it at $92.25 at Fido, but the order was rejected as they have none in inventory.
 
copyright1997reloaded said:
Honestly, it pi*sed me off seeing it as I know someone small got taken advantage of.

Then again, I tried tried to get some at a similar price? :angel:
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On these thinly traded issues, you need to buy and hold. Something is odd about needing to get your hands on $2000 after having just bought less than 60 days ago.
 
For many of these illiquid notes you will see low ball bids sitting and waiting. People panic when they see headlines for Bank of America with $109 Billion in treasury and MBS security losses. The headlines don't mention anything about any hedges Bank of America has on those securities or that those securities will be held to maturity. Earnings will be impacted no doubt but it is a small fraction of the trillions in assets that Bank of America holds. Liquidity isn't a problem for Bank of America with money flowing into the largest banks.
 
How to pick your treasuries for the best returns.

"Carefully picking the right Treasury instruments among all the offerings in the yield curve (which means buying the highest-yielding ones around the hump, as I believe) and rolling them over in a timely manner could result in improved returns than just buying any Treasury.

And to obtain those results, market participants must understand that it is essential to buy individual assets rather than bond mutual funds or ETFs. If interest rates continue to rise, the latter will not only underperform but also might lose money"

https://www.forbes.com/sites/raulel...e-this-is-how-to-choose-them/?sh=2b5afb1b5385
 
Are agencies in the same "safe" category as CDs and Treasuries? Our bond ladder has several maturity dates this year. Most high-interest-rate agencies have call dates and I'm wrestling with whether or not to buy those. We typically hold to maturity and are looking for longer-term bonds now that it seems rates will continue to rise this year. If we can lock in the higher rates, in the long term we'll do that.

edit: long-term meaning 5+ years.
 
^^^ I view them as the same brokered CDs and Treasuries even though technically they are not full faith and credit so have a smidgen of credit risk. But that smidgen can't be much because Moody's and S&P rate them the same as Treasuries.
 
pb4uski said:
^^^ I view them as the same brokered CDs and Treasuries even though technically they are not full faith and credit so have a smidgen of credit risk. But that smidgen can't be much because Moody's and S&P rate them the same as Treasuries.
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I humbly disagree: In a serious distress situation, I could easily see congress requiring a "bail in" kind of response in terms of agency debt which is held by "rich people". Do I think the debt would be wiped out? No, but I believe congress would be much more apt to backstop* depositors (e.g. FDIC/NCUA) than non-treasury debt instruments and might require a haircut.

Hey, but what do I know?

[I think I'm going to try to use "backstop" repeatedly in my day to day conversations! :) ]
 
Rianne said:
Are agencies in the same "safe" category as CDs and Treasuries? Our bond ladder has several maturity dates this year. Most high-interest-rate agencies have call dates and I'm wrestling with whether or not to buy those. We typically hold to maturity and are looking for longer-term bonds now that it seems rates will continue to rise this year. If we can lock in the higher rates, in the long term we'll do that.

edit: long-term meaning 5+ years.
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Many here parroted that "GSE's are as safe as CDs".
Despite their high credit ratings, the rates they pay suggest the market puts them somewhere just above "A" but below AAA and AA.
But my eyes opened a little wider during the SVB collapse when I discovered "As SVB needed cash they used the arcane Federal Home Loan Bank system to borrow heavily becoming the SF FHLB's top borrower with $20 billion."




I'm more comfortable with the Farm Credit GSEs than the Federal Home Loan Bank.


https://en.wikipedia.org/wiki/Government-sponsored_enterprise

https://www.whitehouse.gov/wp-content/uploads/2021/05/gov_fy22.pdf
 
Rianne said:
Are agencies in the same "safe" category as CDs and Treasuries? Our bond ladder has several maturity dates this year. Most high-interest-rate agencies have call dates and I'm wrestling with whether or not to buy those. We typically hold to maturity and are looking for longer-term bonds now that it seems rates will continue to rise this year. If we can lock in the higher rates, in the long term we'll do that.

edit: long-term meaning 5+ years.
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The Fed is planning one more 25 basis point hike this year, and then cuts in 2024 and beyond. Rates did not rise on yesterday's hike, they dropped all except the one month t-bill. Rates have been in a falling trend since Oct of last year. The futures market reflects lower rates than what the Fed plans.

So not sure I would bank on higher rates going forward, but a new inflation scare could cause them to tick up.

Agencies are a tick below treasuries and CD's as they do not have explicit government backing, but they do have an implied government guarantee. They are almost as high quality as you can get.

My guess is you may not want to wait for higher rates. I doubt they will be much higher this cycle, if at all. I have some money coming due month-end but I already replaced those funds, anticipating lower rates after Fed meeting.

I do not do the callable rates as a rule. The last thing you want to happen is to get your money back after a drop in rates. Most securities I have seen recently offer only a few months call protection, especially the agencies. I do not find that attractive.

If the call protection were meaningful, say 3 years+ AND there was a really high premium, I might reconsider.

Rates are dramatically higher than a year ago. I try to remember that when I see these higher rates on callable securities. "Pigs get fat, hogs get slaughtered' as they say.

All the best!
 
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