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

[aja8888]

My most recent bond purchase in my IRA:

https://bondfacts.finra.org/46625HRS1?

Credit rating: A2/A

maturity - 06/14/2026

 

[daylatedollarshort]

How do you buy tips ?

Did you do it via a brokerage or treasury direct ?

The market doesn't have to be open to put in an order ?

I buy ours using the Fidelity trade fixed income screen. Near where you can buy CDs there is a link to click to buy TIPS on the secondary market or auction. Click on the auction link and place an order. Orders are in the 1,000s, so an order for 10 would be around $10K in bonds, depending on the actual auction price. I think the auction is next Thursday so you can place your order at any time up until the cutoff point.

FYI - TIPS are best held in retirement accounts as unlike I bonds you get taxed every year on the inflation adjustments. If you need to sell them before maturity, unlike I bonds, the Treasury doesn't buy them back. You have to sell on the secondary market where you may get more or less than what you bought them for unless you hold to maturity. Nominal bonds may be a better deflation hedge, so it is good to have a bit of both.

 

[savory]

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.

Here are some new corporate issues coming to market this week (see attached image). Of the nine issues, only the first three (Credit Suisse 4.25%, Credit Suisse 4.5%, CIBC 4.47%) are worth buying. The 42 month note from CIBC is the safest followed by the two notes from Credit Suisse.

Avoid the issue from Prospect Capital completely. This one will crash and burn in the secondary market. Shorter duration notes from this company are already trading at yields over 7% in the secondary market.

The coupons on the Dow Chemical offerings are too low and you are likely to see the prices fall and yields move up when they hit the secondary market.

The coupons on the Verizon and National Rural issues are too low and the durations are too long. These issues will fall well below par in the secondary market in this environment. So avoid these new issues at this time.

Thanks for sharing this. I have not purchased a bond like the Credit Suisse in the past. I have been guiding myself on the Fidelity site with no luck finding any of these 3 bonds, so far. Given the weekend, Monday holiday and my west coast location, I am afraid I will miss the 11:30AM window if I need to wait for Fidelity to provide guidance on Tuesday for how to purchase.

I have been to the corporate bond page but the list goes on and on and the search criteria are not helping me. It seems the CUSIP number might be helpful but I am not sure if that is true.

If someone has the knowledge and time, could you guide a newbee to purchase one of the three Freedom56 bond recommendations from his original post? I use Fido.

Thanks!

 

[Freedom56]

Thanks for sharing this. I have not purchased a bond like the Credit Suisse in the past. I have been guiding myself on the Fidelity site with no luck finding any of these 3 bonds, so far. Given the weekend, Monday holiday and my west coast location, I am afraid I will miss the 11:30AM window if I need to wait for Fidelity to provide guidance on Tuesday for how to purchase.

I have been to the corporate bond page but the list goes on and on and the search criteria are not helping me. It seems the CUSIP number might be helpful but I am not sure if that is true.

If someone has the knowledge and time, could you guide a newbee to purchase one of the three Freedom56 bond recommendations from his original post? I use Fido.

Thanks!

On the Fidelity site go to "trade" and then "fixed income" and then "new issues".
Under new issues, expand "corporate" and you will see the new issues listed there. If you are buying at the issue price, it's no different from buying a CD from them. If you are buying on the secondary market, you have to wait for it to come to market and place a bid using the CUSIP number. CIBC is a much better bank than Credit Suisse despite the slightly lower rating.

 

[Freedom56]

My most recent bond purchase in my IRA:

https://bondfacts.finra.org/46625HRS1?

Credit rating: A2/A

maturity - 06/14/2026

JP Morgan is about as safe as you can get as far as U.S. financial institutions go.

 

[aja8888]

JP Morgan is about as safe as you can get as far as U.S. financial institutions go.

Exactly! Like you have said, we are entering a golden period of fixed income investment choices.

 

[daylatedollarshort]

Exactly! Like you have said, we are entering a golden period of fixed income investment choices.

The sky isn't falling for those of us with individual bonds and stock allocations adjusted appropriately to our ages and risk tolerance. I'm having an overall up year and excited about higher interest rates.

 

[MarieIG]

Thank you.
I appreciate the fixed income advice you and a couple others are sharing.

+1

 

[Freedom56]

I always appreciate your views on interest bearing investments, as I don't know much about how to buy them, and never really follow them, other than to see what rate online banks have versus brick and mortar.

I used the search tool and found:
https://finra-markets.morningstar.com/BondCenter/BondDetail.jsp?ticker=C1015268&symbol=STX5324236

While I would tend towards the super safe bank investments, I must admit to being tempted by this type of company bond, so I'd get some and some banks.

Looking at this, is there any minimum size of purchase, and I'm guessing I'd use the CUSIP at my brokerage to view the bond and make a purchase ?

There is nothing wrong with the company Seagate but I would not buy that one due to the low coupon and duration. I have owned the 4.875% 2024 notes since March 2020 that I picked up at a YTM of 7.5%. I recently bought the Seagate 4.75% June 2023 notes with a YTM of about 7%.

I would buy this 4.875% 2027 note from Seagate or the 4.875 2024 notes during the next market sell-off and try to get a 7% YTM with a limit order.

https://finra-markets.morningstar.com/BondCenter/BondDetail.jsp?ticker=C656861&symbol=STX4380193

https://finra-markets.morningstar.com/BondCenter/BondDetail.jsp?ticker=C757303&symbol=STX4627973

1 bond is the minimum purchase but most ask orders specify a minimum of 5 or 6.

Here are all the bonds that are outstanding for Seagate. I have been buying their bonds/notes for the past 12 years.

https://investors.seagate.com/creditor-relations/financing-detail/default.aspx

 

[Sasquatch1]

How do you folks feel about agencies…for example, 4.99% 15 year 99.50 Federal Farm Credit

 

[Freedom56]

How do you folks feel about agencies…for example, 4.99% 15 year 99.50 Federal Farm Credit

They are safe investments. Federal government agency bonds are backed by the full faith and credit of the U.S. government. The question is do you want to lock up your capital for 15 years? However, it makes more sense to have a risk free 5% agency note over a bond fund which is effectively a perpetual instrument with no capital protection and with half the yield. With a $100K investment, you will receive $5K per year for the next 15 years and your capital returned at maturity. The Fidelity is showing a 20 year Federal Farm bond in the new agency issue rated AAA/AA+ with a coupon of 5.48%. It's all about generating income for yourself.

Welcome to the "golden period " of fixed income investing.

 

[npage]

How do you folks feel about agencies…for example, 4.99% 15 year 99.50 Federal Farm Credit

Callable right? And are these tax exempt at state level like treasuries? Looks like it.

 

[aja8888]

They are safe investments. Federal government agency bonds are backed by the full faith and credit of the U.S. government. The question is do you want to lock up your capital for 15 years? However, it makes more sense to have a risk free 5% agency note over a bond fund which is effectively a perpetual instrument with no capital protection and with half the yield. With a $100K investment, you will receive $5K per year for the next 15 years and your capital returned at maturity. The Fidelity is showing a 20 year Federal Farm bond in the new agency issue rated AAA/AA+ with a coupon of 5.48%. It's all about generating income for yourself.

Welcome to the "golden period " of fixed income investing.

If I recall, Federal Farm Credit bonds are backed by banks and not the Federal government. Pretty sure I read that in a disclosure on a FFB bond I was looking at.

 

[npage]

So looks like Federal Farm are tax exempt at state level. They appear to pay a ever so slight premium over like term treasury. I presume due to a slightly higher default risk, though very low.

Funny, never paid attention to all the fix income options out there until now having learned the bond fund lesson the hard way. I can still find a place for a bond fund knowing what I know now presuming the right entry price, rising rate environment and duration matching. But if I can buy a treasury, agency, muni or brokered CD for about what I get there or higher, I may be a convert.

 

[Freedom56]

The AAA/AA+ rated 5.48% 6/27/42 Agency GSE bond is now sold out on Fidelity.

The CIBC 4.47% 42 month note is sold out at Fidelity.

Some new notes are posted from the Bank of Montreal at 3.75% (18 months) and 4.1% (24 months). Morgan Stanley 4.5% (5 year) and 5% (10 year). I'm passing on those for now.

 

[f35phixer]

so what if you don't need to withdraw from the IRA's? We bring home 13k/month with Pensions and SS.

Between FAGIX and FTBFX last couple months have been ~100 extra shares reinvested x 10years ~12,000 extra shares before RMD come into effect. I have ~251K in FAGIX and 135K in FTBFX .

So do I really need to worry about TIPS/Ladders/CDs etc?

Thanks, You all make my head hurt ;-)

 

[Freedom56]

Fidelity is hosting a live webinar on 6/24/22 at 12:00 eastern.

https://fidelityevents.com/insights-live-062422

Insights Live: Strategies for Rising Interest Rates. It's Free.

If they start pushing bond funds, just hang up.

 

[Sasquatch1]

So looks like Federal Farm are tax exempt at state level. They appear to pay a ever so slight premium over like term treasury. I presume due to a slightly higher default risk, though very low.

Funny, never paid attention to all the fix income options out there until now having learned the bond fund lesson the hard way. I can still find a place for a bond fund knowing what I know now presuming the right entry price, rising rate environment and duration matching. But if I can buy a treasury, agency, muni or brokered CD for about what I get there or higher, I may be a convert.

So true, we haven’t had these opportunities to consider for so many years…but now that rates are attractive again…

I’m just appreciative of the community to bounce ideas off of.

 

[jazz4cash]

Fidelity is hosting a live webinar on 6/24/22 at 12:00 eastern.

https://fidelityevents.com/insights-live-062422

Insights Live: Strategies for Rising Interest Rates. It's Free.

If they start pushing bond funds, just hang up.

I think it would be cool to discuss the webinar on a thread here. I will plan to listen and I hope they will archive the session in case I can’t view it live. It’s a pretty good resource at Fidelity.
Ok, I’m registered. FYI you can post a question to be addressed in the session. This is open to anyone even if you don’t have an account at Fidelity.

 

[Freedom56]

I think it would be cool to discuss the webinar on a thread here. I will plan to listen and I hope they will archive the session in case I can’t view it live. It’s a pretty good resource at Fidelity.
Ok, I’m registered. FYI you can post a question to be addressed in the session. This is open to anyone even if you don’t have an account at Fidelity.

I pre-emptively asked that if we should be avoiding bond funds in this environment given their low distribution yields relative to risk free CDs and treasuries. However they rarely respond to questions that don't fit their sales agenda.

 

[jazz4cash]

I pre-emptively asked that if we should be avoiding bond funds in this environment given their low distribution yields relative to risk free CDs and treasuries. However they rarely respond to questions that don't fit their sales agenda.

I know what you mean. I noticed all the presenters are from Fidelity and may have an objective to reduce bond fund redemptions for all I know. I've noticed they sometimes use 3rd party presenters that may or may not be pushing a product/service. Our job is to not take the bait, if any. I'll think about asking a similar question.

 

[gcgang]

I dunno. Seems like we’ve just ended a 40 year secular bull market in bonds.

Watch out that your Golden Period doesn’t come with a Golden Shower.

 

[JBTX]

I guess I am on another planet. I’m not excited about nominal bonds yields. If yields are 3% and inflation is pushing 10% that is a disaster. I disagree with some who think this inflation just sorts itself out quickly. I’m closer to the Larry Summers school of thought that it is now baked in and will require some pain to extract it. Some of the things that lead to long term low inflation seem to be structurally changing. Also that doesn’t factor in if China decides to invade Taiwan if that happens all bets are off.

 

[madatrub]

The AAA/AA+ rated 5.48% 6/27/42 Agency GSE bond is now sold out on Fidelity.

The CIBC 4.47% 42 month note is sold out at Fidelity.

Some new notes are posted from the Bank of Montreal at 3.75% (18 months) and 4.1% (24 months). Morgan Stanley 4.5% (5 year) and 5% (10 year). I'm passing on those for now.

I bought some of those CIBC. Thanks for the info!

 

[madatrub]

I guess I am on another planet. I’m not excited about nominal bonds yields. If yields are 3% and inflation is pushing 10% that is a disaster. I disagree with some who think this inflation just sorts itself out quickly. I’m closer to the Larry Summers school of thought that it is now baked in and will require some pain to extract it. Some of the things that lead to long term low inflation seem to be structurally changing. Also that doesn’t factor in if China decides to invade Taiwan if that happens all bets are off.

Where else are you going to get yield with lower risk? Insurance at the blackjack table?