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Post by FD1000 on Sept 5, 2022 12:52:08 GMT
(www.schwab.com/learn/story/4-reasons-to-consider-ig-corporate-bonds-now)
"Investment-grade corporate bond yields are near multi-year highs, making them attractive for income-seeking investors. Although an economic slowdown may negatively impact all corporations, investment-grade corporate bonds should be better positioned than high-yield bonds in case market volatility does pick up. Investors can earn relatively attractive yields in the investment-grade corporate bond market today. Despite the poor performance since the start of the year and the likelihood of more rate hikes by the Federal Reserve, we believe investors should consider corporate bond investments now to take advantage of this year’s rise in yields."
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FD: I say not yet. Just look at a simple chart of VCIT. Do you see an uptrend? No
When should you buy? At a minimum, wait for my ST indicator, 3 line break with green bars(chart).Attachments:
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Post by fishingrod on Sept 5, 2022 15:44:06 GMT
Just for info. Some individual 5 year corporate bonds are yielding 7% right now. Good but not a screaming buy me.
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Post by Chahta on Sept 5, 2022 19:35:39 GMT
(www.schwab.com/learn/story/4-reasons-to-consider-ig-corporate-bonds-now)
"Investment-grade corporate bond yields are near multi-year highs, making them attractive for income-seeking investors. Although an economic slowdown may negatively impact all corporations, investment-grade corporate bonds should be better positioned than high-yield bonds in case market volatility does pick up. Investors can earn relatively attractive yields in the investment-grade corporate bond market today. Despite the poor performance since the start of the year and the likelihood of more rate hikes by the Federal Reserve, we believe investors should consider corporate bond investments now to take advantage of this year’s rise in yields."
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FD: I say not yet. Just look at a simple chart of VCIT. Do you see an uptrend? No
When should you buy? At a minimum, wait for my ST indicator, 3 line break with green bars(chart). I think Schwab is talking individual bonds not funds. Will be a while for funds to catch up. fishingrod , just saw an 8.75% from Boeing, with 9 years to go. I would think Boeing is not going to default. Is there any reason to consider a CEF vs. this bond? |
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Post by mozart522 on Sept 5, 2022 20:47:26 GMT
(www.schwab.com/learn/story/4-reasons-to-consider-ig-corporate-bonds-now)
"Investment-grade corporate bond yields are near multi-year highs, making them attractive for income-seeking investors. Although an economic slowdown may negatively impact all corporations, investment-grade corporate bonds should be better positioned than high-yield bonds in case market volatility does pick up. Investors can earn relatively attractive yields in the investment-grade corporate bond market today. Despite the poor performance since the start of the year and the likelihood of more rate hikes by the Federal Reserve, we believe investors should consider corporate bond investments now to take advantage of this year’s rise in yields."
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FD: I say not yet. Just look at a simple chart of VCIT. Do you see an uptrend? No
When should you buy? At a minimum, wait for my ST indicator, 3 line break with green bars(chart). I think Schwab is talking individual bonds not funds. Will be a while for funds to catch up. fishingrod , just saw an 8.75% from Boeing, with 9 years to go. I would think Boeing is not going to default. Is there any reason to consider a CEF vs. this bond? When is it callable. |
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Post by mozart522 on Sept 5, 2022 20:59:16 GMT
(www.schwab.com/learn/story/4-reasons-to-consider-ig-corporate-bonds-now)
"Investment-grade corporate bond yields are near multi-year highs, making them attractive for income-seeking investors. Although an economic slowdown may negatively impact all corporations, investment-grade corporate bonds should be better positioned than high-yield bonds in case market volatility does pick up. Investors can earn relatively attractive yields in the investment-grade corporate bond market today. Despite the poor performance since the start of the year and the likelihood of more rate hikes by the Federal Reserve, we believe investors should consider corporate bond investments now to take advantage of this year’s rise in yields."
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FD: I say not yet. Just look at a simple chart of VCIT. Do you see an uptrend? No
When should you buy? At a minimum, wait for my ST indicator, 3 line break with green bars(chart). Maybe early, but VCIT is distributing over 3% as of this month. I'll probably wait until this months rate hike. |
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Post by FD1000 on Sept 5, 2022 23:13:21 GMT
(www.schwab.com/learn/story/4-reasons-to-consider-ig-corporate-bonds-now)
"Investment-grade corporate bond yields are near multi-year highs, making them attractive for income-seeking investors. Although an economic slowdown may negatively impact all corporations, investment-grade corporate bonds should be better positioned than high-yield bonds in case market volatility does pick up. Investors can earn relatively attractive yields in the investment-grade corporate bond market today. Despite the poor performance since the start of the year and the likelihood of more rate hikes by the Federal Reserve, we believe investors should consider corporate bond investments now to take advantage of this year’s rise in yields."
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FD: I say not yet. Just look at a simple chart of VCIT. Do you see an uptrend? No
When should you buy? At a minimum, wait for my ST indicator, 3 line break with green bars(chart). Maybe early, but VCIT is distributing over 3% as of this month. I'll probably wait until this months rate hike. As you know, I look for max bond OEF performance, regardless of the distributions, but most times, these funds have high dist anyway. Below are several funds I follow with high dist. Attachments:
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Post by fishingrod on Sept 5, 2022 23:37:04 GMT
Chahta , I would look at the price, or yield to worst. 8.75% is the coupon I believe. The trading price will determine it's yield. Also Fitch and SP has it's rating at BBB- just on the verge of junk. Looks like it is not callable. CEF's are not my forte.
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sgra
Lieutenant
Posts: 66
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Post by sgra on Sept 6, 2022 1:07:05 GMT
Boeing 8.75% coupon adjusts to 7.176% upon actual offer price. Whether this is preferable to available CEFs is up to the investor. Not a simple decision.
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Post by Chahta on Sept 6, 2022 1:41:54 GMT
Chahta , I would look at the price, or yield to worst. 8.75% is the coupon I believe. The trading price will determine it's yield. Also Fitch has it's rating at BBB- just on the verge of junk. Looks like it is not callable. CEF's are not my forte.
Whoops… Still 7% is not bad. |
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Post by Chahta on Sept 6, 2022 1:47:00 GMT
I think Schwab is talking individual bonds not funds. Will be a while for funds to catch up. fishingrod , just saw an 8.75% from Boeing, with 9 years to go. I would think Boeing is not going to default. Is there any reason to consider a CEF vs. this bond? When is it callable. It’s not. |
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Post by fishingrod on Sept 6, 2022 7:42:10 GMT
Chahta ,
I am looking at 5.851% as its' last yield according to last trade.
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Post by mnfish on Sept 6, 2022 12:02:11 GMT
Questions from a novice about bond funds.
When would an uptrend even begin if the Fed is planning rate hikes into next year?
Wouldn't the only way for an intermediate bond fund to rise in price be for its holdings to become more valuable?
If it has an average duration of 5 years, how long would it take for the fund to replace the bonds it has, with a much lower coupon, with bonds having a higher coupon?
VCIT Avg Life Maturity Distribution (from ETF.com)
0 - 1 years 0.07%
1 - 2 years 0.00%
2 - 3 years 0.12%
3 - 5 years 2.53%
5 - 7 years 34.31%
7 - 10 years 57.20%
10 - 15 years 5.48%
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Post by FD1000 on Sept 6, 2022 12:05:37 GMT
Mnfish, I keep it very simple, when uptrend is up, I'm in. I sell when it's not, regardless of anything. KISS
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Post by fishingrod on Sept 6, 2022 12:24:20 GMT
Questions from a novice about bond funds. When would an uptrend even begin if the Fed is planning rate hikes into next year? Wouldn't the only way for an intermediate bond fund to rise in price be for its holdings to become more valuable? If it has an average duration of 5 years, how long would it take for the fund to replace the bonds it has, with a much lower coupon, with bonds having a higher coupon? VCIT Avg Life Maturity Distribution (from ETF.com) 0 - 1 years 0.07% 1 - 2 years 0.00% 2 - 3 years 0.12% 3 - 5 years 2.53% 5 - 7 years 34.31% 7 - 10 years 57.20% 10 - 15 years 5.48% It depends on the markets view on longer term inflation for longer funds.
VCIT has a turnover rate of 52.70%. So if that holds it would be roughly two years for a completely new portfolio.
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Post by mozart522 on Sept 6, 2022 13:28:43 GMT
Maybe early, but VCIT is distributing over 3% as of this month. I'll probably wait until this months rate hike. As you know, I look for max bond OEF performance, regardless of the distributions, but most times, these funds have high dist anyway. Below are several funds I follow with high dist. But how would high yield bonds perform in a recession? How about bank loans? Multi? All more credit sensitive that IG bonds, no? |
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Deleted
Deleted Member
Posts: 0
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Post by Deleted on Sept 6, 2022 13:30:32 GMT
Questions from a novice about bond funds. When would an uptrend even begin if the Fed is planning rate hikes into next year? Wouldn't the only way for an intermediate bond fund to rise in price be for its holdings to become more valuable? If it has an average duration of 5 years, how long would it take for the fund to replace the bonds it has, with a much lower coupon, with bonds having a higher coupon? VCIT Avg Life Maturity Distribution (from ETF.com) 0 - 1 years 0.07% 1 - 2 years 0.00% 2 - 3 years 0.12% 3 - 5 years 2.53% 5 - 7 years 34.31% 7 - 10 years 57.20% 10 - 15 years 5.48% It depends on the markets view on longer term inflation for longer funds.
VCIT has a turnover rate of 52.70%. So if that holds it would be roughly two years for a completely new portfolio.
My view is that bond funds are strictly for income. With 'bondish" CEFs if bought at a negative Z-score discount, there is the possibility of some price appreciation, but they are still designed for income. I don't recommend buying bond mutual funds or equity during this rising interest rate environment. Forget the bond rule of thumb, fund managers can buy and sell at their discretion (that's their job). |
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Post by mozart522 on Sept 6, 2022 13:49:27 GMT
@haven, fishingrod, mnfish, Chahta, The average coupon is currently 3.4% with a yield to maturity of 4.3%. So not so low a coupon. Bond funds do not gain in price because the holdings become more valuable. At stable yields, the price bounces up and down a little with minor daily yield changes. However, VCIT NAV is down almost 13% as its SEC yield has risen to 4.6. If the FED lowers rates back to .25%, one would expect that 13% would be recovered as the yield fell. If they only go down to 2% the NAV will rise less. Of course, credit issues can also affect price, but those are hard to predict. The uptrend in NAV will likely begin in earnest once the market perceives the FED is done raising rates and before they actually start lowering them again. |
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Post by Chahta on Sept 6, 2022 13:54:12 GMT
Chahta ,
I am looking at 5.851% as its' last yield according to last trade.
I am curious about the calculation from 8.75 to 5.851. If the last price was 120.91 that would seem to be a 20.91 discount from 8.75. Accrued interest maybe or bid/ask spread? The current YTM is 5.744. I have never bought a single bond other than a T-bill so there is alot to learn here. |
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Post by FD1000 on Sept 6, 2022 14:07:39 GMT
I expect bond funds to recoup their losses in 2023 if we return to normal. The funds that lost most, many times will perform best and much more than distributions.
Many investors and experts think mainly about IG bonds, I don't, even when I was younger and had high % in stocks.
I'm in MM now waiting for the next uptrend. All I need is 1-2 funds and it's likely going to be HY munis or Multi sector bond funds.
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Post by fishingrod on Sept 6, 2022 15:06:27 GMT
Chahta ,
I am looking at 5.851% as its' last yield according to last trade.
I am curious about the calculation from 8.75 to 5.851. If the last price was 120.91 that would seem to be a 20.91 discount from 8.75. Accrued interest maybe or bid/ask spread? The current YTM is 5.744. I have never bought a single bond other than a T-bill so there is alot to learn here.
It is all about price. When the bond entered the market in 1991 it had an original issue discount of $99.33 with a yield of 8.81%.
As recently as 3/2020 it had a price of $155 which gave it a yield of 2.99%
As of it's last trade today it had a price of $120.92 which reflects a yield of 5.745%
The higher the price the lower the yield, and vice versa
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Post by Chahta on Sept 6, 2022 15:23:46 GMT
Welcome to the new normal. If inflation is caused by a bloated money supply, it won't happen. Spending is going hyper.
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Post by Chahta on Sept 6, 2022 16:33:29 GMT
I am curious about the calculation from 8.75 to 5.851. If the last price was 120.91 that would seem to be a 20.91 discount from 8.75. Accrued interest maybe or bid/ask spread? The current YTM is 5.744. I have never bought a single bond other than a T-bill so there is alot to learn here.
It is all about price. When the bond entered the market in 1991 it had an original issue discount of $99.33 with a yield of 8.81%.
As recently as 3/2020 it had a price of $155 which gave it a yield of 2.99%
As of it's last trade today it had a price of $120.92 which reflects a yield of 5.745%
The higher the price the lower the yield, and vice versa
I assumed wrongly it was originally sold at Par of 100. |
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hondo
Commander
Posts: 149
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Post by hondo on Sept 7, 2022 14:58:11 GMT
I am curious about the calculation from 8.75 to 5.851. If the last price was 120.91 that would seem to be a 20.91 discount from 8.75. Accrued interest maybe or bid/ask spread? The current YTM is 5.744. I have never bought a single bond other than a T-bill so there is alot to learn here.
It is all about price. When the bond entered the market in 1991 it had an original issue discount of $99.33 with a yield of 8.81%.
As recently as 3/2020 it had a price of $155 which gave it a yield of 2.99%
As of it's last trade today it had a price of $120.92 which reflects a yield of 5.745%
The higher the price the lower the yield, and vice versa
fishingrod,
I have what is likely a dumb question since I know next to nothing about buying a bond. Using your example above, suppose I bought the above bond with a discount of $99.33 and a yield of 8.81% and keep it until maturity. Wouldn't that mean that I would receive a 8.81% yield until maturity, regardless of the changing NAV? In other words, doesn't the yield depend solely on the coupon rate and the price I paid for the bond, if held until maturity, regardless of how rates change during the holding time? Thank you in advance.
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Post by Chahta on Sept 7, 2022 15:38:27 GMT
It is all about price. When the bond entered the market in 1991 it had an original issue discount of $99.33 with a yield of 8.81%.
As recently as 3/2020 it had a price of $155 which gave it a yield of 2.99%
As of it's last trade today it had a price of $120.92 which reflects a yield of 5.745%
The higher the price the lower the yield, and vice versa
fishingrod,
I have what is likely a dumb question since I know next to nothing about buying a bond. Using your example above, suppose I bought the above bond with a discount of $99.33 and a yield of 8.81% and keep it until maturity. Wouldn't that mean that I would receive a 8.81% yield until maturity, regardless of the changing NAV? In other words, doesn't the yield depend solely on the coupon rate and the price I paid for the bond, if held until maturity, regardless of how rates change during the holding time? Thank you in advance.
Additionally, would he get back $99.93 or $100? Can you know without seeing the bond? |
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Post by habsui on Sept 7, 2022 16:15:37 GMT
You get back the par value, $100.
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Post by fishingrod on Sept 7, 2022 17:21:25 GMT
It is all about price. When the bond entered the market in 1991 it had an original issue discount of $99.33 with a yield of 8.81%.
As recently as 3/2020 it had a price of $155 which gave it a yield of 2.99%
As of it's last trade today it had a price of $120.92 which reflects a yield of 5.745%
The higher the price the lower the yield, and vice versa
fishingrod,
I have what is likely a dumb question since I know next to nothing about buying a bond. Using your example above, suppose I bought the above bond with a discount of $99.33 and a yield of 8.81% and keep it until maturity. Wouldn't that mean that I would receive a 8.81% yield until maturity, regardless of the changing NAV? In other words, doesn't the yield depend solely on the coupon rate and the price I paid for the bond, if held until maturity, regardless of how rates change during the holding time? Thank you in advance.
One has to be careful and look for the yield to worst call, if the bond is callable. One could pay a premium for a bond and shortly after, it gets called, causing a capital loss with hardly any income from it. Not good.
With the example above, buying at the discount of $99.33 one would get the 8.75% coupon but get back $100 par value at maturity. So one is paying less than the face value $1000 but getting back par/face value at maturity, which produces a capital gain, which one has to pay taxes on in a taxable account. Conversely one could pay a premium for a bond and at maturity or call, it would produce a capital loss. So the yield is a combination of the coupon and capital gains or losses depending on the price paid.
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hondo
Commander
Posts: 149
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Post by hondo on Sept 7, 2022 18:38:35 GMT
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Post by mozart522 on Sept 7, 2022 19:39:21 GMT
fishingrod,
I have what is likely a dumb question since I know next to nothing about buying a bond. Using your example above, suppose I bought the above bond with a discount of $99.33 and a yield of 8.81% and keep it until maturity. Wouldn't that mean that I would receive a 8.81% yield until maturity, regardless of the changing NAV? In other words, doesn't the yield depend solely on the coupon rate and the price I paid for the bond, if held until maturity, regardless of how rates change during the holding time? Thank you in advance.
One has to be careful and look for the yield to worst call, if the bond is callable. One could pay a premium for a bond and shortly after, it gets called, causing a capital loss with hardly any income from it. Not good.
With the example above, buying at the discount of $99.33 one would get the 8.75% coupon but get back $100 par value at maturity. So one is paying less than the face value $1000 but getting back par/face value at maturity, which produces a capital gain, which one has to pay taxes on in a taxable account. Conversely one could pay a premium for a bond and at maturity or call, it would produce a capital loss. So the yield is a combination of the coupon and capital gains or losses depending on the price paid.
My assumption is that this bond had a stated coupon based on par (ie less than 8.75) but was discounted because at the time the prevailing rate was higher than the stated coupon, so the price was dropped to reflect the market rate. In actuality, the holder has and will get the same $ amount paid to him/her every 6 months based on the stated coupon X 100 (par) regardless of the price, and that the difference between par and the discount increases his cash flow as if the bond was issued at 8.75. Does that sound right? |
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Post by fishingrod on Sept 7, 2022 21:16:03 GMT
mozart522 , This is the bond in question.
The coupon rate is the annual income to expect while holding the bond, regardless of what one paid for it. YTM or YTWC (worst call) reflects the price paid for the bond and the capital gain or loss if held to maturity or call. Some bonds are put to market with OID's to attract more buyers.
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Post by Chahta on Sept 7, 2022 22:04:42 GMT
fishingrod,This bond was paying 8.81% at $99.33 issue price. It is not callable (no YTWC) so todays yield is 8.81% x (99.33/123.20) = 7.10%. Why is YTM only 5.46%?
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