Here's a statement of the obvious: The opinions expressed here are those of the participants, not those of the Mutual Fund Observer. We cannot vouch for the accuracy or appropriateness of any of it, though we do encourage civility and good humor.
TD Ameritrade is participating in the following The Goldman Sachs Group, Inc. Callable Step up Note. Coupon: 2.50% to 03/29/2019; 3.50% to 03/29/2020; 4.00% to 03/29/2021 Payment Frequency: Semi-Annually Maturity: 03/29/2021 Call Status: Callable 09/29/2018 @100 Quarterly-Thereafter Price: 100
Unlike ordinary corporate notes, these are sliced into manageable $1K pieces and sold "without commission" (the underwriting costs are baked into the rates). Another difference is that these are typically junior (subordinated) notes, meaning that in the case of default, you stand in line behind holders of other notes. The GS note here is rated BBB+ by S&P.
I did a look on Fidelity's site for secondary issue GS notes and found that I could buy $2K or more (in $1K increments) of a note maturing 2/15/18, yielding 2.54% including fees. So the rate isn't anything special.
Here's that bond's listing on TDA. Note that the pricing there vs. Fidelity is waaay worse. The min offered at TDA is $5K (vs. $2K) and the best yield is under 2.1%. Same bond, different broker. At least with new issue retail notes, you're getting the same price ($1K, par) wherever it is sold. Still, different brokers will offer different bonds.
Recognize that because of the call option in the retail bond, buying it is somewhat of a heads GS wins, tails you lose. If interest rates don't go up much, GS will call the bond and you'll have a ½ - 1 year bond at 2.5%. if interest rates go up more than 1%, you'll be locked into 3.5% for another year.
IMHO retail bonds are designed as simple easy to use investments for people who don't want to deal with commissions, accrued interest, amortization, tax complexities, market discounts and premiums, OID, etc. that come with "real" bonds. Retail bonds are more like savings bonds issued by corporations. They tend to have respectable but not the best rates. They can be a good way to get your toes in the water.
Unlike ordinary corporate notes, these are sliced into manageable $1K pieces and sold "without commission" (the underwriting costs are baked into the rates). Another difference is that these are typically junior (subordinated) notes, meaning that in the case of default, you stand in line behind holders of other notes. The GS note here is rated BBB+ by S&P.
I did a look on Fidelity's site for secondary issue GS notes and found that I could buy $2K or more (in $1K increments) of a note maturing 2/15/18, yielding 2.54% including fees. So the rate isn't anything special.
Here's that bond's listing on TDA. Note that the pricing there vs. Fidelity is waaay worse. The min offered at TDA is $5K (vs. $2K) and the best yield is under 2.1%. Same bond, different broker. At least with new issue retail notes, you're getting the same price ($1K, par) wherever it is sold. Still, different brokers will offer different bonds.
Recognize that because of the call option in the retail bond, buying it is somewhat of a heads GS wins, tails you lose. If interest rates don't go up much, GS will call the bond and you'll have a ½ - 1 year bond at 2.5%. if interest rates go up more than 1%, you'll be locked into 3.5% for another year.
IMHO retail bonds are designed as simple easy to use investments for people who don't want to deal with commissions, accrued interest, amortization, tax complexities, market discounts and premiums, OID, etc. that come with "real" bonds. Retail bonds are more like savings bonds issued by corporations. They tend to have respectable but not the best rates. They can be a good way to get your toes in the water.
Nice post. Maybe I missed it but have you ever posted on your background/profession? CFA?
I've been fairly sparse with personal details in part because I feel that writing should stand on its own. An idea doesn't become credible because a Nobel Laureate writes it (e.g. Shockley). Likewise, good work in any field should be appreciated, regardless of the person's background.
A very little bit about myself - I was fortunate to have two college educated, professional middle class parents who encouraged learning and never stifled my curiosity. My schooling and work is in STEM. Whatever education in finance and investing I got was quite limited. Solid math background but no statistics; one year of accounting in high school (the equivalent of one semester at the college level), Intro to Economics (textbook was Samuelson), and a semester in microeconomics.
For your amusement: Technically I was the CFO of a startup for a few months - a five person company that had to attach a name to the slot, and it seemed that I was the only one who could both open a spreadsheet and balance a checkbook.
At least these are 'normal' vanilla-looking notes and not more of those ducky 'Principal Protection Notes' or 'Barrier Notes' the big guys were foisting on retail investors before the financial crisis. You know, those creative investment vehicles that ended up imploding and causing several lawsuits over.
I still have the product literature from my then-UBS guy, which I read for yukks every now and then.
Comments
Fidelity calls its program for selling these Corporate Notes℠. It has a good description of these bonds:
https://www.fidelity.com/fixed-income-bonds/individual-bonds/corporate-bonds/corporate-notes-program
Unlike ordinary corporate notes, these are sliced into manageable $1K pieces and sold "without commission" (the underwriting costs are baked into the rates). Another difference is that these are typically junior (subordinated) notes, meaning that in the case of default, you stand in line behind holders of other notes. The GS note here is rated BBB+ by S&P.
I did a look on Fidelity's site for secondary issue GS notes and found that I could buy $2K or more (in $1K increments) of a note maturing 2/15/18, yielding 2.54% including fees. So the rate isn't anything special.
Here's that bond's listing on TDA. Note that the pricing there vs. Fidelity is waaay worse. The min offered at TDA is $5K (vs. $2K) and the best yield is under 2.1%. Same bond, different broker. At least with new issue retail notes, you're getting the same price ($1K, par) wherever it is sold. Still, different brokers will offer different bonds.
Recognize that because of the call option in the retail bond, buying it is somewhat of a heads GS wins, tails you lose. If interest rates don't go up much, GS will call the bond and you'll have a ½ - 1 year bond at 2.5%. if interest rates go up more than 1%, you'll be locked into 3.5% for another year.
IMHO retail bonds are designed as simple easy to use investments for people who don't want to deal with commissions, accrued interest, amortization, tax complexities, market discounts and premiums, OID, etc. that come with "real" bonds. Retail bonds are more like savings bonds issued by corporations. They tend to have respectable but not the best rates. They can be a good way to get your toes in the water.
I've been fairly sparse with personal details in part because I feel that writing should stand on its own. An idea doesn't become credible because a Nobel Laureate writes it (e.g. Shockley). Likewise, good work in any field should be appreciated, regardless of the person's background.
A very little bit about myself - I was fortunate to have two college educated, professional middle class parents who encouraged learning and never stifled my curiosity. My schooling and work is in STEM. Whatever education in finance and investing I got was quite limited. Solid math background but no statistics; one year of accounting in high school (the equivalent of one semester at the college level), Intro to Economics (textbook was Samuelson), and a semester in microeconomics.
For your amusement: Technically I was the CFO of a startup for a few months - a five person company that had to attach a name to the slot, and it seemed that I was the only one who could both open a spreadsheet and balance a checkbook.
National Geographic: Nobel Laureates Who Were Not Always Noble
https://news.nationalgeographic.com/2015/10/151005-nobel-laureates-forget-racist-sexist-science/
Joni Mitchell: For Free
At least these are 'normal' vanilla-looking notes and not more of those ducky 'Principal Protection Notes' or 'Barrier Notes' the big guys were foisting on retail investors before the financial crisis. You know, those creative investment vehicles that ended up imploding and causing several lawsuits over.
I still have the product literature from my then-UBS guy, which I read for yukks every now and then.