ventoux
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Thanks, Freedom.
We are entering a "Golden Period" for fixed income investing
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daylatedollarshort
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It is not the highest the real yields have ever been, but in recent years they were negative, so I would rate current yields at pretty good, likely to get better. We have been dollar cost averaging by buying some at each auction this year since rates went positive. I think the real yields got up to 4% when they were first issued and then 3% after the Great Recession, upon deflation fears.
lawman
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Schwab has it. Hard to pass up. Wish I knew the chances of default but I guess that's true for everyone..When is the last time a bank of this size defaulted?
Freedom56
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Extremely low. I have owned Bank of America, Citigroup, Wells Fargo, Goldman Sachs, and JP Morgan notes since 2008 and never had an issue. After the 2008/2009 financial crisis, more protections have been legislated. They are not at the same level of safety as Canadian banks but the large ones are pretty close. The problem in the U.S. is that there are over 7000 banks almost 6000 insurance companies. The small and mid-size banks and insurance companies are where the risks are in the financial sector. I would avoid investing in any small or midsized bank. The one exception is First Republic Bank. They lend money to high income people with stellar credit profiles. There are a few others like that bank. The five largest banks in the US are very safe investments for corporate bonds.
Just to note that after the financial crisis, Bank of America came out stronger and bought out what was left of Merrill Lynch.
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MercyMe
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Freedom56
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BOA is the number two bank behind JP Morgan and Citigroup is number 3.
The top 5 are:
1 JPMorgan Chase $3.38 trillion
2 Bank of America $2.44 trillion
3 Citigroup $1.72 trillion
4 Wells Fargo $1.71 trillion
5 U.S. Bancorp $582.25 billion
BOA is slightly lower risk than Citigroup. But both are strong.
Freedom56
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For those who want a pulse of what's going on in the economy, listen to the third quarter conference call from JP Morgan. As the largest bank in the country and the second largest in the world, they are exposed to all aspects of the economy. Jamie Dimon is one of the best bankers over the past two decades. I have been investing in the banks he as led start in early 2000 with Bank One and later JP Morgan after they purchased Bank One. He was asked many questions he made to the press in recent days regarding the risks to the economy and the equity markets falling another 20%.
Freedom56
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Bank of America earned $6.83 billion in Q3. Interest income rose significantly due to the rate hikes. They can more than afford share the wealth and pay retail investors the 6% coupon on their most recent offering.
In general the the Top 5 banks are strong and are increasing reserves in the event of a slowing economy. They are prohibited from the casino bets they were making prior to 2008/2009 due to the regulations in force.
Keep the dry powder for tax loss selling season.
In general the the Top 5 banks are strong and are increasing reserves in the event of a slowing economy. They are prohibited from the casino bets they were making prior to 2008/2009 due to the regulations in force.
Keep the dry powder for tax loss selling season.
Golden sunsets
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Freedom; Do you expect municipals to sell off in the same way as corporates in the last weeks of this year?
Freedom56
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I expect Muni CEFs to sell off and some individual issues as well. Any security with low coupons or distributions will get slaughtered first during tax loss selling season. They higher coupons will then follow as they get dragged down by the soaring yields of the low coupon securities. When the carnage is over, the higher coupon securities bounce back the fasted as funds and investors buy the highest coupon securities first.
Here are some CEFs that I'm tracking. The leveraged muni CEFs are now yielding 5.5% and the unleveraged are at 3.8%. Those yields will go much higher as investors start taking their losses. Look at the 52 week range of these CEFs to appreciate the losses investors are facing.
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Golden sunsets
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Thanks for your response. Our individual bonds and dry powder to be allocated to bonds are all at Fido. So if I am looking for good yielding individual Munis during this sell off period, watching the municipal bond screener on Fido daily would be the best approach? In looking at it today, most Munis are selling at over par, so not enticing. Do you expect opportunities at or below par, in the coming weeks?
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Freedom56
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I'm assuming that you are referring to tax free muni bonds. Most people who buy tax free Muni's buy at or slightly above par to avoid a taxable gains at maturity. Fido's screen is probably the best among brokerage firms for muni bonds.
Golden sunsets
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One more question Freedom. Looking forward to the day when interest rates drop, from where they are now, or will be soon, do you sell some of your individual bonds ( any type), or hold them to maturity and then redeploy. I'm always stymied by the big gains I see in our bonds, because if I sell them, I have to find a replacement which is going to yield less. So I miss all of these gains. I suppose it's the flip side of holding bonds that have losses , but if held to maturity mature at par. Just wondering how you view your portfolio.
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Golden sunsets
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Looking at the fido screener, I didn't notice if there was a field showing if the issue is tax exempt. Is that info available by indivual issue at Fido, and if not, what website do you use to determine tax status?
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COcheesehead
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In the screen tool, there is a link that says Show more criteria. Click on it and you’ll get a whole bunch of helpful options including a box for “exempt from federal tax, yes, no or all.”
COcheesehead
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Keep in mind if you have a gain, the yield has dropped anyway.
Freedom56
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Rates would have to drop to zero to see those big gains again and money would have to start flowing back into those passive bond funds to bid bonds up. Just like back in March 2020, I picked up a lot of investment grade preferred stock at very high yields and YTCs and within one year they were called or sold above par. I will do the same with any exchange traded security as they do not accrue interest. With bonds/notes, if my capital gain exceeds or is close to the remaining coupon payment, it's going to be sold.
Freedom56
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Sometimes the gain is from spreads between corporates and treasuries narrowing. We had cases in the past where corporate bonds yielded about the same as treasuries.
Freedom56
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Goldman Sachs reported about $3.3B of net income this quarter (down YOY ). So they can spread the wealth and keep paying he higher coupons from their new issues.
Freedom56
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Barclays is the latest bank to offer 6% 5 year notes. It is not rated but is likely BBB/BBB-. They also have a 2 year 5.25% note rated A. I don't plan to buy any. The safest bank in the UK is HSBC. However, the UK is an economic mess right now and the yield is the same as much stronger banks from the US and Canada. The Citigroup and Bank of America 6% notes are a safer buy.
ventoux
Dryer sheet aficionado
Help me understand what I’m looking at --- I see a non-callable agency note (Federal Home Loan Banks). The coupon rate isn’t comparable to other current options but it’s not callable and I’m curious what the downside would be in purchasing the issue outside of its lengthy maturity schedule. Thanks for any responses!
CUSIP: 3130ATHY6
Coupon: 4.25%
Maturity: 9-10-2032
Last trade price today: $96.95
YTM: 4.635%
CUSIP: 3130ATHY6
Coupon: 4.25%
Maturity: 9-10-2032
Last trade price today: $96.95
YTM: 4.635%
I don't want to go out 10 years when I can get very similar yields at 1-2 years.
1 year treasuries around 4.44% right now.
I'm hoping for even better yields soon.
ventoux
Dryer sheet aficionado
Thanks, finnski1. Yep, I'm looking at trying to lock in on some longer term issues with feasible yields but as you stated it's probably not the time for that right now.
well I'm no expert and there are people on here much more versed on these things than me. Hopefully you'll get some more responses/ideas.
Just my thinking at this moment. Still looking to deploy more myself.
ETA there are corporate bond yields in the 5.5 -6% yield rate right now that could be enticing. I have to do a lot more homework myself.
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Thanks for this info. This makes sense to me.
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