This thread was started just over a year ago and followed warnings I made regarding the dangers bond funds in February 2022 on another thread.
June 18 -2022
"Earlier in the year, I stated that 2022 was going to be one of the best periods to create or add to a bond ladder. We are almost half way through the year and yields are moving up nicely and we are entering a period where savers can once again generate income without taking too much risk. The coupons for new CDs, treasuries, and high grade corporate notes are being issued at rates that we have not seen for over five years. In the secondary markets for short term corporate bonds/notes yields are increasing to levels not seen since March 2020 as bonds funds face redemptions. This trend will continue through the year until the Fed changes course. The distribution yields from bond funds are far too low relative to safer investments where there is no risk to capital, forcing passive bond funds into a "buy high" and "sell low" mode. This will continue until money starts flowing back into bond funds. This is unlikely to happen when even CDs and treasuries are yielding more than many bond funds."
"At this phase of rate hikes buy the highest coupon and shortest duration fixed income instruments. Don't go beyond five years at this point.
If you want to take zero risk buy CDs and treasuries and high grade corporate notes (A rated) when they are issued and always compare the yields. Keep in mind when you buy these types of instruments, you are paid the coupon and you capital is returned at maturity. Corporate notes from major banks in North America are the safest.
If you want better yields than what brokerage firms are offering, buy CDs, treasuries, and corporate notes on the secondary market using limit orders. Remember you have the upper hand in a rate hike cycle. For newly issued corporate notes, brokerage firms typically take 2% commission that is reflected in the coupon you are receiving. So many investors wait for new issues to hid the secondary market, when demand is weak or muted, and attempt to buy issues below par value. Brokerage firms normally don't want to hold inventory and will dump issues below par sacrificing some of their commission. The same is true for CDs. This is why you sometimes see your corporate note or CD drop below the price you paid. However at maturity your capital is returned at par. Your yield is fixed at the time you buy the CD, treasury, or corporate note and your capital is returned at maturity."
So here we are just over a year later, the overall trend has not changed. In fact, it's even better now for treasuries, CDs, and corporate notes. MM funds now yield about 5% so even cash earns income. Corporate notes from the major banks are still the safest and they remain the largest issuers of retail corporate notes.
This thread is about fixed income investing:
1- Earning income
2- Preserving and growing capital
Hopefully people who followed this thread understand that buying fixed income products is not some esoteric concept that requires deep thought and exhaustive research. Buying treasuries at auction is not that difficult. Corporate bonds are not that difficult to understand. Many companies are household names. You can adjust your portfolio duration as the yield curve changes (i.e riding the yield curve). Timing your purchases is part of a fixed income strategy. You can be selective with respect to yield. Understand well that we are entering a period where there is a generation shift in fixed income investing. Rates are likely to stay elevated for a long time. Get used to investing in this environment.
