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

[Echard]

So almost 6% interest for at least 3 years and no risk as with equities? Yeah, I'll be getting some of that.

There is interest rate risk, since they have a call option. If rates rose substantially in the coming years, you would be stuck with a below-market rate interest rate vehicle, or would have to sell at a loss because the bond principal would drop. I still haven't figured out a way to mathematically evaluate a bond with a call option vs bonds without.

And risk the other direction too. If rates drop, you get called and have to reinvest at lower rates.

 

[Healthy Lifestyle]

New filing from RBC that should be available shortly.

"The CUSIP number for the Notes is 78014RNU0."

"The Notes will accrue interest at the rate of 5.75% per annum."

Rating is A1/A outlook stable.

3 years call protection is a step in the right direction.

https://www.benzinga.com/secfilings...bank-of-canada-form424b2-0001140361-23-030305

As I go through my learning curve, does Vanguard
allow this purchase on-line? I did enter the CUSIP but don't have a buy option.

 

[calmloki]

As I go through my learning curve, does Vanguard
allow this purchase on-line? I did enter the CUSIP but don't have a buy option.

And how do taxes work out? I remember years ago when New Zealand (Australian?) interest rates were several points higher than US. Didn't do anything then...

 

[COcheesehead]

There is interest rate risk, since they have a call option. If rates rose substantially in the coming years, you would be stuck with a below-market rate interest rate vehicle, or would have to sell at a loss because the bond principal would drop. I still haven't figured out a way to mathematically evaluate a bond with a call option vs bonds without.

And risk the other direction too. If rates drop, you get called and have to reinvest at lower rates.

There is no perfect investment. There are good ones though and perfect should never get in the way of good.

 

[Freedom56]

As I go through my learning curve, does Vanguard
allow this purchase on-line? I did enter the CUSIP but don't have a buy option.

The security was just filed so it should appear this week or early next week. The JPM 5.5% 2033 notes are still available with 3 years call protection.

 

[Freedom56]

There is interest rate risk, since they have a call option. If rates rose substantially in the coming years, you would be stuck with a below-market rate interest rate vehicle, or would have to sell at a loss because the bond principal would drop. I still haven't figured out a way to mathematically evaluate a bond with a call option vs bonds without.

And risk the other direction too. If rates drop, you get called and have to reinvest at lower rates.

Keep in mind that in a rising rate environment or even if rates stay level, callable corporate bonds, agency notes, CDs will outperform non-callable ones. You should have a mix of both in your portfolio. It is possible that many of those 6.25%-6.75% notes issued last October/November may get called later this year. But also consider that a 6.75% coupon was higher than treasury's, MM funds, CDs, and non-callable corporates at that time. So earning 6.75% for a year and having to re-invest at 5.5%-6% in the event of a call is not a bad proposition. On average, you still come out ahead. Also consider that the issuer is paying about 1.5% commission on new issued notes so they need to factor that into any decision to call a corporate note.

 

[Spock]

Keep in mind that in a rising rate environment or even if rates stay level, callable corporate bonds, agency notes, CDs will outperform non-callable ones. You should have a mix of both in your portfolio. It is possible that many of those 6.25%-6.75% notes issued last October/November may get called later this year. But also consider that a 6.75% coupon was higher than treasury's, MM funds, CDs, and non-callable corporates at that time. So earning 6.75% for a year and having to re-invest at 5.5%-6% in the event of a call is not a bad proposition. On average, you still come out ahead. Also consider that the issuer is paying about 1.5% commission on new issued notes so they need to factor that into any decision to call a corporate note.

I don't know if corporates are admin'd differently than GSE's, but I've had 3 GSE's called so far. One of which was only issued 6 months ago.

 

[Freedom56]

I don't know if corporates are admin'd differently than GSE's, but I've had 3 GSE's called so far. One of which was only issued 6 months ago.

With callable GSE's you have a prepayment risk. If the callable GSE note that you bought has enough borrowers prepaying their loans early, it makes sense to call the GSE since it would not receive further interest payments and if the principal returned cannot be invested at higher coupons than the coupon of the GSE note.

 

[NomDeER]

The security was just filed so it should appear this week or early next week. The JPM 5.5% 2033 notes are still available with 3 years call protection.

Do you have the CUSIP for the JPM? I can't find it at Vanguard.

 

[Freedom56]

Do you have the CUSIP for the JPM? I can't find it at Vanguard.

The JPM 2033 5.5% notes are available on Schwab right now. The settlement date is 6/23/23. The details are below. It has 3 years call protection.

 

[Echard]

Keep in mind that in a rising rate environment or even if rates stay level, callable corporate bonds, agency notes, CDs will outperform non-callable ones. You should have a mix of both in your portfolio. It is possible that many of those 6.25%-6.75% notes issued last October/November may get called later this year. But also consider that a 6.75% coupon was higher than treasury's, MM funds, CDs, and non-callable corporates at that time. So earning 6.75% for a year and having to re-invest at 5.5%-6% in the event of a call is not a bad proposition. On average, you still come out ahead. Also consider that the issuer is paying about 1.5% commission on new issued notes so they need to factor that into any decision to call a corporate note.

Yes, good point. I was thinking only in terms of comparing a shorter duration non-callable with a longer duration callable.

 

[jldavid47]

I don't know if corporates are admin'd differently than GSE's, but I've had 3 GSE's called so far. One of which was only issued 6 months ago.

I've only had one GSE called so far and that was after 3 months. The coupon was 6% and the first call date was 2/10/23. Interest rates had slumped a bit around then so I was not surprised when it got called. I was fine with getting a 6% rate on my money for 3 months.

No other GSEs that I own have been called yet including a 3 year 5.5% FHLB note that I purchased on 12/22/22, callable quarterly with 5 days notice. That one just survived its second call date after surviving the first one in March.

I bought other callable FHLB notes with 2-3 year durations over the past week that have 5.65%-5.75% coupons. I only get 3 months of call protection on those as well, but I'm comfortable with that. YMMV.

 

[Freedom56]

We will likely break through the March 2023 yields for CDs, treasury's, and October/November 2022 yields for corporate notes in the coming months. The timing could not be better as the first coupon payments from the March 2023 issues will arrive in September and the second coupon payment from the corporate notes will arrive in October/November. As expected, the Fed confirmed their intention to keep hiking rates this morning. Even if they pause for the rest of the year, long rates will inch up slowly.

 

[Freedom56]

New 6% retail corporate notes posted on Schwab today. Durations are from 3 years to 15 years.

 

[aja8888]

I just sold my house (closed this morning) and the funds should hit my Schwab account later today. Guess where that cash will be sitting for the summer until my new build is complete! (hint: SWVXX)

 

[Montecfo]

If Powell is serious about needing to destroy labor demand, consistent with today's statement, then rates will go lower except for the short end which is most directly affected by the Fed.

We have Fed raising rates, bank credit tightening, and the student loan pause ending end of August. The latter will suck $5-10B out of discretionary spending per month.

My guess is we continue to see the same trend since the highs in mid to LT Treasury rates last Oct/Nov.

And of course QT is arguably keeping Treasury rates artificially high these days.

 

[COcheesehead]

If Powell is serious about needing to destroy labor demand, consistent with today's statement, then rates will go lower except for the short end which is most directly affected by the Fed.

We have Fed raising rates, bank credit tightening, and the student loan pause ending end of August. The latter will suck $5-10B out of discretionary spending per month.

My guess is we continue to see the same trend since the highs in mid to LT Treasury rates last Oct/Nov.

And of course QT is arguably keeping Treasury rates artificially high these days.

Even if long rates rise a bit, they are still off their highs as you say. Last Fall is looking like the double secret golden period.

 

[ShokWaveRider]

Even if long rates rise a bit, they are still off their highs as you say. Last Fall is looking like the double secret golden period.

I think folks who have money "Love it!" (Rate Rises), those who don't, don't/.

 

[COcheesehead]

I think folks who have money "Love it!" (Rate Rises), those who don't, don't/.

Savers love it. Borrowers don’t.

 

[Born2Fish]

I think folks who have money "Love it!" (Rate Rises), those who don't, don't/.

Savers love it. Borrowers don’t.

It's great to be a saver!!!

 

[Freedom56]

Six out of ten people are living paycheck to paycheck today versus eight out of ten back in 2019. That is a significant improvement. The economy is strong. Cash sorting is going to continue well into 2024. Let the Fed do their magic and do your part and spend some of that excess interest income to keep this cycle going.

 

[Born2Fish]

New 6% retail corporate notes posted on Schwab today. Durations are from 3 years to 15 years.

Are you or anyone else buying into the 2033-2038 maturity corp notes?

I missed the opportunity today. I'm gonna place an order early tomorrow, leaning toward the TD, 6% 1-yr call protected, 2028 Maturity.

I don't NEED the cash but the idea of 10-15 year maturities is a new one for me. That's a long time.

Any thoughts on this?

 

[Freedom56]

Are you or anyone else buying into the 2033-2038 maturity corp notes?

I missed the opportunity today. I'm gonna place an order early tomorrow, leaning toward the TD, 6% 1-yr call protected, 2028 Maturity.

I don't NEED the cash but the idea of 10-15 year maturities is a new one for me. That's a long time.

Any thoughts on this?

The TD bank 6% is better. I have the RBC 6% and 5.85% 10 year both with 2 years call protection along with the RBC 5.2% 10 year with 5 years of call protection. My average duration is 3.8 years now including the relatively small position in those 10 year notes. A 5 year ladder is much easier to manage and much less volatile. I just bought the TD bank 6% 4 year notes this week.

 

[imbatman]

Some interesting options showing up, shame Fido has had basically ZERO new issue corporates for this entire week. They did get a few more GSEs, for example, 3130AWGB0 from FHLB (AA+, AAA, no state/local tax) 10-year 5.75% callable in 1 year (06/28/2024), semi-annual payments.

 

[Freedom56]

Some interesting options showing up, shame Fido has had basically ZERO new issue corporates for this entire week. They did get a few more GSEs, for example, 3130AWGB0 from FHLB (AA+, AAA, no state/local tax) 10-year 5.75% callable in 1 year (06/28/2024), semi-annual payments.

With the TDA/Schwab transition complete, Schwab appears to be offering corporate note choices that TDA offered which was significantly more than Fidelity.