aja8888
Moderator Emeritus
My most recent bond purchase in my IRA:
https://bondfacts.finra.org/46625HRS1?
Credit rating: A2/A
maturity - 06/14/2026
https://bondfacts.finra.org/46625HRS1?
Credit rating: A2/A
maturity - 06/14/2026
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 ?
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!
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.
Exactly! Like you have said, we are entering a golden period of fixed income investment choices.
Thank you.
I appreciate the fixed income advice you and a couple others are sharing.
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 ?
How do you folks feel about agencies…for example, 4.99% 15 year 99.50 Federal Farm Credit
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.
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.
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.
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.
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 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.