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

[daylatedollarshort]

Like I wrote, closer than he thought originally. He forecast 6% Fed rate. It’s a significant reversal for him.

He had eased up on his more dire predictions but not on lifting interest rates in the short term because the labor market is still tight.

‘Be careful of false dawns’: Former Treasury Secretary Larry Summers warns a recession is still ‘more likely than not’: “Certainly, looking at some of these trends, one has to think that the Fed’s job is much, much closer to being done,” he said. “And I think the more optimistic possibilities [for the economy], while they still would not be my bet, look more plausible today than they did several months ago.”

But despite admitting that recent inflation data was “good news,” Summers argued that the Fed should continue to raise interest rates in February because wage pressures aren’t completely*gone. Real average hourly earnings, which account for inflation, rose 0.4% last month, a slight increase from November’s 0.3% rise and October’s 0.1% drop.*https://fortune.com/2023/01/13/larr...-likely-be-careful-false-dawns-inflation-fed/

 

[matjung]

In Europe, a few corporate bonds for C-rated companies offer coupons with 5%+ for 3 to 5 years maturity.
Not sure, if I shall consider that as Golden Period for fixed income investment.
It is certainly better than 2%.
At the bank job market, demand for fixed income specialists goes up a bit.
In recent months, inflation returned to stock markets (stocks are up 30 to 40% over the last 4 to 5 months) whereas some corporate bonds dropped from 130 to 105%.
The last time, FED did not have much talent in rising interest rates; this time it also felt like they got the timing wrong.
The positive aspect about rising interest rates, was that the present value for pension obligations went down, meaning, that in the balance sheet, equity went up. At some companies the equity ratio improved significantly. I am not aware of one CFO who complained about rising interest rates. The above statement applies to Germany, Ireland and Switzerland. (Some zombie companies will of course default).

 

[Freedom56]

In Europe, a few corporate bonds for C-rated companies offer coupons with 5%+ for 3 to 5 years maturity.
Not sure, if I shall consider that as Golden Period for fixed income investment.
It is certainly better than 2%.
At the bank job market, demand for fixed income specialists goes up a bit.
In recent months, inflation returned to stock markets (stocks are up 30 to 40% over the last 4 to 5 months) whereas some corporate bonds dropped from 130 to 105%.
The last time, FED did not have much talent in rising interest rates; this time it also felt like they got the timing wrong.
The positive aspect about rising interest rates, was that the present value for pension obligations went down, meaning, that in the balance sheet, equity went up. At some companies the equity ratio improved significantly. I am not aware of one CFO who complained about rising interest rates. The above statement applies to Germany, Ireland and Switzerland. (Some zombie companies will of course default).

Well last year my Father-in-law was facing the prospect of paying money to the bank for balances in excess of 100K CHF. So when you move from negative yields to positive yields, it's like taking baby steps into the "golden period". He derives his income from rental properties and like many people owns no stocks or bonds.

 

[matjung]

Well last year my Father-in-law was facing the prospect of paying money to the bank for balances in excess of 100K CHF. So when you move from negative yields to positive yields, it's like taking baby steps into the "golden period". He derives his income from rental properties and like many people owns no stocks or bonds.

I remember those love letters from the bank.
Take your money, go away, or pay us a holding fee.

 

[Cashola]

considerng
ROYAL BK CDA SUSTAINABL SER I MTN
6.00000% 01/18/2033
it is callable each div date starting 1/18/2025 so its a 2 year 6% note likely to be called, but despite the no-make whole, it should not be a issue considered as a 6% 2 yr note?

This one closes today and is on Fido along with others 5% and up. Why would one not simply go with the 6% versus the others shorter duration? anyone else considering this?

[/QUOTE]isn't this a bad idea because of the fact that they don't have a make whole call? That implies there's no guarantee that you're going to get par value at the call?

 

[COcheesehead]

isn't this a bad idea because of the fact that they don't have a make whole call? That implies there's no guarantee that you're going to get par value at the call?[/QUOTE]

A call is at par. You would lose money if you paid a premium, but if you bought at par, you’ll get par.

 

[finnski1]

isn't this a bad idea because of the fact that they don't have a make whole call? That implies there's no guarantee that you're going to get par value at the call?

A call is at par. You would lose money if you paid a premium, but if you bought at par, you’ll get par.[/QUOTE]
Exactly. This is why I will (hopefully ) never buy a callable bond above par.
I might go slightly over if the YTM is good on non callable.

 

[Freedom56]

Even non-callable corporate bonds can get called when there is a change of control. It has happened to me with corporate bonds and preferred stocks. Many bonds and preferred stocks have a "change of control" clause stipulated.

 

[finnski1]

Even non-callable corporate bonds can get called when there is a change of control. It has happened to me with corporate bonds and preferred stocks. Many bonds and preferred stocks have a "change of control" clause stipulated.

Fair enough.

 

[Freedom56]

Here is the Royal Bank of Canada "make whole" call 10 year not recently issued with a coupon of 5%.

ROYAL BK CDA SUSTAINABL MTN 5.00000% 02/01/2033 CALL MAKE WHOLE ISIN #US78016FZX58

https://finra-markets.morningstar.com/BondCenter/BondDetail.jsp?ticker=C1066549&symbol=RY5524639

 

[Cashola]

Here is the Royal Bank of Canada "make whole" call 10 year not recently issued with a coupon of 5%.

ROYAL BK CDA SUSTAINABL MTN 5.00000% 02/01/2033 CALL MAKE WHOLE ISIN #US78016FZX58

https://finra-markets.morningstar.com/BondCenter/BondDetail.jsp?ticker=C1066549&symbol=RY5524639

Ok Finn, I thought you had previously posted that it was NOT a "make whole call"

 

[Cashola]

Ok Finn, I thought you had previously posted that it was NOT a "make whole call"

Finn, FYI, some bonds are issued with a "call feature" that is Not at Par value.

 

[NomDeER]

Even non-callable corporate bonds can get called when there is a change of control. It has happened to me with corporate bonds and preferred stocks. Many bonds and preferred stocks have a "change of control" clause stipulated.

I've seen this and don't really understand what it takes for a "change of control" condition to be triggered or how often it is triggered. I also have seen a condition for "tax law change" and don't understand that condition or how often it is triggered, either. Does anyone have any insights on these conditions?

 

[pb4uski]

Change in control would typically be where the issuer is sold to another company, so control of the issuer changes from its shareholders to its new parent company, or from its old parent company to a new parent company. So control, the party that has more than 50% of votes, changes.

 

[COcheesehead]

Finn, FYI, some bonds are issued with a "call feature" that is Not at Par value.

An example?

 

[Freedom56]

An example?

I have owned bonds/notes that are called higher than par if called prior to maturity. I have never heard of a bond called lower than par. A company can make tender offers lower than par but a tender offer is not a call.

 

[COcheesehead]

I have owned bonds/notes that are called higher than par if called prior to maturity. I have never heard of a bond called lower than par. A company can make tender offers lower than par but a tender offer is not a call.

That’s been my experience as well. Never heard of a below par call.

 

[ER604me]

Saw this corporate note this am, 172967AS0. The coupon is 6.875% and the YTW is 6.117% but it is for 75 yrs! It is with Citigroup but was curious what others thought. price is 112.246

 

[COcheesehead]

Saw this corporate note this am, 172967AS0. The coupon is 6.875% and the YTW is 6.117% but it is for 75 yrs! It is with Citigroup but was curious what others thought. price is 112.246

Continuously callable. So if called you risk losing that premium.

 

[ER604me]

I believe it is a make whole call only in 2/2098. Wait, you are correct. The call expires in 2/2098. My bad

 

[COcheesehead]

I believe it is a make whole call only in 2/2098. Wait, you are correct. The call expires in 2/2098. My bad

But the premium is still at risk. Even if make whole.

 

[jazz4cash]

The Make Whole Call provision is a mystery to me. I'm still trying to figure out how to find an indenture/prospectus for these bonds that defines provisions such as MWC. In the case of the 100 yr bond with 75 years to run and a 6% coupon, there are 150 coupon payments left. It seems that could offset losing the purchase premium, but I have no way to calculate without knowing how NPV is defined in the indenture.

 

[jazz4cash]

The Make Whole Call provision is a mystery to me. I'm still trying to figure out how to find an indenture/prospectus for these bonds that defines provisions such as MWC. In the case of the 100 yr bond with 75 years to run and a 6% coupon, there are 150 coupon payments left. It seems that could offset losing the purchase premium, but I have no way to calculate without knowing how NPV is defined in the indenture.

Edit: If it was called today, the unpaid coupons = $4500/bond. You're gonna lose the premium of $12/bond. I would think any reasonable calculation of NPV would be much higher than $12. Conclusion: They are probably very unlikely to call anytime soon.

 

[Echard]

what about bonds like Blackstone Private Credit Fund.

CUSIP 09261HAD9
YTW 7.157%
Call Protection until 11/26
Matures 12/26
Baa3/BBB-

 

[swk7907]

Up until now I've only been buying individual bonds in my Fidelity account. I also have accounts at Schwab and Vanguard. People mentioned that Schwab often has a much larger inventory than Fidelity for both New Issues and Secondary.

I just logged into Schwab and for New Issue Retail Notes I only see one BofA 5.4% offering. Is there somewhere else I should look?

Also, are there any other accounts that people like for purchasing individual bonds? I thought I heard some people like TD Ameritrade. Do any brokers allow GTC bids/asks for bonds on the secondary market through the website?

Thanks!