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

[Freedom56]

What is the reason for not going beyond 5 years? The interest rates aren't good enough and you expect the interest rates to improve soon?

When JP Morgan issues a non-callable 10 year note at 8.5-9%, I'll buy. Right now there is no yield premium incentive to go beyond 5 years.

 

[Sunset]

When JP Morgan issues a non-callable 10 year note at 8.5-9%, I'll buy. Right now there is no yield premium incentive to go beyond 5 years.

I did buy a Goldman Sachs 38150APU3 10 year note paying 7% .

I'm a small bond/note buyer, only spending $10K at a time, trying to wait for the higher rates and panic selling.

 

[Rianne]

What is the reason for not going beyond 5 years? The interest rates aren't good enough and you expect the interest rates to improve soon?

Apparently, the rates will be increasing. That's why laddering is a good idea. We will lock in a % of our portfolio for 5-10 years, not sure yet. But the laddering allows us to take advantage of the increasing interest rates. And Mr. Powell said they will be increasing.

 

[Letj]

When JP Morgan issues a non-callable 10 year note at 8.5-9%, I'll buy. Right now there is no yield premium incentive to go beyond 5 years.

I am salivating as I imagine everybody else. How are you monitoring to guarantee you get in early enough to snag it?

 

[Freedom56]

I am salivating as I imagine everybody else. How are you monitoring to guarantee you get in early enough to snag it?

Right now I am focused on the 1-2 year notes from large U.S. banks (A rated) with limit orders for YTMs of 7.5% to 7.7%. I have 20 limit orders placed today. But it's going to take a really ugly day in the market to get anything filled. I will post a list of the JP Morgan, Bank of America, and Wells Fargo bonds that I am tracking for the carnage that I expect in the markets during this tax loss selling season. I have a lot of cash ready. I learned my lesson from March 2020 to have plenty of cash on the side to take advantage of the irrational forced selling by passive bond funds.

 

[nap470]

Right now I am focused on the 1-2 year notes from large U.S. banks (A rated) with limit orders for YTMs of 7.5% to 7.7%. I have 20 limit orders placed today. But it's going to take a really ugly day in the market to get anything filled. I will post a list of the JP Morgan, Bank of America, and Wells Fargo bonds that I am tracking for the carnage that I expect in the markets during this tax loss selling season. I have a lot of cash ready. I learned my lesson from March 2020 to have plenty of cash on the side to take advantage of the irrational forced selling by passive bond funds.

I'm assuming you are focused primarily on YTM, with coupon rate secondary?

 

[Letj]

Right now I am focused on the 1-2 year notes from large U.S. banks (A rated) with limit orders for YTMs of 7.5% to 7.7%. I have 20 limit orders placed today. But it's going to take a really ugly day in the market to get anything filled. I will post a list of the JP Morgan, Bank of America, and Wells Fargo bonds that I am tracking for the carnage that I expect in the markets during this tax loss selling season. I have a lot of cash ready. I learned my lesson from March 2020 to have plenty of cash on the side to take advantage of the irrational forced selling by passive bond funds.

Yes please post the list. Thank you so much. I have such limited knowledge of bonds so I find the contributions you and others make on this thread invaluable. Not even sure I know how to place limit orders on bonds but I will try and if I can’t, will call my Fidelity advisor.

 

[Freedom56]

I'm assuming you are focused primarily on YTM, with coupon rate secondary?

Yes but these still have a minimum coupon of 4.5%. For the really low coupon notes there far too many bidders trying to snag the 8-10% deals for 1 to 2 year notes.

 

[Freedom56]

Yes please post the list. Thank you so much. I have such limited knowledge of bonds so I find the contributions you and others make on this thread invaluable. Not even sure I know how to place limit orders on bonds but I will try and if I can’t, will call my Fidelity advisor.

Fidelity lets you place limit orders online.

 

[Mulligan]

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

I agree, but here’s the deal, they may not go up.
If they go up, collect some coupons, trade out and buy the higher yield when you are in the black overall.
If they do not go up, you are locked in at least until the bond is called - which may or may not happen.
I gave up guessing long ago. I buy what is, deal with what is and make the best of it. All of which has only increased our income.

If you look at the chart, historically past 40 years when 10/2 went negative one was eventually rewarded as the short end receded and the long end was left with the better yield and or cap gain. Everybody always said they wish they had loaded up on 30 year back in early 1980 era. Look at the chart. There is a reason why most didnt. Because the short end was higher, or too young and are just whimsical thinking like me. So few took the bait and held.
Of course I know nothing so I play all the angles. IBonds, CDs, short term Tbills and corps, floaters, resets, and longer end. I just bought a small amount of Empire District Electric 2035 my neighboring ute at 6.7% at 92.44 or so. It was over $120 earlier in year.
But I will buy 10k more IBonds come January, too!

https://fred.stlouisfed.org/series/T10Y2Y

 

[Freedom56]

If you look at the chart, historically past 40 years when 10/2 went negative one was eventually rewarded as the short end receded and the long end was left with the better yield and or cap gain. Everybody always said they wish they had loaded up on 30 year back in early 1980 era. Look at the chart. There is a reason why most didnt. Because the short end was higher, or too young and are just whimsical thinking like me. So few took the bait and held.
Of course I know nothing so I play all the angles. IBonds, CDs, short term Tbills and corps, floaters, resets, and longer end. I just bought a small amount of Empire District Electric 2035 my neighboring ute at 6.7% at 92.44 or so. It was over $120 earlier in year.
But I will buy 10k more IBonds come January, too!

https://fred.stlouisfed.org/series/T10Y2Y

Mulligan, Yes but at the moment, the yields on the longer maturities are still too low. I really believe that we are going to see some massive liquidation of bond funds this tax loss selling season as the financial media is fixated on instant gratification on "pivot" comments from the Fed that they did not hear. But they are missing the big picture where most of the rate hikes are behind us. I'm sure that the Fed also wants to put an end to the casino mentality on Wall Street with meme stocks , SPACs, and crypto. The wealth effect of these speculative investments along with high concentration in stocks that were bid up to over $1 trillion market caps along with corporate gouging has caused much of this inflation.

 

[Mulligan]

Mulligan, Yes but at the moment, the yields on the longer maturities are still too low. I really believe that we are going to see some massive liquidation of bond funds this tax loss selling season as the financial media is fixated on instant gratification on "pivot" comments from the Fed that they did not hear. But they are missing the big picture where most of the rate hikes are behind us. I'm sure that the Fed also wants to put an end to the casino mentality on Wall Street with meme stocks , SPACs, and crypto. The wealth effect of these speculative investments along with high concentration in stocks that were bid up to over $1 trillion market caps along with corporate gouging has caused much of this inflation.

I wont be disappointed if you are correct Freedom. As I have plenty of short end and access to more cash too if needed. But interest rate yield is always too low, thus why I mentioned few participating in the 13% long, because the 15% short looked better. Josh on Halftime said the mutual funds have already did their tax loss selling and the little guys left wont move the market. I dont know about the bond funds.
Aggressive short end raising always helps the long end, as it shows commitment to bond market they are committed to kill inflation. Gundlach has said go long end.
And I am definitely not posing this as your incorrect. And I shouldnt because I partially agree with you anyways, ha. Just presenting the other side of the argument that some make. Me, Im not really tilted on either side, but I do have oars in the water on both sides of the boat though, lol.

 

[Freedom56]

I wont be disappointed if you are correct Freedom. As I have plenty of short end and access to more cash too if needed. But interest rate yield is always too low, thus why I mentioned few participating in the 13% long, because the 15% short looked better. Josh on Halftime said the mutual funds have already did their tax loss selling and the little guys left wont move the market. I dont know about the bond funds.
Aggressive short end raising always helps the long end, as it shows commitment to bond market they are committed to kill inflation. Gundlach has said go long end.
And I am definitely not posing this as your incorrect. And I shouldnt because I partially agree with you anyways, ha. Just presenting the other side of the argument that some make. Me, Im not really tilted on either side, but I do have oars in the water on both sides of the boat though, lol.

Mulligan, a lot of people appearing on Bloomberg, which I watch because they report more on fixed income, are saying go long duration. One guy came on three weeks ago and said that they changed their duration to 25-40 years. That decision has cost him some more short term pain. I think there will be a time to buy longer durations and even those investment grade perpetuals, but we are not there. So far the selling has been orderly throughout the year. We have not seen the vicious selling that occurred in March 2020 nor what we saw in 2013. As for the self proclaimed bond king, the only thing I can say about his recent comments "bonds are attractive now", no kidding!

 

[Mulligan]

Mulligan, a lot of people appearing on Bloomberg, which I watch because they report more on fixed income, are saying go long duration. One guy came on three weeks ago and said that they changed their duration to 25-40 years. That decision has cost him some more short term pain. I think there will be a time to buy longer durations and even those investment grade perpetuals, but we are not there. So far the selling has been orderly throughout the year. We have not seen the vicious selling that occurred in March 2020 nor what we saw in 2013. As for the self proclaimed bond king, the only thing I can say about his recent comments "bonds are attractive now", no kidding!

Actually he is really most interested in finding a correct entry point for asian stocks and play off US currency receding, but the time isnt now yet he said.
I certainly am not wanting to counter your thoughts. But there is not certainty in any specific strategy. Just like buying too early long can hurt, at some point staying to short can be just as painful if rates recede. And there wont be a bell ringing when to do it either, as you know. That is what makes it interesting.

 

[Letj]

Fidelity lets you place limit orders online.

They do but only within a set percentage. Tried to place a limit order for one of the city group on your watch list for $98 and the system said the lowest I could go was 100.

 

[MercyMe]

If not immediately filled, how long will a limit order stay active at Fidelity?

 

[Freedom56]

If not immediately filled, how long will a limit order stay active at Fidelity?

one day for online orders

 

[Freedom56]

They do but only within a set percentage. Tried to place a limit order for one of the city group on your watch list for $98 and the system said the lowest I could go was 100.

That is correct. For the one below, it will only let you put in an order between the ask price and 99.995. You have to call in to the bond desk to place lower limit orders. You should view order book like level 2 trading on equities. There are many orders ahead of you that a seller can sell into. However, unlike equities it takes time to fill orders. In the case of this bond, you will need to wait until the situation gets more ugly as the year progresses. Right now the order book shows that there is more demand than supply. During those days of ugly market downturns, funds are forced into selling causing the bids to be filled.

 

[Montecfo]

Schwab article yesterday paints a different picture that what many of us believe. I don't know what to think of all of this.

"...This year has been an anomaly and is unlikely to repeat, in our view. Going forward, returns should be better because starting yields are higher and it's unlikely that rates will continue to rise like they have. We suggest investors consider extending duration to take advantage of the move up in yields and stay up in credit quality by focusing mostly on higher-rated bonds."

They mean the losses are steep rate rise are unlikely to repeat. All makes sense to me. I have begun extending durations.

 

[Montecfo]

I was going to ask something similar. Powell did say he expected to keep the rates up into the future. I read that as "for at least a year or two" before even looking at lowering. I am assuming we hit 10% mortgage rates and 5.5% fed rate. My numbers are wild a$$ guesses so nobody should listen to me, ever. Just my opinion which based on my stock portfolio return is meaningless.

I think we should see A rated+ corporate bond rates 7-8% january/february. Feel free to correct my assumptions.

Powell does not know what rates will be 1-2 yrs out, since we do not know how our economy will react to this steep rapid rise.

 

[NW-Bound]

The long end of the curve has not been as volatile as the short end, hence the inverted curve we now have. I have enjoyed the increased cashflow from the long end when yields on the short end were nothing. We now have an opportunity to add to that yield and I have been taking advantage of it with 5 and 10 year bonds. My ladder went from throwing off $100k a year to now paying $160k.

$160K/year in interest is very nice indeed. It's higher than what I get in dividends off my stocks.

But don't forget to adjust your principal for inflation.

 

[COcheesehead]

$160K/year in interest is very nice indeed. It's higher than what I get in dividends off my stocks.

But don't forget to adjust your principal for inflation.

I don’t buy corporate, agency or muni bonds as an inflation hedge. No one should. I buy them for income and capital preservation. I have other assets for inflation. Everyone should.

 

[NW-Bound]

Powell does not know what rates will be 1-2 yrs out, since we do not know how our economy will react to this steep rapid rise.

Right.

I saw a bit of the press conference on YouTube. Powell said there was not enough historical data for a precedent to know how the economy will fare. There's no playbook, and he will play by ears.

"Keep turning up the knob until they yell out in pain"

 

[sarasotacycler]

I just checked and found a 5 Year MYGA paying 6% (as of Nov. 3rd) with an A- rated insurer. I expect that we will see more of these. Can you all explain to me what the risk reward tradeoff might be compared to the bonds referenced in this discussion? I don't need the capital for the 5 years and have the option of taking interest annually. I believe that MYGAs are insured up to $300k per account in Florida. Thanks!

 

[NomDeER]

When JP Morgan issues a non-callable 10 year note at 8.5-9%, I'll buy. Right now there is no yield premium incentive to go beyond 5 years.

Do you think there's a good chance of this happening?

I'm trying to figure out how to generate income in more than five years. Right now, the interest rates for longer durations are lower than the shorter term bonds. I assume that's because people think that the Fed is going to lower interest rates in the next few years. But, if that's true, doesn't that mean that interest rates for longer term bonds are going to go down in the coming months as more and more of the timeframe is likely to be during a period of decreasing interest rates? If I invest in 2-5 year bonds now, where do I invest that money when the bonds mature?