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

[Freedom56]

Fidelity now has some note offerings from Canadian Banks.

78014RKA7 - 1 year (6 month call protection) 5.1% From Royal Bank of Canada rated AA1/A1+

78014RKB5 - 18 Month 5.25% note from Royal Bank of Canada with one year call protection

06374VCK0 - 3 year 5.25% note from Bank of Montreal with 18 months call protection

06374VCH7 - 4 year 5.5% note from Bank of Montreal with 18 months call protection

78014RKE9 - 10 year 6% note from Royal Bank of Canada with 2 years of call protection

 

[jazz4cash]

Freedom56, What are your thoughts on MYGAs in general?
I have application pending for a 6 year MYGA at 5.45%. The main benefit to me right now is MYGA has call protection for full term vs. limited protection for notes and brokered CDs

 

[Freedom56]

Freedom56, What are your thoughts on MYGAs in general?
I have application pending for a 6 year MYGA at 5.45%. The main benefit to me right now is MYGA has call protection for full term vs. limited protection for notes and brokered CDs

I have never bought them and never will. The problem is that small insurance companies along with small banks are the largest source of fraud in this country. With CDs, treasuries, and high grade corporate bonds at attractive yields, why invest in something where the insurance company has an objective is to never return your capital or accrued interest? The surrender fees are another issue. Fidelity tried to sell me some a two years ago as I was sitting on a lot of cash and had no desire to buy low coupon treasuries, corporate bonds, or CDs. When they told me the terms, I told them scam someone else.

 

[Freedom56]

Fed minutes made it clear that they intend to keep the "golden period" running for longer. So far they have been consistent and attempting to make up for their prior blunders.

" Federal Reserve officials are committed to fighting inflation and expect higher interest rates to remain in place until more progress is made, according to minutes released Wednesday from the central bank’s December meeting.

At a meeting where policymakers raised their key interest rate another half a percentage point, they expressed the importance of keeping restrictive policy in place while inflation holds unacceptably high."


https://www.cnbc.com/2023/01/04/fed-minutes-december-2022-.html

 

[pb4uski]

I have never bought them and never will. The problem is that small insurance companies along with small banks are the largest source of fraud in this country. With CDs, treasuries, and high grade corporate bonds at attractive yields, why invest in something where the insurance company has an objective is to never return your capital or accrued interest? The surrender fees are another issue. Fidelity tried to sell me some a two years ago as I was sitting on a lot of cash and had no desire to buy low coupon treasuries, corporate bonds, or CDs. When they told me the terms, I told them scam someone else.

I'm not sure where this is coming from but its a pretty ignorant statement... it would be the same as claiming that bank issuing CDs or a company issuing bonds has an objective to never return your capital or accrued interest.

First, the insurance company has a contractual obligation to return your capital and interest and if they don't you can sue them just like you can sue an issuer of a CD or bond that doesn't perform according to the contractual terms. Second, unlike those other issuers, the regulators can step in an pressure the company to perform, to the extent of taking the keys if the company failed to perform. Third, if any insurer fails to do that the rating agencies would cream their ratings and their new business prospects would evaporate into thin air. Finally, if the reason that the insurer isn't paying is do to inability to pay then the regulator would take them over and the state guaranty funds would step in up to their limits.

The reality is that I'm not aware of any MYGA that has defaulted, ever... but there may have been e way back but certainly none since regulatory reforms were instituted back in the 1990s after Executive Life and Mutual Benefit Life. And in those cases policyholders got back their principal and interest, but perhap not the crazy rates of interest that were illustrated.

I agree on surrender fees.

 

[Spock]

... two years ago as I was sitting on a lot of cash and had no desire to buy low coupon treasuries, corporate bonds, or CDs. ...

on this specific tangent: where would a conservative "lean" FIRE that needs the income put matured/called bonds during times of minuscule rates of safe bonds?
I understand you believe rates aren't going to return to those levels for awhile. My tea leaves are whispering otherwise.

 

[yooper66]

06374VCH7 Bank of Montreal 4Yr 5.5% has 6mo not 18mo call protection.

 

[ShokWaveRider]

06374VCH7 Bank of Montreal 4Yr 5.5% has 6mo not 18mo call protection.

CD or note?

 

[yooper66]

Note

 

[Freedom56]

I'm not sure where this is coming from but its a pretty ignorant statement... it would be the same as claiming that bank issuing CDs or a company issuing bonds has an objective to never return your capital or accrued interest.

First, the insurance company has a contractual obligation to return your capital and interest and if they don't you can sue them just like you can sue an issuer of a CD or bond that doesn't perform according to the contractual terms. Second, unlike those other issuers, the regulators can step in an pressure the company to perform, to the extent of taking the keys if the company failed to perform. Third, if any insurer fails to do that the rating agencies would cream their ratings and their new business prospects would evaporate into thin air. Finally, if the reason that the insurer isn't paying is do to inability to pay then the regulator would take them over and the state guaranty funds would step in up to their limits.

The reality is that I'm not aware of any MYGA that has defaulted, ever... but there may have been e way back but certainly none since regulatory reforms were instituted back in the 1990s after Executive Life and Mutual Benefit Life. And in those cases policyholders got back their principal and interest, but perhap not the crazy rates of interest that were illustrated.

I agree on surrender fees.

First of all when you buy a brokered CD or Corporate bond, your capital is returned to you at maturity automatically. You are free to invest it however you want after that. This does not happen with a MYGA, which will automatically roll over into another MYGA if you don't act. A MYGA does not pay monthly, quarterly, or semi-annual coupon payments like CDs or bonds. Not all MYGAs allow withdrawal of funds annually. These are not products for income investors that want a steady cash flow while preserving their capital.

Insurers do become insolvent and the backstops are limited depending on the state. The insurance industry is one of the biggest targets of fraud and also perpetrates it's own fraud in many cases in the way they manage their risk pools. Many large insurers have adequate capital, but the smaller ones are questionable. Some insurance companies operate as straight up Ponzi schemes until they get caught.

To me buying investment products from an insurance company is right up there with investing in brick and mortar retail stores like Sears or Macy's.

 

[Montecfo]

I do not find the callable issues very interesting. I did buy some Toyota bonds at around 4.9 percent, 5 years this am.

From what I see offered rates are trending a bit lower on the 5 year type noncallable issues.

Last few times I notice the best deals seem to have a 250k minimum, which is a bit rich for a single issues. I guess those are the issues the bind funds get to buy.

 

[jazz4cash]

I don’t agree with the ponzi criticisms and although certainly not risk free, MYGA’s are among the most transparent products available. It seems they are also benefitting from the Golden Period. YMMV

 

[MercyMe]

... although certainly not risk free, MYGA’s are among the most transparent products available.

+1

 

[Montecfo]

Most investments have plusses and minuses. Certainly MYGA's do. Several skeptical but curious folks here have vetted them and did not find them to be Ponzi schemes.

 

[pb4uski]

First of all when you buy a brokered CD or Corporate bond, your capital is returned to you at maturity automatically. You are free to invest it however you want after that. This does not happen with a MYGA, which will automatically roll over into another MYGA if you don't act. A MYGA does not pay monthly, quarterly, or semi-annual coupon payments like CDs or bonds. Not all MYGAs allow withdrawal of funds annually. These are not products for income investors that want a steady cash flow while preserving their capital.

Insurers do become insolvent and the backstops are limited depending on the state. The insurance industry is one of the biggest targets of fraud and also perpetrates it's own fraud in many cases in the way they manage their risk pools. Many large insurers have adequate capital, but the smaller ones are questionable. Some insurance companies operate as straight up Ponzi schemes until they get caught.

To me buying investment products from an insurance company is right up there with investing in brick and mortar retail stores like Sears or Macy's.

Wow, that seems 180 degrees from "why invest in something where the insurance company has an objective is to never return your capital or accrued interest". Of course brokered CDs and bonds are paid at maturity, there is no option to reinvest, though some brokerage houses do offer an option to automatically repurchase a new CD or UST. While reinvesting at maturity might be the default option for MYGAs just like it for many bank CDs, it is easy peasy to opt to have it paid to you at maturity... a few clicks and you are done. All financial institutions that make their money on spreads are incentivized to retain assets under management and their products are often structured that way but owners have the ability to opt out... it's just smart business on their part. There are a lot of investors who prefer this and don't want to have to make an investment choice/decision every 3, 5 or 10 years and prefer that the money rollover.

Virtually ALL MYGAs allow 10% annual free withdrawals within a stated window of time around the annual policy anniversary os it is easy for a MYGA holder to withdraw for spending so they can be used as an income product with a slight amount of work.

With the whole ponzi scheme thing, you just don't know what you are talking about so I'll ignore that drivel unless you care to name names.

While I agree with you that I prefer high quality bonds and CDs to MYGAs, that doesn't make MYGAs bad... they are fine for many people... essentially and insurance company version of CDs... typically a little more yield at certain times offst by more constraints.

 

[MercyMe]

Fidelity now has some note offerings from Canadian Banks.

78014RKE9 - 10 year 6% note from Royal Bank of Canada with 2 years of call protection

Thanks for this post Freedom. Is there anything people typically overlook when buying a bond that is outside of the US?

 

[Freedom56]

Thanks for this post Freedom. Is there anything people typically overlook when buying a bond that is outside of the US?

These notes are issued in the US. There is no tax withholding on interest income from Canadian banks that have issued debt in the US. You will receive a 1099-INT from your broker for any Canadian bank interest. I already own notes from CIBC, Bank of Montreal, TD Bank, Royal Bank of Canada, and Bank of Nova Scotia. I also own notes from JP Morgan, Bank of America, Citigroup, Wells Fargo, and Goldman Sachs. As long as they don't get called I and others who own them will be happy.

 

[Freedom56]

Some unusual buying of Seagate 4.875% 2024 notes. These notes have a call date of 1/1/24 (just under a year from now) and a maturity of 3/1/24. However Seagate normally calls with 30 day notice and redeems 1 month early. So this note is effectively has less than 13 months duration. However some entity is buying these at or over par with a YTM 4.19% which is less than treasury notes with the same duration. These notes are high yield and rated BB+. I bought these notes back in March 2020 at $92 and have been holding them since. They traded down to $97 in 2022. If they continue to trade above par, It would be wise to to just sell out and take the gain now along with the accrued interest and roll it into high grade notes with a higher coupon or even a one year treasury.



https://finra-markets.morningstar.com/BondCenter/BondDetail.jsp?ticker=C757303&symbol=STX4627973

https://finra-markets.morningstar.c...57303&startdate=01/05/2022&enddate=01/05/2023

 

[bobbee25]

Quite a few CDs coming due, is it a good time to ladder out for 5 years in the 4.3% range ?

 

[GravitySucks]

Quite a few CDs coming due, is it a good time to ladder out for 5 years in the 4.3% range ?

Hope so because that’s what I’m doing.

 

[COcheesehead]

Quite a few CDs coming due, is it a good time to ladder out for 5 years in the 4.3% range ?

FZDXX - a money market - pays 4.26% and compounds out to 4.35% with complete liquidity. The yield is likely to rise as rates continue upward. So you could stay liquid, earn as much or more and then see what the market gives you that you may then want to lock in.

 

[HF63]

How many more rates hikes are left in Fed's gun 1 or 2 more??

 

[COcheesehead]

How many more rates hikes are left in Fed's gun 1 or 2 more??

I’ve seen 2 and then maybe a hold, but they keep talking aggressive and so far their actions back it up, so could be more. Terminal rate projections are close to 5.4%

 

[11522914]

Quite a few CDs coming due, is it a good time to ladder out for 5 years in the 4.3% range ?

I'm beginning to believe we may have seen the top in 5 year CD rates. I guess I'll be locking in some also.

 

[11522914]

Quite a few CDs coming due, is it a good time to ladder out for 5 years in the 4.3% range ?

Currently I'm only seeing 3.8% non-callable 5 year CD on Schwab at this time.