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

[Freedom56]

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?

The market assumes that the economy will slow down and therefore long term rates are lower and we have an inversion. The other issue is the inventory build-up in the economy causing corporations who were happily gouging consumers, are now forced to liquidate inventory at fire sale prices. However there is still a $1.8 trillion infrastructure bill that has yet to hit the ground that will keep the labor market strong. So it's not clear at this point how long the Fed will keep rates at their target terminal rate. I really won't invest in longer durations until there is some yield premium. My current ladder runs 8.2 years and there is a void between 6 and 8.2 years and over time my current ladder will collapse into a rolling 5 year ladder. Shorter ladders reduce volatility and risk considerably. Also the Fed induced market crisis events have been occurring on a regular bases and fits nicely within a 5 year ladder. So as long as passive bond funds around, there is 100% certainty that funds will continue to sell off their holdings when markets correct or the Fed threatens to raise rates. So there will always be opportunities to time bond purchases.

To answer your other question, it may be a while before JP Morgan issues 8.5% 10 year notes and it's not really likely to happen. You may be able to by a 10 year JP Morgan or other major bank note at a YTM of 8.5% during a severe market correction. That is a more likely scenario. The credit markets function on the basis that the longer the duration the higher the risk. This is why shorter term loans have lower rates than longer duration loans. This also applies to corporate debt with shorter durations still have lower coupons than longer durations despite the fact that that treasury yields are inverted. Right now you as the lender are taking the risk of a longer duration without any rate premium. I just won't do that given the up and down cycles that I expect to continue in the future.

 

[MercyMe]

Fidelity is hosting a webinar this week on bond investing in this environment.

"During this hour-long session, we will discuss:

• How to leverage Fidelity’s extensive bond inventory, tools and resources to manage your own portfolio
• Fidelity’s approach to professionally managed Fixed-Income Separately Managed Accounts (SMAs)"

You do not need a Fidelity account to register.

https://fidelityevents.com/bondinvestingintodaysenvironme?cc_source=em_Publications_892366_166_0

Am I the only one who thought this was a massive waste of time?
It's the last webinar I'll ever do with Fidelity. Webinars are often not very helpful but this one was 57 minutes of somewhat irrelevant overview and subtle advertising for their SMA program. I really lost a lot of respect for them from this.

 

[Freedom56]

Am I the only one who thought this was a massive waste of time?
It's the last webinar I'll ever do with Fidelity. Webinars are often not very helpful but this one was 57 minutes of somewhat irrelevant overview and subtle advertising for their SMA program. I really lost a lot of respect for them from this.

It's a free seminar and all of them pitch their products. Would you rather have them tell you:

a) Their funds are performing horribly this year?

b) Their advisors and fund managers are losers?

c) Most of their employees are still working from home mostly on social media?

d) Their target audience is actually Fidelity employees who are learning about
bonds for the first time?

 

[MercyMe]

It's a free seminar and all of them pitch their products. Would you rather have them tell you:

a) Their funds are performing horribly this year?

b) Their advisors and fund managers are losers?

c) Most of their employees are still working from home mostly on social media?

d) Their target audience is actually Fidelity employees who are learning about
bonds for the first time?

I knew there would be some pitching. And well, free... you get what you pay for. I just expected a little more than worthless babble topped off with a significant dose of selling the fee service. The balance of useful information vs sales pitch was seriously off the charts.


BTW... not blaming you for this.

 

[Letj]

Am I the only one who thought this was a massive waste of time?
It's the last webinar I'll ever do with Fidelity. Webinars are often not very helpful but this one was 57 minutes of somewhat irrelevant overview and subtle advertising for their SMA program. I really lost a lot of respect for them from this.

I actually really liked the webinar and watched the whole thing. I think their approach was really balanced (you can manage yourself use their service). Some people don’t mind their managed services (especially with very large portfolio and little inclination or knowledge on how to manage/invest yourself).

 

[MercyMe]

I actually really liked the webinar and watched the whole thing. I think their approach was really balanced (you can manage yourself use their service). Some people don’t mind their managed services (especially with very large portfolio and little inclination or knowledge on how to manage/invest yourself).

The "you can manage it yourself" part was not helpful to me at all. It was too broad of an overview to be helpful in any meaningful way. Which then works as a subtle scare tactic in my opinion. Then leading to the clincher and the point of the whole webinar... the SMA option.
I like Fidelity's platform and I'm glad I switched to them for my brokerage account, but this webinar just didn't make the grade.

 

[jazz4cash]

Am I the only one who thought this was a massive waste of time?
It's the last webinar I'll ever do with Fidelity. Webinars are often not very helpful but this one was 57 minutes of somewhat irrelevant overview and subtle advertising for their SMA program. I really lost a lot of respect for them from this.

I'd say don't assume all their webinars are as irrelivant as this one was (to you). I missed it so I can't say except that some of the ones I've attended are great and others are not. The other resources in the Learning Center are pretty good as well

 

[jazz4cash]

I noticed most of the corporate notes are listed as "not call protected" but everyone I have checked is not callable for 12 months. Is that industry standard?

After that it is either continuously, every 3,6,12 months, etc. Is it standard practice for the 1st call to

 

[Freedom56]

I knew there would be some pitching. And well, free... you get what you pay for. I just expected a little more than worthless babble topped off with a significant dose of selling the fee service. The balance of useful information vs sales pitch was seriously off the charts.


BTW... not blaming you for this.

I wouldn't use their advisory services. We know a retired couple (both doctors) who use their advisory services for managing their stock and bond portfolio and their fees are much higher that what was quoted. They are suffering horrific losses and are experiencing a lot of stress. The wife is on the phone with my wife at least three times a week now. They informed us that every time they meet with their advisor, her eyes are fixated on he mobile phone and texting and they pay for this service. Most of their advisors are just sales people with very little background in finance. I went through what they are experiencing early in my career in the early 80's after graduating from university. I decided to become a self directed investor after three years of full service brokers and losses. The only thing that consistently made money for me were CDs. Becoming a self directed investor was the best decision I ever made. What I don't understand is why a couple who are prodigious savers that built a sizeable nest egg, would hand it over to a financial advisory service to manage during their retirement.

 

[Freedom56]

I noticed most of the corporate notes are listed as "not call protected" but everyone I have checked is not callable for 12 months. Is that industry standard?

After that it is either continuously, every 3,6,12 months, etc. Is it standard practice for the 1st call to

It is now as the issuers are hedging their bets that rates will eventually fall back. However with short duration callable notes in a rising rate environment, the likelihood of a call diminishes as rates rise.

 

[MercyMe]

I wouldn't use their advisory services. We know a retired couple (both doctors) who use their advisory services for managing their stock and bond portfolio and their fees are much higher that what was quoted. They are suffering horrific losses and are experiencing a lot of stress. The wife is on the phone with my wife at least three times a week now. They informed us that every time they meet with their advisor, her eyes are fixated on he mobile phone and texting and they pay for this service. Most of their advisors are just sales people with very little background in finance. I went through what they are experiencing early in my career in the early 80's after graduating from university. I decided to become a self directed investor after three years of full service brokers and losses. The only thing that consistently made money for me were CDs. Becoming a self directed investor was the best decision I ever made. What I don't understand is why a couple who are prodigious savers that built a sizeable nest egg, would hand it over to a financial advisory service to manage during their retirement.

I've chatted with 6 people at Fidelity so far. Only one has given me the impression that he/she knew what they were doing. With a quick Google search of their names, I can see that 5 of them appear to be freshly out of college and have had very brief time at Fidelity. So I find it hard to trust them for anything other than questions about features on their website. They can walk you through some stuff rather effectively, but I'm not detecting much wisdom from them. And the sales pitch from the webinar worries me more.

I want to be self directed (having had some bad experiences with paid advisors) but in truth, I'm just not very bright. I was slightly overwhelmed from reading Bond Investing for Dummies recently!

I've had to take a break from this relentless absorption of bond investing knowledge because it has caused me to break out in hives... from worry. But if you can't find a trustable advisor, there just ain't much left to do but do it yourself.

 

[Freedom56]

I've chatted with 6 people at Fidelity so far. Only one has given me the impression that he/she knew what they were doing. With a quick Google search of their names, I can see that 5 of them appear to be freshly out of college and have had very brief time at Fidelity. So I find it hard to trust them for anything other than questions about features on their website. They can walk you through some stuff rather effectively, but I'm not detecting much wisdom from them. And the sales pitch from the webinar worries me more.

I want to be self directed (having had some bad experiences with paid advisors) but in truth, I'm just not very bright. I was slightly overwhelmed from reading Bond Investing for Dummies recently!

I've had to take a break from this relentless absorption of bond investing knowledge because it has caused me to break out in hives... from worry. But if you can't find a trustable advisor, there just ain't much left to do but do it yourself.

Then keep it simple and just buy CDs.

 

[lawman]

I am buying CDs and treasuries and I have been able to get a couple of the big bank issues that freedom has been buying. That's about all I'm comfortable with. I have also picked up a few government agencies.

 

[Sunset]

Then keep it simple and just buy CDs.

I think buying Treasuries from the auction list, is just as simple as CD's, even buying new Corporate bonds listed at the brokerage is easy.

Buying the "used" "resale" CD's, Treasuries, and corporate bonds is the harder part, made so by the brokerage. I can buy stocks all day, but for example on Vanguard, it won't let me put in a bid price for bonds
Maybe I could phone, but what a hassle (which is their point to stop people from easy trading).

 

[Freedom56]

The "you can manage it yourself" part was not helpful to me at all. It was too broad of an overview to be helpful in any meaningful way. Which then works as a subtle scare tactic in my opinion. Then leading to the clincher and the point of the whole webinar... the SMA option.
I like Fidelity's platform and I'm glad I switched to them for my brokerage account, but this webinar just didn't make the grade.

We have multiple accounts spread between Fidelity, Schwab, and TDA.

Fidelity has the best online platform for trading fixed income. TDA has the best access to new issue bonds and preferred stocks. Schwab has the worst platform and web interface but has better access to new issues than Fidelity. As for fixed income specialists, TDA has the best ones of the three. They know the fixed income market well. However their online platform focusses more on stock trading rather than fixed income trading. They even acknowledge that and request that you always call a fixed income specialist for the best pricing. This isn't always practical. It's not clear how TDA will end up after integrating with Schwab. I hope they don't turn it into Schwab 2.0.

 

[lawman]

We have multiple accounts spread between Fidelity, Schwab, and TDA.

Fidelity has the best online platform for trading fixed income. TDA has the best access to new issue bonds and preferred stocks. Schwab has the worst platform and web interface but has better access to new issues than Fidelity. As for fixed income specialists, TDA has the best ones of the three. They know the fixed income market well. However their online platform focusses more on stock trading rather than fixed income trading. They even acknowledge that and request that you always call a fixed income specialist for the best pricing. This isn't always practical. It's not clear how TDA will end up after integrating with Schwab. I hope they don't turn it into Schwab 2.0.

My account is with Schwab. I've made a couple of attempts to use the bond desk or fixed income trading with no success. The system seems archaic to me.

 

[lordjust]

My account is with Schwab. I've made a couple of attempts to use the bond desk or fixed income trading with no success. The system seems archaic to me.

i have had similar issues and have noted them on this forum. I will probably move everything to fidelity for bond purchases due to the limitations i have encountered.

 

[Freedom56]

I think buying Treasuries from the auction list, is just as simple as CD's, even buying new Corporate bonds listed at the brokerage is easy.

Buying the "used" "resale" CD's, Treasuries, and corporate bonds is the harder part, made so by the brokerage. I can buy stocks all day, but for example on Vanguard, it won't let me put in a bid price for bonds
Maybe I could phone, but what a hassle (which is their point to stop people from easy trading).

I agree. But the financial world has convinced the world that treasuries and corporate bonds are esoteric financial instruments that require financial experts to buy and sell. But you can keep it simple and limit your selection of corporate bonds to the Dow 30 components (JP Morgan, Goldman Sachs, McDonald's, American Express, Merck, Visa etc..) and buying bonds of these components at attractive yields is much lower risk than buying their stocks.

 

[TheCaptain67]

Am I the only one who thought this was a massive waste of time?
It's the last webinar I'll ever do with Fidelity. Webinars are often not very helpful but this one was 57 minutes of somewhat irrelevant overview and subtle advertising for their SMA program. I really lost a lot of respect for them from this.

agree 100%.

I learned far more about bonds and current market conditions here in this thread (thanks Freedom56) than on that crappy webinar.

 

[Freedom56]

agree 100%.

I learned far more about bonds and current market conditions here in this thread (thanks Freedom56) than on that crappy webinar.

Understand some of those people at the webinar are senior people who manage the teams that provide advisory services and manage their fixed income funds. You can see that they really aren't financial wizards but are just in the business of selling you their services. Would you trust your hard earned money under their management or take ownership and make your own informed decisions? Many in this forum have accumulated wealth over their lives and have joined a small minority of this population that have managed to retire early. To the so called financial professionals, you are nothing but a "mark" to sell products and services to enrich themselves. As you age, you are going to become a bigger and bigger mark. I see that happening with my parents and in-laws. Learn to make your own investment decisions. Focus on generating income and preserving capital.

 

[lawman]

The Treasury is now projecting a peak interest rate of 6.9568 in May of 2023. I know that is only a guess but for the sake of discussion if it plays out that way I assume the bond market like the stock market prices in what is expected in the future. Today I can get a 5 year government agency bond that pays 6% for 5 years. What do you think the interest rate might be on that same bond if it was purchased next May? In my thinking I'm thinking now might be a better time to buy than May of next year when the market likely will be pricing in rate decreases. Is my logic flawed?
https://econforecasting.com/forecast-t03m

 

[Freedom56]

The Treasury is now projecting a peak interest rate of 6.9568 in May of 2023. I know that is only a guess but for the sake of discussion if it plays out that way I assume the bond market like the stock market prices in what is expected in the future. Today I can get a 5 year government agency bond that pays 6% for 5 years. What do you think the interest rate might be on that same bond if it was purchased next May? In my thinking I'm thinking now might be a better time to buy than May of next year when the market likely will be pricing in rate decreases. Is my logic flawed?
https://econforecasting.com/forecast-t03m

If that happened, the stock market would drop another 40%.

 

[lawman]

If that happened, the stock market would drop another 40%.

Maybe instead of buying bonds we should be shorting the market..

 

[Freedom56]

ROYAL BK CDA SER I MTN 6.00000% 11/01/2027 CALL MAKE WHOLE

Another one to watch.

This note from Royal Bank of Canada was issued to institutional investors last week and is now trading on the secondary markets slightly above par. It's a very liquid issue. It is a 6% 5 year "Make Whole Call" notes rated A1/A. The Royal Bank of Canada is one of the safest banks in the world. I would expect this note to be subject to downward pressure and will eventually trade below par. If this note is called before the term, the make whole feature gives the bond holder an additional premium to par value which is computed by difference between the benchmark treasury rate and the rate of this note for the remaining coupon payments owed. So if rates fall, it becomes more expensive to call this note. If rates rise, the call risk is at the tail end of the duration where there would be no premium to par.

https://finra-markets.morningstar.com/BondCenter/BondDetail.jsp?ticker=C1056633&symbol=RY5493148

 

[Freedom56]

Maybe instead of buying bonds we should be shorting the market..

This country has over $31T of national debt. Powell is well aware of this and as rates rise, it becomes more and problematic to service this debt.