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The FED will need to pull back in rate increases, before they fully break the back of the economy, beyond timely repair. Their 2% inflation rate goal is but a dream. Yes....to the yields. Fido MM rates are +3% for FZDXX.
@catch22@Sven@Old_Joe What are your thoughts on reaching out to a longer maturity rate In the near term ? I'm asking as the last time rates were around 3% for 2 years I bought a CD for two years & within a short time rates were headed down. I have 3 short term cd's coming up before end of year & will reinvest for a longer dated maturity . One cd in 2023 , so looking at 2 or five year ? Thanks for your time, Derf
Right now 12 month CD is near the “sweet spot” on the yield curve and it flattens out beyond that. 2 year CD paying 4.8% is too long for me. I prefer buying several 1-yr CDs every 1-2 months apart so to build a staggered ladder. That would ensure to catch higher yields when they come along but allow me to exit easier with the shorter maturity. There are Nov and Dec’s FOMC meeting coming. Rates are likely go higher.
Hopefully inflation starts to slow or even to decline next year, and the rate may come down again.
If you feel that the high point for interest rates is early next year, then it would make sense to lockup some longer term CDs over the next few quarters. If Fido is offering over 5% now, then is 6% far off?
5 year CD with 6% yield reminds me of the 80’s. Think we will be in recession by then. Question is what the inflation will be like at that time frame?
The HOPE is that inflation would level off, and we get back down closer to the 3% range in the near-term. If you like the odds of that happening, then receiving 6% per year in CDs turns out just swell.
If they cut rates in 2024, and my Money Market account goes back to earning nothing, I think I'd be kicking myself for not grabbing some longer-term CDs. And really, Bonds as well. The BUYING time is very soon, IMHO.
26 percent in bonds of all sorts here. That includes bonds in my balanced funds: PRWCX and BRUFX. The monthly divs are tasty these days from TUHYX, though share price is deflated. No matter: just re-invest it all. And stick with it. Long-term, equities will perform better than bonds. But for now, I'll settle for the dividends, rather than nothing at all. A 6% CD would certainly catch my interest, but I don't play in the secondary market.
A 6% CD would certainly catch my interest, but I don't play in the secondary market.
These would be NEW ISSUE CDs at par value. Yes, Fidelity then marks these CDs to market once in your portfolio, but so what. You still get your 6%. If/when interest rates drop off, then your CD would likely garner a premium above par.
I would not buy CDs in the secondary market either.
A bond plan: Ah, yes. When rates begin to subside. So, I/we have to think we know and can witness as a meaningful shift and one that has legs, that will travel for more than 3 months. A tough task, yes?
The "immaculate" bond plan is: Maintain our cash in FZDXX MM at 3% and then attempt to catch a wave with investment grade bonds; buying at enough of a depressed price to make the money on the price ride upward. A purchase would likely be a dollar cost average, barring some type of special financial event. At this point, the bond purchase would be AGG, bond etf.
I feel the CD plans discussed have full merit and are a good plan, too. If I traveled that path, I would keep 6 month and/or 1 year laddered combo. I am not convinced the FED can keep pushing rates for more than 1 more year without causing too much economic damage, high inflation or not; which for the most part they can not control, due to conditions beyond their control (being political, war and climate). If rates continue to climb, we'll have a continued higher yield with FDZXX MM.
As to the below. I watch several different bond types for movements related to yields. These 2 below have traders involved, for the most part, versus the average retail investor. They have distinct price actions that I've followed for several years. I'll be watching these 2 for clues, too. And, as important; is that I am able to dedicate time to research and view Bloomberg. Yes, one can learn from tv programs.
The first two TBT and TMF are M* links, if you want to look. They will link to "quote", but you may select any of the other tabs for other data. The third is the relationship, of the two, to interest rate changes.
Much of the stuff I read indicates that current "hope" is for Fed to slow the rate hikes and then "stop" next year. I assume this is why with YOY CPI running 6 to 8% the breakeven tips/5 year treasury rate is only 2.4%. This scenario says buy LT bonds.
If the rate hikes push us into depression, LT bonds are best place to be too.
I tend to think that the "hope" is just whistling past the graveyard, and much of the inflationary pressures (War, Russia control of large commodity markets, political unrest interrupting supply chains, large % workers stuck with long Covid, keeping unemployment low and wages high ) are unresponsive to Fed hikes, without killing the economy. Killing the housing market may not help as much as it did in the past, as many people bought up in the last five years and don't have to move. WFH will allow job switches with relocation, and low unemployment will allow workers bargaining power over relocations.
The 180 degree alternative to this scenario is "Stagflation", ie continued higher inflation with low economic growth. This would presumably be bad for longer term bonds, and almost everything else except MM.
Neither scenario is good for equities, especially high PE overvalued stuff. Solid high free cash flow stocks may do better, but the PE will be ratcheted down if inflation continues high.
It is impossible to tell how long this would last, but the SP500 was underwater for 5 to 7 years in the 70s.
At 70, I am unwilling to make any large bets one way or the other, so have been trying to diversify, keeping a lower than normal % equity, and moving some of my large % MM and short term bonds farther out the rate curve.
As we don't have to buy a house, a car or much else except food and gas in the CPI, our personal inflation rate is probably lower than national averages, and a 4% return on a five year bond is acceptable.
IF you look at valuations, TINA seems dead and we now have BAAA ( Bonds are the better alternative)
"...At 70, I am unwilling to make any large bets one way or the other, so have been trying to diversify, keeping a lower than normal % equity, and moving some of my large % MM and short term bonds farther out the rate curve.
As we don't have to buy a house, a car or much else except food and gas in the CPI, our personal inflation rate is probably lower than national averages, and a 4% return on a five year bond is acceptable.
IF you look at valuations, TINA seems dead and we now have BAAA ( Bonds are the better alternative.)" ************************* 68 here. Diversify, yes. But I am at last in a position to start growing the portion of my stuff that is in single-stock selections, rather than funds. I'm not betting the farm, not by a long-shot. It's fun, and it might very well be profitable. After getting burned last year, I am sticking with the DEVELOPED world, and I'm out of the global South now. Since last year's fiasco, I'm either luckier or smarter. Dunno which, yet.
It cannot be denied that yields on bonds these days are much more attractive than they were, only last year. I'm 26% in bonds, letting dividends ride. My bonds are solely in funds, not individual issues.
Lastly, my picture looks very different than many who are around my age, because I can afford to be investing for the sake of heirs. My time-horizon is therefore pretty much limitless.
I have 80 year old friends who are 90% equities and are very worried. They are having to seriously reduce expenses of new purchases. Not cutting into food or gas yet, and their house is paid for but he wanted a new boat at $50,000 and he thinks he should hold off.
Even most of the mainstream advisors, before this year, advised "60/40", although there was gradually an increasing tide that recommended cutting equity exposure going into retirement and then slowly adding it back, to avoid having this kinda Bear market arrive in your early retirement
It appears to me that when you open a CD at a bank, say 5 year CD, you can choose to receive interest payments periodically, or example monthly or bi annualy depending on the terms of the CD. So you could "pull out" the interest payments and use them for living expenses periodically.
It doesn't appear to me that you can do that with a brokered CD. Can you only draw your interest payments at the end of the CD term? Or is that incorrect?
TRP: "The Firm and the broker-dealer arranging for the CD to be offered will receive a placementfee from the Issuer in connection with your purchase of a CD. Except for the markup or markdown discussed above in connection with secondarymarket transactions and a handlingfee, if any, disclosed on your trade confirmation, you will not be charged any commissions in connection with your purchase of a CD."
great. no commissions. but fees... YES. Word games.
Come on, @Crash- nobody does anything for nothing in the financial world. Nothing new here... it's a given. Of course friction fees/expenses/charges are built in somehow. Would you perform a service for a financial institution on an ongoing basis for free? I very much doubt it.
Look at Amazon for a minute- "Free Delivery" for Prime members, right?
Let's see now- Amazon bought a huge fleet of Mercedes delivery vans, and pays a huge number of drivers to make those deliveries. But Amazon really likes their customers, so they absorb all of that cost so that they can give you FREE delivery. Right?
Sure thing. We all know that those costs are built into Amazon's pricing. It's the way the world works. So why the continual whining about that, as if it's some sort of surprise?
Thanks for the update. CDs are now yielding a tad higher than treasuries with the same duration. 4.7% for 2 year CD is very good. I expect after Dec’s rate hike, it will go over 5% for 2 year CDs. You can buy more then.
BY the way, some said that inflation may be sticky but I am not sure what it means for 2023.
Come on, @Crash- nobody does anything for nothing in the financial world. Nothing new here... it's a given. Of course friction fees/expenses/charges are built in somehow. Would you perform a service for a financial institution on an ongoing basis for free? I very much doubt it.
Look at Amazon for a minute- "Free Delivery" for Prime members, right?
Let's see now- Amazon bought a huge fleet of Mercedes delivery vans, and pays a huge number of drivers to make those deliveries. But Amazon really likes their customers, so they absorb all of that cost so that they can give you FREE delivery. Right?
Sure thing. We all know that those costs are built into Amazon's pricing. It's the way the world works. So why the continual whining about that, as if it's some sort of surprise?
...as if it's some sort of surprise: then don't tell me it's "free."
The retail world is built on , things going on sale, & free ! Buy one & get the second at half price ! How about the going out of business sale , only to pop back in business later.
Comments
Yes....to the yields. Fido MM rates are +3% for FZDXX.
Yes, I'm thinking that the Fed will have to settle for a range of 3 to 4 percent. (FWIW)
One cd in 2023 , so looking at 2 or five year ?
Thanks for your time, Derf
corporates are paying 5.2%
Hopefully inflation starts to slow or even to decline next year, and the rate may come down again.
I'd take a 5 year CD at 6%.
Think we will be in recession by then. Question is what the inflation will be like at that time frame?
If they cut rates in 2024, and my Money Market account goes back to earning nothing, I think I'd be kicking myself for not grabbing some longer-term CDs. And really, Bonds as well. The BUYING time is very soon, IMHO.
I would not buy CDs in the secondary market either.
For sure new issues only. CDs are not as liquid to trade on secondary market. Thus, best to avoid them.
A bond plan: Ah, yes. When rates begin to subside. So, I/we have to think we know and can witness as a meaningful shift and one that has legs, that will travel for more than 3 months. A tough task, yes?
The "immaculate" bond plan is: Maintain our cash in FZDXX MM at 3% and then attempt to catch a wave with investment grade bonds; buying at enough of a depressed price to make the money on the price ride upward. A purchase would likely be a dollar cost average, barring some type of special financial event. At this point, the bond purchase would be AGG, bond etf.
I feel the CD plans discussed have full merit and are a good plan, too. If I traveled that path, I would keep 6 month and/or 1 year laddered combo. I am not convinced the FED can keep pushing rates for more than 1 more year without causing too much economic damage, high inflation or not; which for the most part they can not control, due to conditions beyond their control (being political, war and climate). If rates continue to climb, we'll have a continued higher yield with FDZXX MM.
As to the below. I watch several different bond types for movements related to yields. These 2 below have traders involved, for the most part, versus the average retail investor. They have distinct price actions that I've followed for several years. I'll be watching these 2 for clues, too.
And, as important; is that I am able to dedicate time to research and view Bloomberg. Yes, one can learn from tv programs.
The first two TBT and TMF are M* links, if you want to look. They will link to "quote", but you may select any of the other tabs for other data. The third is the relationship, of the two, to interest rate changes.
TBT Ultra Short 20 + YearTreasury
TMF Bull 3X 20+ Year Treasury
TBT vs TMF chart Starting Jan. 2020 to date.
Sleep time here,
Catch
If the rate hikes push us into depression, LT bonds are best place to be too.
I tend to think that the "hope" is just whistling past the graveyard, and much of the inflationary pressures (War, Russia control of large commodity markets, political unrest interrupting supply chains, large % workers stuck with long Covid, keeping unemployment low and wages high ) are unresponsive to Fed hikes, without killing the economy. Killing the housing market may not help as much as it did in the past, as many people bought up in the last five years and don't have to move. WFH will allow job switches with relocation, and low unemployment will allow workers bargaining power over relocations.
The 180 degree alternative to this scenario is "Stagflation", ie continued higher inflation with low economic growth. This would presumably be bad for longer term bonds, and almost everything else except MM.
Neither scenario is good for equities, especially high PE overvalued stuff. Solid high free cash flow stocks may do better, but the PE will be ratcheted down if inflation continues high.
It is impossible to tell how long this would last, but the SP500 was underwater for 5 to 7 years in the 70s.
At 70, I am unwilling to make any large bets one way or the other, so have been trying to diversify, keeping a lower than normal % equity, and moving some of my large % MM and short term bonds farther out the rate curve.
As we don't have to buy a house, a car or much else except food and gas in the CPI, our personal inflation rate is probably lower than national averages, and a 4% return on a five year bond is acceptable.
IF you look at valuations, TINA seems dead and we now have BAAA ( Bonds are the better alternative)
https://approd6.advisorperspectives.com/articles/2022/10/13/bonds-are-the-better-alternative
Commodities and alternative funds are worth a good look too.
As we don't have to buy a house, a car or much else except food and gas in the CPI, our personal inflation rate is probably lower than national averages, and a 4% return on a five year bond is acceptable.
IF you look at valuations, TINA seems dead and we now have BAAA ( Bonds are the better alternative.)"
*************************
68 here. Diversify, yes. But I am at last in a position to start growing the portion of my stuff that is in single-stock selections, rather than funds. I'm not betting the farm, not by a long-shot. It's fun, and it might very well be profitable. After getting burned last year, I am sticking with the DEVELOPED world, and I'm out of the global South now. Since last year's fiasco, I'm either luckier or smarter. Dunno which, yet.
It cannot be denied that yields on bonds these days are much more attractive than they were, only last year. I'm 26% in bonds, letting dividends ride. My bonds are solely in funds, not individual issues.
Lastly, my picture looks very different than many who are around my age, because I can afford to be investing for the sake of heirs. My time-horizon is therefore pretty much limitless.
Even most of the mainstream advisors, before this year, advised "60/40", although there was gradually an increasing tide that recommended cutting equity exposure going into retirement and then slowly adding it back, to avoid having this kinda Bear market arrive in your early retirement
It appears to me that when you open a CD at a bank, say 5 year CD, you can choose to receive interest payments periodically, or example monthly or bi annualy depending on the terms of the CD. So you could "pull out" the interest payments and use them for living expenses periodically.
It doesn't appear to me that you can do that with a brokered CD. Can you only draw your interest payments at the end of the CD term? Or is that incorrect?
Thank you
Baseball Fan
Also you need to compare yields too to make sure you are comparing apples to apples.
I saw several articles mentioned exactly what @sma3 said above. Brokered CDs are FDIC protected up to $250K per account.
"The Firm and the broker-dealer arranging for the CD to be offered will receive a placement fee from the Issuer in
connection with your purchase of a CD. Except for the markup or markdown discussed above in connection with
secondary market transactions and a handling fee, if any, disclosed on your trade confirmation, you will not be charged
any commissions in connection with your purchase of a CD."
great. no commissions. but fees... YES. Word games.
Look at Amazon for a minute- "Free Delivery" for Prime members, right?
Let's see now- Amazon bought a huge fleet of Mercedes delivery vans, and pays a huge number of drivers to make those deliveries. But Amazon really likes their customers, so they absorb all of that cost so that they can give you FREE delivery. Right?
Sure thing. We all know that those costs are built into Amazon's pricing. It's the way the world works. So why the continual whining about that, as if it's some sort of surprise?
I had a couple of CDs go bust in the 1980s. Eventually got my money back but it takes a while
extending maturities out to 5 years would lock in rates, but if you hope to sell above par, probably better to buy bonds, I would think.
If interest rates drop implies inflation is under control. The question is will it require a recession and negative growth to get there?
BY the way, some said that inflation may be sticky but I am not sure what it means for 2023.
https://fred.stlouisfed.org/graph/?g=Vhjj