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.
Look at this interesting CUSIP 3134HA3J0, a 10 yr Agency
It is callable every three months from the issue date, 1/22. It offers a 6% interest rate if it does not get called on 7/22/2025 or 4/22/2025. If it gets called on either of those dates, the interest rate is 5%.
Interesting way to dare potential customers to make interest rate bets.
The total amount offered is $10M but I have seen on previous occasions an offer being withdrawn before full subscription.
Today, it is available both at Fido and Schwab. The above interest rate detail is not available at Schwab.
Please post if you subscribe to this issue. I am thinking about it.
@BaluBalu - thanks for re-introducing agency bonds into discussion. Still, 3-month continous calls? So the investment is constantly prone to being called. I’ll pass on that option. Here are a few I’m pondering. I like that at least they have a guaranteed payment period:
3133ERT50 FMLB 5.9% 2045 call - 1/26
3130B1J81
Federal Home Loan Bank 5.7% due 6/12/2036 Callable 06/26@100
3130B4AJ0 Federal Home Loan Banks Cons Bd 5.375%44 5.375% due 12/27/2044 Callable 12/27@100
@Level5, When buying callable Agencies, I ask myself if I would be OK with the interest rate if the bond is never called.
20 years is too far out - I may not be alive and I do not know if 5.5 to 6% yield is enough for something that far out, unless it is US Treasuries.
Re the 2036 due issue, Fidelity shows Yield to worst at 5.267% - that does not sound right. In any case, I only buy new issue to avoid having to deal with bid-ask spreads of secondary purchases and pay commissions.
Re the 2036 due issue, Fidelity shows Yield to worst at 5.267% - that does not sound right
Looks about right to me. A back of the envelope calculation (no yield calculator required) has it coming out to about that (before subtracting the cost of the trade, which further reduces yield).
First call is in 17 months (June 2026). Amortizing the premium ask price (0.573%) over 17 months comes to around 0.4%/year. Subtract that from the coupon rate of 5.7% and you get 5.3%. Given all the rounding and disregarding of compounding effects, the stated 5.267% yield seems correct, or at least close enough.
@BaluBalu - I get it. I wouldn’t buy 20 or 30-yr treasuries for the same reason - longevity; and yet I’m comforted looking at/buying longer term agencies (at the yield that services my own debts) knowing that they’ll probably be called in the first year or two. If not, and my recent experience says otherwise, the income still works for me.
As I read my previous paragraph, I realize the contradiction. I could always sell the treasuries (not so easy with agencies). But where’s the mystery in that.
I would not assume FHLBs would maintain their credit rating over a 20-30 yr period. It is possible their bonds are already priced as if they are lower rated than what the official rating shows.
There is a higher chance USTs would maintain their highest rating, not to mention they control the printing press.
As of today's purchase of FLOT in the IRA, my bond holdings are now (with rounding) USFR 11%, VRIG 8%, PULS 8%, CBLDX 7%, CBRDX 7%, FLOT 7%, MNHAX 4%, and FFRHX 3%. PRWCX holdings are not included.
That's a bit of a dog's breakfast, to put it mildly. Perhaps there will be more clarity, and simplification, by this time next year.
May be do us a favor and post how PRWCX positioned its bond sleeve.
On a separate but related note, Nomura is expecting 10 yr to hit 6% in 2025. Gloomy Bloomy says that is similar to TRP’s forecast, without saying what TRP’s forecast is.
Edit: Not buying CUSIP 3134HA3J0 mentioned yesterday.
May be do us a favor and post how PRWCX positioned its bond sleeve.
On a separate but related note, Nomura is expecting 10 yr to hit 6% in 2025. Gloomy Bloomy says that is similar to TRP’ forecast, without saying what TRP’s forecast is.
PRWCX is rated BB with a duration of 3.09. Corporate is ~50%, gov is ~38%, and the rest is cash. He has been on the shorter side for quite a while. And I note that he is not buying anything securitized.
I'm not making any predictions where bonds are going. I don't think anyone knows.
Thanks, @WABAC. 3 is more than I was expecting but that is what M* says. He has 50% or more in 3-5 yr range. He has more than 30% or more below BB and about 43% in AA. I mention the credit rating only for edification and not to worry about anything.
Of course, everyone in media is either talking their book, marketing, or entertaining themselves.
A source I follow says long-term bond rates will continue to rise until the stock market “breaks.” Then a rush to safety will supposedly cause bond rates to fall. Mere conjecture. No specificity as to when this all might happen. I’m loath to cite the source for those reasons.
Personally, I don’t see any reason rates won’t hit 6% in another year if the economy keeps running hot. At some point this Fed (or one with a different make-up) will become alarmed enough over inflation and the sizzling stock market to ramp up short term rates and bring about a recession. Then long-term rates should fall. Timing & severity of said recession is anybody’s guess. Conventional wisdom says a new administration prefers to do the heavy lifting early on so that things are looking up by the 4th year. But there’s nothing ”conventional” about the incoming.
Thanks @WABC. I don’t own PRWCX, but am always interested in what the guru is doing,.
I get a weekly analysis from the manager of the bond fund I own. From Jan 17: "the overall strategy is optimizing the following three things: 1) portfolio coupon 2) maintaining a short portfolio maturity and 3) increasing overall portfolio liquidity. When markets remain tight, it is easy to get caught up in chasing with a lot of cash on the sidelines waiting to be deployed."
All the bond funds I like, do something similar and duration is very low.
As much as I like David Giroux, I never liked PRWCX bonds; after all, PRWCX expertise is in stocks. Their bonds are mainstream, and probably what they care about. PRWCX AUM = about 66 billion. That's a lot of money in bonds. I love much smaller bond funds.
As much as I like David Giroux, I never liked PRWCX bonds; after all, PRWCX expertise is in stocks. Their bonds are mainstream, and probably what they care about. PRWCX AUM = about 66 billion. That's a lot of money in bonds. I love much smaller bond funds./blockquote>
I don’t know who Giroux leans on for bond picks. I do know he was way off base about 3 years ago in Barron’s when he asserted rather forcibly the Fed rate (or perhaps the 10-year) wouldn’t go much over 3% in the coming year. It did. I’ve tried unsuccessfully to pull up the edition of Barron’s. But do recall it was discussed on the board.
T Rowe’s fixed income was making a lot of progress until MaryMiller left in ‘09 to join the Obama administration. I don’t think it has ever recovered from that loss. RPSIX tells the story.
Surely, this has already been mentioned: with fewer, if any, rate cuts to come, ostensibly it makes sense to hold paper that matures further out. My junk carries a rolling maturity of less than 3 years. My "mainstream" I.G. WCPNX holds stuff up to 5.5 years at the moment. Even with the higher quality, the yield is quite decent. 21st January, 2025: PRCPX 7.02% TUHYX 7.35% WCPNX 5.23%
Helluva lot better results than your standard bank savings account. And the expected Orange deregulation ought to be useful. We can make money with share price appreciation, too. (Is it 2028 yet?)
I came across this quote from the Crossing Wall Street blog today:
Not too long ago, Wall Street assumed that the Federal Reserve would be slashing interest rates this year. That may not be the case. The Fed meets again next week, and you can forget about any rate cuts coming. The futures market currently thinks there’s a 0.5% chance of an interest rate cut. I think that’s about 0.49% too high, but that’s only a guess.
For the meeting after that, coming in March, futures traders think there’s only a 26% chance that the Fed will cut interest rates. Traders don’t see a cut coming at the May meeting, either. They think the first cut will come in the middle of June.
Remarkably, that’s the only Fed interest rate cut that traders expect all year. This is a huge change in sentiment from just a few weeks ago. If earnings continue to grow as they are now, what’s the point of cutting rates?
Strong labor market, stock earnings,annd low unemployment rate are headwinds for any rate cut. It is not happening in January FED meeting, and who know for the rest of the year. If inflation turns upward, the FED may do the opposite and hikes the rate instead.
Now that the yield curve normalizes from the inverted one, there maybe buying opportunities in individual intermediate term bonds and not bond funds.
I thought I'ld give this thread a bump since my latest moves were in bonds.
In the IRA: Yesterday I sold FLOT and PULS, bought FLTR to go with VRIG and USFR. That's enough float for now.
Remaining proceeds will likely go into THOPX and MNHYX. Thinking about selling FFRHX; bank loans have been in the doldrums. Waiting to see how the next episode of Tariff Theater: Beggar thy Neighbor plays out.
Preparing for rate cuts may be like preparing to wait for Godot.
Workforce layoffs, both private and public sector. (Or firings.) Take some time to ripple through the economy. The inflation report today came in, in line with expectations. By now, I think the FED is dreaming, with their 2% inflation goal, unless we get a recession. Investors are wary: political turmoil. Still, it IS known that Orange will remove all regulations he can uncover.
Sold FFRHX from the IRA. Not feeling the need for it at the moment.
I'm now looking at adding THOPX and BIMIX, and bumping MANHX. That would increase my duration a little bit. My IRA duration is currently around ,74, per M*. Fido says .53, and they aren't even counting the ETfunds.
I read in the funny pages business section that Mr. Market is anticipating three rate cuts this year. I don't see that happening in response to good news.
Inflation will come with the Orange Tariffs. Rate cuts? Naw. Nope. Can't see that in the cards. "You have no cards," someone lately warned a fellow world leader. Our old allies are making their own plans these days, with the US not in the picture. We're going to be living in a rather different political world. Tomorrow, Canada, Mexico and China new tariffs begin. "America First" means "America By Itself." Bull in the china shop policies. A big shake-up is on the horizon. And LOTS of inflation.
My friend Crash::::after agent orange disbands the Fed,,… he will control interest rates like everything else.
OMG. Just kill me now. Am I the only one willing to actually say it? Orange is a Russian Asset. A Manchurian Candidate in the White House. Assassinating structures and norms and procedures, dismantling the Rule of Law, alienating allies. Uncle Vlad is very pleased. Is it just MONEY, or does Vlad have something else that he's holding over the Orange Disgrace?
I don't know about rate cuts except that I am more convinced they will come with bad news. In the meantime, rates are falling, so I'll quote myself here:
From the IRA: Sold VRIG and replaced it with BUBIX. Sold USFR and replaced it with SCHO. When the dust settles, I'll look at BIMIX, THOPX, and MNHYX. For the time being, bonds with a little duration seem to be doing better than the floaters.
For the moment, I am not convinced that the new taxes on imports will cause inflation, although they will raise prices. In this case, the higher prices will not be the result of too much money chasing too few goods. IIRC, taxes on goods tend to discourage purchases. So I think we are more likely to see switches in buying habits to cheaper goods, or doing without.
Perhaps the potential for bond vigilantism will come into better focus when Mr. Market's attention span swervess to the budget process.
When the facts change, or even become apparent, I'll be ready to change my mind.
Today, at least this morning, the CLO ETFs especially JBBB are showing some stress. Slowing economy and recession fears akin to early last August. Then the reaction was short lived. It lasted a few days and then back to new highs. Will see what the rest of the day brings.
I have been thinking about BIMIX, THOPX, and bumping up MNHYX, that can wait. Too much uncertainty for me with Luttnick gaslighting the market over tariffs. I don't mind sitting on cash still over 4%.
Comments
It is callable every three months from the issue date, 1/22. It offers a 6% interest rate if it does not get called on 7/22/2025 or 4/22/2025. If it gets called on either of those dates, the interest rate is 5%.
Interesting way to dare potential customers to make interest rate bets.
The total amount offered is $10M but I have seen on previous occasions an offer being withdrawn before full subscription.
Today, it is available both at Fido and Schwab. The above interest rate detail is not available at Schwab.
Please post if you subscribe to this issue. I am thinking about it.
3133ERT50
FMLB 5.9% 2045 call - 1/26
3130B1J81
Federal Home Loan Bank 5.7% due 6/12/2036 Callable 06/26@100
3130B4AJ0
Federal Home Loan Banks Cons Bd 5.375%44 5.375% due 12/27/2044 Callable 12/27@100
Your thoughts?
20 years is too far out - I may not be alive and I do not know if 5.5 to 6% yield is enough for something that far out, unless it is US Treasuries.
Re the 2036 due issue, Fidelity shows Yield to worst at 5.267% - that does not sound right. In any case, I only buy new issue to avoid having to deal with bid-ask spreads of secondary purchases and pay commissions.
Looks about right to me. A back of the envelope calculation (no yield calculator required) has it coming out to about that (before subtracting the cost of the trade, which further reduces yield).
First call is in 17 months (June 2026). Amortizing the premium ask price (0.573%) over 17 months comes to around 0.4%/year. Subtract that from the coupon rate of 5.7% and you get 5.3%. Given all the rounding and disregarding of compounding effects, the stated 5.267% yield seems correct, or at least close enough.
As I read my previous paragraph, I realize the contradiction. I could always sell the treasuries (not so easy with agencies). But where’s the mystery in that.
I would not assume FHLBs would maintain their credit rating over a 20-30 yr period. It is possible their bonds are already priced as if they are lower rated than what the official rating shows.
There is a higher chance USTs would maintain their highest rating, not to mention they control the printing press.
That's a bit of a dog's breakfast, to put it mildly. Perhaps there will be more clarity, and simplification, by this time next year.
On a separate but related note, Nomura is expecting 10 yr to hit 6% in 2025. Gloomy Bloomy says that is similar to TRP’s forecast, without saying what TRP’s forecast is.
Edit: Not buying CUSIP 3134HA3J0 mentioned yesterday.
I'm not making any predictions where bonds are going. I don't think anyone knows.
Jason Zweig says that the predictions are all about marketing: How You Can See Through Wall Street's Ritual of Wrong.
Of course, everyone in media is either talking their book, marketing, or entertaining themselves.
Personally, I don’t see any reason rates won’t hit 6% in another year if the economy keeps running hot. At some point this Fed (or one with a different make-up) will become alarmed enough over inflation and the sizzling stock market to ramp up short term rates and bring about a recession. Then long-term rates should fall. Timing & severity of said recession is anybody’s guess. Conventional wisdom says a new administration prefers to do the heavy lifting early on so that things are looking up by the 4th year. But there’s nothing ”conventional” about the incoming.
Thanks @WABC. I don’t own PRWCX, but am always interested in what the guru is doing,.
"I don’t own PRWCX, but am always interested in what the guru is doing"
This week's Wealthtrack episode features David Giroux.
https://wealthtrack.com/great-investor-perspective/
"the overall strategy is optimizing the following three things:
1) portfolio coupon
2) maintaining a short portfolio maturity and
3) increasing overall portfolio liquidity. When markets remain tight, it is easy to get
caught up in chasing with a lot of cash on the sidelines waiting to be deployed."
All the bond funds I like, do something similar and duration is very low.
As much as I like David Giroux, I never liked PRWCX bonds; after all, PRWCX expertise is in stocks. Their bonds are mainstream, and probably what they care about. PRWCX AUM = about 66 billion. That's a lot of money in bonds. I love much smaller bond funds.
21st January, 2025:
PRCPX 7.02%
TUHYX 7.35%
WCPNX 5.23%
Helluva lot better results than your standard bank savings account. And the expected Orange deregulation ought to be useful. We can make money with share price appreciation, too. (Is it 2028 yet?)
cws-market-review-january-21-2025.html
crossing wall street.
Now that the yield curve normalizes from the inverted one, there maybe buying opportunities in individual intermediate term bonds and not bond funds.
In the IRA: Yesterday I sold FLOT and PULS, bought FLTR to go with VRIG and USFR. That's enough float for now.
Remaining proceeds will likely go into THOPX and MNHYX. Thinking about selling FFRHX; bank loans have been in the doldrums. Waiting to see how the next episode of Tariff Theater: Beggar thy Neighbor plays out.
Preparing for rate cuts may be like preparing to wait for Godot.
I'm now looking at adding THOPX and BIMIX, and bumping MANHX. That would increase my duration a little bit. My IRA duration is currently around ,74, per M*. Fido says .53, and they aren't even counting the ETfunds.
I read in the
funny pagesbusiness section that Mr. Market is anticipating three rate cuts this year. I don't see that happening in response to good news.From the IRA: Sold VRIG and replaced it with BUBIX. Sold USFR and replaced it with SCHO. When the dust settles, I'll look at BIMIX, THOPX, and MNHYX. For the time being, bonds with a little duration seem to be doing better than the floaters.
For the moment, I am not convinced that the new taxes on imports will cause inflation, although they will raise prices. In this case, the higher prices will not be the result of too much money chasing too few goods. IIRC, taxes on goods tend to discourage purchases. So I think we are more likely to see switches in buying habits to cheaper goods, or doing without.
Perhaps the potential for bond vigilantism will come into better focus when Mr. Market's attention span swervess to the budget process.
When the facts change, or even become apparent, I'll be ready to change my mind.