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Here’s where investors made a ‘risk-free’ 6.6% return in the past four U.S. recessions
These vehicles are no where near 6.6% yet, but who knows in 2023. You could throw in CD's with these options too. 1 year CD at Schwab is inching it's way to 5% (4.95).
The 6.6% data was from the past; need to go back to the original time periods.
With the inverted yield curve as of Nov 2022, the short end of T bills don’t appreciate much. So you are looking at the yields. 6-12 months is the sweet spot yielding 4.7% yesterday. CDs are a tad higher at 4.8% non-callable at Fidelity. Next year they may yield higher, but highly unlikely to yield 6.6%.
I have to think twice before getting back to bond funds next years.
Well done! No luck at Fidelity. Will pick up more T bills after FOMC meeting on Dec 14-15th. Yields will be higher than the current ones with another rate hike (50 bps most likely).
Saw few CDs yielding over 5% over the weekend at Vanguard, but they were for OH and AL residence only. MFO has the most updated CD rates.
Just bought 18 mth CD @ 4.85 at Schwab. That's about the best that I could find there.
That's odd @Old_Joe, At this minute I see 18mo at Schwab at 5.08%, 1yr @ 4.95%, both from JP Morgan Chase. They were there this morning too as 'new issues'.
Hi Mike- At this moment I don't see the 5.08, or anything greater than 4.95 callable.
In non-callable, the best is 4.85. Don't forget to check the actual purchase price- if it's anything over 100% the actual return will be lower than shown.
For example, there's a Toyota Finl Savings 4.9% CD 12/02/2024, but the actual price asked is 101.13600. That lowers the actual return to 4.295%.
@Sven- yes, there's still a very few around, but they're getting much harder to find. I think that a lot is going to depend on how the Fed operates later this month and beyond. I think that they're going to try to keep gently pushing until they see the start of a recession. The trick, of course, is how to exert some degree of control at that point.
The CD that I bought this morning (Cusip 06740KRL3) is no longer available. They sure do go fast.
@Old_Joe, my mistake. The CD from JP Morgan was callable. I really haven't paid a lot of attention to that because I've only dealt with CD's and Treasuries duration 12 month or less. And if called - do you really lose anything? Maybe I'm being naïve.
Which leads me to a question.
What do people think is the probability of a short term, 12 mo as an example, CD being called if Fed rates are expected to keep rising. Is there history of CD's being called in mass?
If called, you loss the months of interest that you could have earn at full maturity. Any duration above 2 years would expose you to being called early. Generally I avoid JP Morgan.
@MikeM- Yes, I agree with you regarding a short-term CD, say a year or less. If called, no big deal. When I'm looking at Schwab, I filter for terms of 5 years and non-callable, just to narrow the list down a little. You still have to be careful that the price is 100, though.
Are these CDs FDIC insured? Also, has anyone considered the after-tax returns for CDs versus 2 or 3 year Treasuries if you consider that Treasuries are not subject to state taxes?
It is very helpful to share info here with everyone.
After December rate hike, the yields on CDs and treasury bills will go up a bit. Perhaps we will see 1 year CD yielding 5%. The short end, 13 week and 26 weeks T bills are yielding more than those of longer ones.
Will have CDs and some T bills maturing in Feb 2023, will buy longer duration CDs and T bills. Right now CDs are yielding a tad higher.
A while ago I checked - Fido & Schwab offer only FDIC insured CDs on their platforms (as do most major brokerages).
But it is an important caution. Many smaller brokerages offer all kinds of CDs. Some may be from foreign banks operating in the US and those may have tricky FDIC coverages - by branches only.
Some app-based brokerages play fast & loose with FDIC & SIPC coverages.
Treasuries vs CDs is also relevant if earlier access to money is anticipated. CDs have poor or nonexistent secondary market while that for Treasuries is huge (of course, there may be rate related losses). So, a simple guide is to prefer CDs only when their rates are much better than Treasuries.
@LewisBraham- Yes sir, full FDIC. An advantage is that there are so many US banks issuing these that it's very easy to spread purchases over a wide number of banks, limiting the risk at any one bank, and also easily stay well under the 250k FDIC limit at any one institution.
You're right regarding the potential for Treasuries over CDs, but frankly, at 83 and just trying to stay close to even on inflation, I'm too lazy to worry about state taxes. For younger folks, it's a different story.
You still have to be careful that the price is 100, though.
Thanks @Old_Joe. I learn something new here all the time. Out of my ignorance, why is that? Is this the price per unit? I see some options that are under 100 and some options over 100 by fractions. If price is say, 98.3, am I paying less per unit and therefore getting a better bargain?
@MikeM- For any particular CD issue you want to be looking at the "YTM" percentage. YTM is "yield to maturity", and depending on circumstances may be the same as, or different from, the actual "advertised" yield. If the issue price is 100, the the actual yield and the yield to maturity will be identical. If the issue price is less than 100, then the YTM should be higher than the advertised yield, conversely, if issue price is more than 100, the YTM will be lower than the advertised yield.
Let's say that you are choosing between two CD issues: a 5% and a 4.5% in a healthy market with lots of CDs to choose from. Of course buyers would choose the 5% issue over the 4.5%, and not too many of the 4.5% CDs would be sold. By charging something less than 100 for the 4.5% issue, the YTM will be close to the same return as the competing 5% issue.
I'm not at all certain as to why new issues would sell at anything other than 100, but I can hazard a guess: I would think that it could take some time for a bank to go through all of the procedures necessary to actually issue a tranche of CDs. They would need to review their need for funding over a certain time frame, factor in the prevailing rates that the market is calling for, and of course jump through all of the registration hoops that are required.
If, as in the past couple of months, the market rates are rapidly fluctuating, the bank might just give it their best guess as to what the competitive rates will be when the CDs actually hit the market. So if they "guessed" at 5%, but if when actually issued the competitive market rates are actually 4.5%, then the bank might price that CD issue at more than 100, thus causing the bank's actual repayment cost (YTM) to be closer to 4.5%.
Again, all of this is just a guess on my part. Perhaps someone like @msf or @yogibearbull would have more information in this area.
The 98 cents you pay now but once matured you get the 100 cents, get 4.5% divs annually base on 100 cents (450$ per yr) that why some cd may yield slightly higher base in purchase price (of course lowered price mean more risks like credit suise cd and higher bankruptcy risks)
Becareful because Once bankruptcy goes to court may loose all your monies in bonds but may not loose in cd.
As long as banks are fdic back by Feds investors will get cash back but may take awhile through court procedures.
That why I am scare buy credits suise but fond of boa or wells Fargo or Chase cd backed w FDIC/FEDS. Better get little less ytm but lessen headaches long terms
W bonds investments higher grades better to sleep at night, that why you are betting companies won't bellied up in 12 24 or 36 months holding these vehicles (boeing Ford GM Toyota pg&e etc) . Ytm higher than cd near5%
I am not sure if we need continue hold BBBY , previously ut they are cc- or lowered chance bankruptcy so high maybe 40 50% annually. We bought Bbby bonds 4 yrs ago rated bbb but their rating dropped severely bad last 7 8 months because poor run companies, poor Er, and no more creditrd/cash, lost customers and poor overall economic conditions. Price dropped they are due in 6 months so we are holding on hopeful won't bankruptcies in 6 months. If you sell them you loose 50% of capitals or more prices do low.... As long as they don't bankrupt by April next yr we get all capital back once called
I think @Old_Joe's explanation for offer rates of CD is plausible.
CDs do take some time to put out. Various brokerage platforms have fees of 35-50 bps (that are paid by the banks, not the retail buyers). So, banks set some offering rate ahead and then they set the offer price at brokerage for current conditions. I don't think this should matter much to retail CD buyers but there may be related tax complications.
BTW, brokerage CDs are fast but expensive way for banks to raise deposit money - their "cost" is the CD offer rate + brokerage platform fee (35-50 bps) + internal overhead. But the money may be raised in days.
Note that Treasury does this all the time with setting coupons for T-Notes/Bonds and purchases at Auctions are below/above par. It purposely did that for TIPS so that those could be sold above par to achieve negative real rates (bonds with negative coupons cannot work). Treasury doesn't pay any brokerage platform fee, nor brokers charge any commissions for Treasuries (for auction or secondary purchases). Brokers just play nice to the Treasury/Fed and we almost get free lunch.
Comments
With the inverted yield curve as of Nov 2022, the short end of T bills don’t appreciate much. So you are looking at the yields. 6-12 months is the sweet spot yielding 4.7% yesterday. CDs are a tad higher at 4.8% non-callable at Fidelity. Next year they may yield higher, but highly unlikely to yield 6.6%.
I have to think twice before getting back to bond funds next years.
Med long term hold 6 18 months
Great job sir OJ
Anyone thoughts credit suises CD
think prince in Saudi maybe buying huge portion of bank /rescue
Saw few CDs yielding over 5% over the weekend at Vanguard, but they were for OH and AL residence only. MFO has the most updated CD rates.
In non-callable, the best is 4.85. Don't forget to check the actual purchase price- if it's anything over 100% the actual return will be lower than shown.
For example, there's a Toyota Finl Savings 4.9% CD 12/02/2024, but the actual price asked is 101.13600. That lowers the actual return to 4.295%.
Can you maybe give the Cusip number on either or both of those JPM CDs that you mentioned?
Thanks-OJ
Correction. Just found 18 months noncallable CD from UBS bank, (DSMC60820) yielding 4.85%; asking price at 100.00.
The CD that I bought this morning (Cusip 06740KRL3) is no longer available. They sure do go fast.
Which leads me to a question.
What do people think is the probability of a short term, 12 mo as an example, CD being called if Fed rates are expected to keep rising. Is there history of CD's being called in mass?
After December rate hike, the yields on CDs and treasury bills will go up a bit. Perhaps we will see 1 year CD yielding 5%. The short end, 13 week and 26 weeks T bills are yielding more than those of longer ones.
Will have CDs and some T bills maturing in Feb 2023, will buy longer duration CDs and T bills. Right now CDs are yielding a tad higher.
But it is an important caution. Many smaller brokerages offer all kinds of CDs. Some may be from foreign banks operating in the US and those may have tricky FDIC coverages - by branches only.
Some app-based brokerages play fast & loose with FDIC & SIPC coverages.
Treasuries vs CDs is also relevant if earlier access to money is anticipated. CDs have poor or nonexistent secondary market while that for Treasuries is huge (of course, there may be rate related losses). So, a simple guide is to prefer CDs only when their rates are much better than Treasuries.
You're right regarding the potential for Treasuries over CDs, but frankly, at 83 and just trying to stay close to even on inflation, I'm too lazy to worry about state taxes. For younger folks, it's a different story.
Non Callable CD from WFC December 2024 4.7%
Treasuries today are paying 4.2%
Depends on "Will I need the money before then" I guess
Let's say that you are choosing between two CD issues: a 5% and a 4.5% in a healthy market with lots of CDs to choose from. Of course buyers would choose the 5% issue over the 4.5%, and not too many of the 4.5% CDs would be sold. By charging something less than 100 for the 4.5% issue, the YTM will be close to the same return as the competing 5% issue.
I'm not at all certain as to why new issues would sell at anything other than 100, but I can hazard a guess: I would think that it could take some time for a bank to go through all of the procedures necessary to actually issue a tranche of CDs. They would need to review their need for funding over a certain time frame, factor in the prevailing rates that the market is calling for, and of course jump through all of the registration hoops that are required.
If, as in the past couple of months, the market rates are rapidly fluctuating, the bank might just give it their best guess as to what the competitive rates will be when the CDs actually hit the market. So if they "guessed" at 5%, but if when actually issued the competitive market rates are actually 4.5%, then the bank might price that CD issue at more than 100, thus causing the bank's actual repayment cost (YTM) to be closer to 4.5%.
Again, all of this is just a guess on my part. Perhaps someone like @msf or @yogibearbull would have more information in this area.
Becareful because Once bankruptcy goes to court may loose all your monies in bonds but may not loose in cd.
As long as banks are fdic back by Feds investors will get cash back but may take awhile through court procedures.
That why I am scare buy credits suise but fond of boa or wells Fargo or Chase cd backed w FDIC/FEDS. Better get little less ytm but lessen headaches long terms
W bonds investments higher grades better to sleep at night, that why you are betting companies won't bellied up in 12 24 or 36 months holding these vehicles (boeing Ford GM Toyota pg&e etc) . Ytm higher than cd near5%
I am not sure if we need continue hold BBBY
, previously ut they are cc- or lowered chance bankruptcy so high maybe 40 50% annually. We bought Bbby bonds 4 yrs ago rated bbb but their rating dropped severely bad last 7 8 months because poor run companies, poor Er, and no more creditrd/cash, lost customers and poor overall economic conditions. Price dropped they are due in 6 months so we are holding on hopeful won't bankruptcies in 6 months. If you sell them you loose 50% of capitals or more prices do low.... As long as they don't bankrupt by April next yr we get all capital back once called
CDs do take some time to put out. Various brokerage platforms have fees of 35-50 bps (that are paid by the banks, not the retail buyers). So, banks set some offering rate ahead and then they set the offer price at brokerage for current conditions. I don't think this should matter much to retail CD buyers but there may be related tax complications.
BTW, brokerage CDs are fast but expensive way for banks to raise deposit money - their "cost" is the CD offer rate + brokerage platform fee (35-50 bps) + internal overhead. But the money may be raised in days.
Note that Treasury does this all the time with setting coupons for T-Notes/Bonds and purchases at Auctions are below/above par. It purposely did that for TIPS so that those could be sold above par to achieve negative real rates (bonds with negative coupons cannot work). Treasury doesn't pay any brokerage platform fee, nor brokers charge any commissions for Treasuries (for auction or secondary purchases). Brokers just play nice to the Treasury/Fed and we almost get free lunch.