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

[Montecfo]

The Fed's dot plot and the CME Fedwatch tool both project rate cuts in 2024 so as soon as January.

My guess is the Fed does pause June13 and any change in posture remains to be seen.

The jobs report had some concerning signals so it will be interesting to see the impact on the Fed.

Meanwhile, I am laddered out to eight years. When the Fed signals a clear pause then stocks will rally, bonds will rally and I will continue to collect 5% returns.

All good.

 

[Free bird]

The Fed's dot plot and the CME Fedwatch tool both project rate cuts in 2024 so as soon as January.

My guess is the Fed does pause June13 and any change in posture remains to be seen.

The jobs report had some concerning signals so it will be interesting to see the impact on the Fed.

Meanwhile, I am laddered out to eight years. When the Fed signals a clear pause then stocks will rally, bonds will rally and I will continue to collect 5% returns.

All good.

You are laddered out 8 years & Freedom is laddered out 5 years. He’s a bit shorter but though opinions differ on the future of rates your strategies are very similar. I’m just having trouble laddering into an inverted yield curve. But maybe I should just take the lower rate on the long end & not sweat it if long rates go up. That’s what the ladder is for. Besides there’s not a huge difference between a 4.5% 60 month CD & a 5.5% 60 month CD over a 60 month term. Now if longer rates were to shoot up into the mid sixes or sevens then someone who just bought a 60 month CD might have buyers remorse. It seems like everyone agrees the Fed is packing up its rate hike show & moving on. So really the difference of opinion is so long rates help normalize the yield curve by going up or do short rates do most of the heavy lifting & come down? Do I have any of this right or have I completely misunderstood?

 

[Phroig]

The FedWatch tool seems to have just shifted the quarter-point hike from June to July. They're still looking at a cut in November.
The 10-year is bouncing around in the 3.5-4% range. If it looks like there's not going to be a recession, or perhaps a mild one, we might get over 4%. Recent moves over 4% have been fleeting, perhaps because bonds then attract a lot of money. At the lower end of the range, I really hope we don't get below 3.5%; that'd be unfortunate.

 

[Montecfo]

We may both ladder, but I am not rate speculating. I expect the movement in the yield curve to be lower on the short end, and flattish to down on the long end. This is what history suggests. It may not be repeat. Probably will.

Others are hoping for higher long rates. Hope is not a strategy.

Laddering into inverted yield curve, I get it. But if it were me I would at least do a barbell. I would at least put in some rungs of the ladder.

Your bond portfolio is ballast. Your equity portfolio should rise on the coming rate cuts.

 

[Montecfo]

Freebird,

Hey just out of curiosity, why did you wait till now? Were you expecting higher rates back in Oct/Nov, during Feb, or during the mini-banking crisis?

Not trying to poke you, just curious.

Monte

 

[Free bird]

Freebird,

Hey just out of curiosity, why did you wait till now? Were you expecting higher rates back in Oct/Nov, during Feb, or during the mini-banking crisis?

Not trying to poke you, just curious.

Monte

I know you’re not. You’re a good egg. I’m mostly clueless. I’m learning what I can from people such as yourself. I fly by the seat of my pants. My discipline level to adhere to a rigid plan isn’t great. I always think I’m making a mistake because I don’t have enough information or I interpreted the information wrong. I don’t have any stocks. I’m pretty sure if I buy stocks now I’ll cause the next leg down of this bear market. If it even is a bear market anymore. I don’t look out to far in the future anymore. Five years seems like a stretch now days.

 

[BlueberryPie]

I didn't read the 228 pages of posts, so I don't know if it was mentioned, but this web site can help you build a TIPS ladder:

https://www.tipsladder.com/

Because each TIP is hard to maturity, this guaranteed fixed income for the duration. Because they are TIPS you are guaranteed to match inflation.
For example investing $2.8M today will guarantee a fixed-income of $120k per year for the next 30 years (the tool is ignoring taxes).

It's like a 30-year annuity. You're guaranteed the standard of living, and also guaranteed that that money is gone after 30 years (well you don't have to send it all). If you actually have $4M right now, you can invest the remaining $1.2M for extras, longer life expectancy and and legacy, but without ever losing a nights sleep because you have a guaranteed $120K a year

Of course you may need less, especially with SS, and for the risk-averse, this is not a bad scheme.

 

[Mulligan]

We may both ladder, but I am not rate speculating. I expect the movement in the yield curve to be lower on the short end, and flattish to down on the long end. This is what history suggests. It may not be repeat. Probably will.

Others are hoping for higher long rates. Hope is not a strategy.

Laddering into inverted yield curve, I get it. But if it were me I would at least do a barbell. I would at least put in some rungs of the ladder.

Your bond portfolio is ballast. Your equity portfolio should rise on the coming rate cuts.

I concur consistently accurately predicting future yields is a folly. Of course there are ways to mitigate your blindside (ie dont invest in 10 year bonds below 1%, etc.) from bruising cap losses. But historically I believe you are correct. If inflation continues to moderate and economy slows, the yield curve right sizes by the short end dropping. The Fed has continued to state we are still in a lower rate interest rate environment. But my above situation is just one possibility. Economy could boom and inflation stay high and that would effect a different rate environment.
FWIW, I have basically barbelled myself. However the long end barbell was bought last fall when we had a glorious but temporary long end bond rout.

 

[dobig]

Picked up $50k of GSE cusip 3133EPMD4 that will likely be called 9/23 with 6.33% coupon at $99.78 on Etrade. For some reason was $100 on Fidelity which is typically cheaper. Using these as a replacement for short term treasuries with a bit better yield.

 

[imbatman]

Wow nice deal, they aren't even issued yet!! Goes to show you should shop around - $99.78 Etrade, $100 on Fido, $100.75 on ML

 

[Freedom56]

You are laddered out 8 years & Freedom is laddered out 5 years. He’s a bit shorter but though opinions differ on the future of rates your strategies are very similar. I’m just having trouble laddering into an inverted yield curve. But maybe I should just take the lower rate on the long end & not sweat it if long rates go up. That’s what the ladder is for. Besides there’s not a huge difference between a 4.5% 60 month CD & a 5.5% 60 month CD over a 60 month term. Now if longer rates were to shoot up into the mid sixes or sevens then someone who just bought a 60 month CD might have buyers remorse. It seems like everyone agrees the Fed is packing up its rate hike show & moving on. So really the difference of opinion is so long rates help normalize the yield curve by going up or do short rates do most of the heavy lifting & come down? Do I have any of this right or have I completely misunderstood?

I do have the RBC 6% 2033 notes as well as the 5.85% 2033 notes and also the RBC 5.2% 2033 notes with 5 year call protection. However my average maturity is 3.94 years.

 

[imbatman]

Wow nice deal, they aren't even issued yet!! Goes to show you should shop around - $99.78 Etrade, $100 on Fido, $100.75 on ML

Just discovered that while ML doesn't show a depth of book (bids/offers) like Fido, it WILL change prices for bonds as you change your quantity.....so if you hunt and peck, you will see different prices. For example, by buying 10 or more of this (3133EPMD4) today, I was able to get $99.85 on ML which is better than the 100 standard new issue price on Fido (they say "expected price" but I have never had an agency come in below 100 on Fido).

 

[COcheesehead]

Just discovered that while ML doesn't show a depth of book (bids/offers) like Fido, it WILL change prices for bonds as you change your quantity.....so if you hunt and peck, you will see different prices. For example, by buying 10 or more of this (3133EPMD4) today, I was able to get $99.85 on ML which is better than the 100 standard new issue price on Fido (they say "expected price" but I have never had an agency come in below 100 on Fido).

Is there a commission of a $1 a bond on these like Fidelity or is it $0 like a new issue?

 

[imbatman]

They show a commission but is inclusive in the $99.85 offer price (ML handles it differently than Fido).

Ex.
Quantity: 15000
Offer Price: 99.850
Principal: $14,977.50
Accrued Interest: $0.00
Mark-up: $15.00 Mark-up/Mark-down
Mark-up % of PMP: 0.10% Mark-up/Mark-down percentage of PMP
Estimated Order Amount: $14,977.50

So if I showed like Fido, it would be $99.75 plus $0.10 mark up to total $99.85

 

[COcheesehead]

They show a commission but is inclusive in the $99.85 offer price (ML handles it differently than Fido).

Ex.
Quantity: 15000
Offer Price: 99.850
Principal: $14,977.50
Accrued Interest: $0.00
Mark-up: $15.00 Mark-up/Mark-down
Mark-up % of PMP: 0.10% Mark-up/Mark-down percentage of PMP
Estimated Order Amount: $14,977.50

So if I showed like Fido, it would be $99.75 plus $0.10 mark up to total $99.85

I bought some of these yesterday at Fidelity and it filled at $99.70

 

[imbatman]

You did it online under the Agency New Issues? I did online with Fido yesterday also and my confirm shows $100.00 clearing tomorrow. Gee, you have me stumped but great pickup price for you.

 

[Free bird]

I bought some of these yesterday at Fidelity and it filled at $99.70

Hi Cheese. What are “these”? What kind of bond?

 

[imbatman]

Agency Bond - 3133EPMD4 Federal Farm 15 year 6.33% callable starting 09/07/2023

 

[COcheesehead]

You did it online under the Agency New Issues? I did online with Fido yesterday also and my confirm shows $100.00 clearing tomorrow. Gee, you have me stumped but great pickup price for you.

I just buy ‘em and they fill at what they fill at. All my purchases are online.
I have an order in for 50 more today. We’ll see what I get.

 

[Free bird]

Agency Bond - 3133EPMD4 Federal Farm 15 year 6.33% callable starting 09/07/2023

Is that an agency bond?

 

[COcheesehead]

Hi Cheese. What are “these”? What kind of bond?

They are high coupon agency bonds with a propensity to be called, so I view them as shorter term assets. If they are not called, I collect 6.33% which risk adjusted is almost better than equities.

 

[imbatman]

Fair enough, yeah I bought more at ML because of the slightly better rate. I wonder if there is something at Fido too that isn't transparent on bulk pricing online. I only bought 10K and didn't get a discount at Fido but did get a discount on 10K at ML.

 

[Free bird]

I’m looking at the Vanguard website looking for a field to enter that code. I’m logged in but don’t see where to enter it to search.

 

[imbatman]

I'm not familiar with Vanguard, but on Fido I can only enter that on the fixed income page under a CUSIP search.......FWIW

 

[Free bird]

Fair enough, yeah I bought more at ML because of the slightly better rate. I wonder if there is something at Fido too that isn't transparent on bulk pricing online. I only bought 10K and didn't get a discount at Fido but did get a discount on 10K at ML.

Found 3133EPLS2. Callable 9/23. 6.27%. 10 year. On Vanguard. Sounds like the same type of bond