pb4uski
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That's ok, but 88059ESL9 looks good to me. Aaa Moodys and 4.227% yield but it is zero coupon.
We are entering a "Golden Period" for fixed income investing
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That's ok, but 88059ESL9 looks good to me. Aaa Moodys and 4.227% yield but it is zero coupon.
jazz4cash
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I don't think that is correct in all cases. I'm looking at a bond that is listed as continuously callable with a Next Call Date that is 3 months prior to maturity in 10 years. The footnote says this:
"The Next Call Date is, where applicable, the earlier of either the continuously callable effective date calculated from the current business day, or the next scheduled call date."
lawman
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This is why I should not be buying anything other than C.D.'s , treasuries, and gov't agencies. Are you saying that paying over par can sometimes result in losing money?
To make up an extreme example: You pay over par (say $110) and the next day it's called and you get paid par ($100).
lawman
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COcheesehead
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Not really rocket science is it?
What if it says "make whole"?
The premium above par is always on you.
We are entering a "Golden Period" for fixed income investing
Seems safest to read prospectus or speak to bond desk. The 3 or 4 times I have spoken to bond desk they have indicated that the MWC could be done at anytime throughout the life of the bond. In all of these cases, there was a “call date” noted on their brokerage site that was about 6 months prior to maturity date of the bond. The bond desk confirmed that the MHC provision was available to the issuer at anytime for these specific bonds.
In your example, I am struggling to see the purpose of issuing a 10 year bond and providing 9 years and 9 months of call protection. Why would the issuer do this? Seems like they would just make it non callable.
Seems safest to read prospectus or speak to bond desk. The 3 or 4 times I have spoken to bond desk they have indicated that the MWC could be done at anytime throughout the life of the bond. In all of these cases, there was a “call date” noted on their brokerage site that was about 6 months prior to maturity date of the bond. The bond desk confirmed that the MHC provision was available to the issuer at anytime for these specific bonds.
In your example, I am struggling to see the purpose of issuing a 10 year bond and providing 9 years and 9 months of call protection. Why would the issuer do this? Seems like they would just make it non callable.
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Freedom56
Thinks s/he gets paid by the post
What if it says "make whole"?
Make whole is referenced to par value You are paid a premium to par value based the spread between the benchmark treasury rate and the bond being called for the remaining coupon payments discounted to present value. If you buy above par it's your problem if the premium paid for the call is lower than what you paid for the bond.
lawman
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pb4uski
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The simple way to think of it is if you took the proceeds of the make whole call and invested in another bond with the same maturity date then you should come out the same as if they had not called the bond.
My head hurts trying to understand this.
Since the make whole call payment is linked to the treasury rate for similar maturity at the time of the call, I assume that the issuer would not call unless the applicable treasury rates had fallen significantly - fallen even more than in cases where a bond is callable but without a make-whole provision. In that situation, I would think that the reinvestment risk is higher for the bond with the make-whole call and that there would not be very good investment options at the time of the call.
Are you saying that the make whole payment makes up for the difference in returns that come with the new (lower yield) investment that you make after the original bond is called? If so, what is the benefit for the bond issuer to make the call?
Fotodog
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I have tried several times to buy bonds that I see on the FINRA site, but not in Schwab’s online inventory. Based on previous posts in this thread, I thought this might be possible.
Today I called the desk and put in my requests to purchase 5 different bonds from Goldman Sachs, Citigroup, and B of A, all with yields over 6%. All of these showed trades made within the last couple of days with those yields. Just like before, I was told they would check their sources and get back to me later, which they did.
Only 1 of 5 had any response from a seller, and that offer was not even close to trades that had taken place within the last couple of days. I had a good discussion with the rep. He told me that it would be difficult to buy bonds like this on the secondary market until the new year with so many people on vacation. He suggested I try again on January 3rd.
I have still not been successful after 3 attempts in buying bonds that are not listed in Schwab’s online inventory. Has anyone been able to purchase Bonds on Schwab that weren’t listed on their site, by calling the desk? Thanks!
Today I called the desk and put in my requests to purchase 5 different bonds from Goldman Sachs, Citigroup, and B of A, all with yields over 6%. All of these showed trades made within the last couple of days with those yields. Just like before, I was told they would check their sources and get back to me later, which they did.
Only 1 of 5 had any response from a seller, and that offer was not even close to trades that had taken place within the last couple of days. I had a good discussion with the rep. He told me that it would be difficult to buy bonds like this on the secondary market until the new year with so many people on vacation. He suggested I try again on January 3rd.
I have still not been successful after 3 attempts in buying bonds that are not listed in Schwab’s online inventory. Has anyone been able to purchase Bonds on Schwab that weren’t listed on their site, by calling the desk? Thanks!
lawman
Thinks s/he gets paid by the post
I don't understand..If I buy a bond today for $110.00 and it gets called tomorrow I'm gonna lose $10.00
lawman
Thinks s/he gets paid by the post
They have those bonds on their new retail offerings page but they are less than 6%
COcheesehead
Give me a museum and I'll fill it. (Picasso) Give me a forum ...
Entering limit orders is like fishing. You can dangle the bait, but if the fish aren’t hungry, you’re not going to catch a fish.
You can change the bait, which is a higher limit order, but then the yield isn’t going to be what you want.
Bonds aren’t like stocks. They trade thinly. You can go buy Apple stock at any time. To buy a very specific bond is a crap shoot.
There are so many good deals in fixed income these days. To hunt for a very specific bond may not make the most sense for folks without access to online limit orders. If I had to call a bond desk every time I wanted to buy, I would find other options.
Fotodog
Recycles dryer sheets
Thanks for your reply, that makes sense. I was thinking that I might be able to find some better deals than what I see on Schwab’s site, but the chances look very slim. Still wondering if it makes sense to transfer some of my funds to Fidelity in order to have the ability to make online limit orders.
jazz4cash
Give me a museum and I'll fill it. (Picasso) Give me a forum ...
I am struggling with that also as I mentioned in post #2020. I am close to choosing one of these bonds that can’t be called for several years. I will try to to read prospectus and ask Fidelity for explanation if it is MWC. I just realized I have only read offering documents for munis that are available from EMMA. Where do I find the prospectus (indenture)?
jazz4cash
Give me a museum and I'll fill it. (Picasso) Give me a forum ...
Make Whole Call has nothing to do with the premium paid or discount received when you bought the bond. If the bond is called the lender receives par (usually) plus an extra payment in lieu of the coupon payments lost due to the call. The extra payment is how the lender is “made whole”.
https://finra-markets.morningstar.com/BondCenter/Default.jsp
Here is the link to the finra bond info site. Once you put your CUSIP in the search it will pull up details on the bond and a link to the prospectus.
Make whole pertains to the interest the bond owed and is blind to the price you paid for the bond whether above or below par.
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As to why there are bonds that are not callable until a few months before maturity, I figured it was so they wouldn't have such a huge spike in their workload. IOW, they could "get started" wrapping up that issue before the maturity date, leveling out workflow and maybe cash flow in the issuing entity. Just a guess, though.
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With these thinly traded bonds, I wonder if there isn't a bit of sweetheart deals being made. Bond trader has a client who wants the cash from his bond holdings and doesn't specify a limit price. The trader calls his buddy and says "put in a bid for issue XYZ for 6% and I'll take it." The order book is empty, and the whole thing is over in a few minutes. So when you see the trade, it's not really the market price.
Montecfo
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This one reappeared and i bought some this AM.
I read all the posts in this thread and 1/2 of them I do not understand. But I came to the conclusion my comfort zone is:
-Never buy callable. It's too complicated to keep track of the YTM, dates, and finding new issues to replace. I do understand you guys are in these transactions daily and go for every opportunity to make better returns or interest.
-My ladder is long and expands from 11 months to 5 years. But I know exactly how much interest I'll earn, and the YTM date and hope rates are better when it's time to buy another.
-When I get into the weeds of discount vs premium, callable vs noncallable, coupon and YTM yields, I want to know what's going into my settlement account and when I can buy the next rung on my ladder.
This discussion is fascinating for a newbie. I'm learning from the best. But I shy away from checking my accounts daily and keeping track of the minutia detail you guys talk about. It's all good. You don't lose $$ here. The stock index funds or stocks are an entirely different story.
-Never buy callable. It's too complicated to keep track of the YTM, dates, and finding new issues to replace. I do understand you guys are in these transactions daily and go for every opportunity to make better returns or interest.
-My ladder is long and expands from 11 months to 5 years. But I know exactly how much interest I'll earn, and the YTM date and hope rates are better when it's time to buy another.
-When I get into the weeds of discount vs premium, callable vs noncallable, coupon and YTM yields, I want to know what's going into my settlement account and when I can buy the next rung on my ladder.
This discussion is fascinating for a newbie. I'm learning from the best. But I shy away from checking my accounts daily and keeping track of the minutia detail you guys talk about. It's all good. You don't lose $$ here. The stock index funds or stocks are an entirely different story.
Montecfo
Give me a museum and I'll fill it. (Picasso) Give me a forum ...
I bought some shorter term 20 month TVA bonds to complete my bond "stepladder" which is tied to planned spending over the next 24 months.
With a few 5 year TIPS (I know you were getting some too) I have made good progress on my regular ladder but will keep fishing for more.
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