Bonds!

[hillfronter83]

Which brokers do you use for bond trading? It seems many convertible bonds are not available at Interactive Brokers, for example 98426TAF3.

 

 

[brk64311]

Any view on preferred and bond issued by BEPC(Brookfield Renewable Co): BEP/PRA(about 6.7% yield, 78% of par) and BEPH(about 8% yield and 56% of par)? Good value even in a higher rates for longer environment?  Can't seem to find prospectus for BEPH and reached out to BEPC investor relation. 

[tede02]

10-year is moving back toward 4%. This fascinates me because a strong consensus formed in January that inflation was coming down, the Fed pivot was imminent, etc. Equities and fixed income rallied and now we have the reversal as the most recent signals suggest the economy is charging ahead and price pressures remain. 

 

Looking back to 2022, it was so obvious yields were going to rise off of zero but determining where they peak out seems much more difficult. With all the negative sentiment, perhaps we're close to peak yields right now. 

 

I annualized the month over month CPI figues going back to July. The 6-month average came out to 3.26%. Inflation is definitely easing since peaking last summer but there's a lot of noise mixed with the signal. 

[tnathan]

What is the easiest way to get leverage on a bond trade? Such as, if I wanted to make a bet that short term treasury yields will be <3% within 2 years, is there a smart way of doing this using options on short term treasury etfs?

[Intelligent_Investor]

Interest rate swaps

[maplevalue]

37 minutes ago, tnathan said:

What is the easiest way to get leverage on a bond trade? Such as, if I wanted to make a bet that short term treasury yields will be <3% within 2 years, is there a smart way of doing this using options on short term treasury etfs?

 

Eurodollar futures if you can access them will let get this type of exposure.

[johnpane]

Look at TUA, and how it is described on pages 5-6 here.

 

[tnathan]

This is great thanks guys!

[thepupil]

Most of you anti-bonders (asset classist or equity supremacists) will take heart in reading Buffett shilling Coca Cola vs a 30 year bond and what a resounding success his purchase of Coca Cola was vs a bond. 
 

You will sit back with your 100%+ equity allocation and smugly say “what kind of idiot would own bonds?”

 

what you will not do is what two brave keyboard warriors of fintwit have already done, which is point out that since August 1994, KO has annualized at 8.5% per annum with divvies reinvested. A 30 year zero coupon bond returned 7.5% per annum. 
 

mr Buffett’s so called “trouncing” is more

like a slight victory.

 

#bondlivesmatter

 

[dealraker]

2 hours ago, thepupil said:

Most of you anti-bonders (asset classist or equity supremacists) will take heart in reading Buffett shilling Coca Cola vs a 30 year bond and what a resounding success his purchase of Coca Cola was vs a bond. 
 

You will sit back with your 100%+ equity allocation and smugly say “what kind of idiot would own bonds?”

 

what you will not do is what two brave keyboard warriors of fintwit have already done, which is point out that since August 1994, KO has annualized at 8.5% per annum with divvies reinvested. A 30 year zero coupon bond returned 7.5% per annum. 
 

mr Buffett’s so called “trouncing” is more

like a slight victory.

 

#bondlivesmatter

 

 

At some point you'll get a drastic x-years xoutperformance for bonds over Coke.  Absolute certainty.  Don't settle for less.  

 

 

[tede02]

Gary Shilling likes to show a chart of zeros from the early 80s. If memory serves me right, CAG was in the mid-teens. I always remember that and Druckenmiller who has said a number of times that his biggest years came from taking leveraged positions in treasurys ahead of Fed cuts.

 

As an aside, I've always wondered what kind of leverage he used, in other words, what terms. Did he have positive carry before the bets paid off? 

 

I've also found it interesting when he said he's never lost money on junk debt because he's always bought when we're in recession and spreads have blown out. Makes good sense. 

[thepupil]

1 hour ago, dealraker said:

 

At some point you'll get a drastic x-years xoutperformance for bonds over Coke.  Absolute certainty.  Don't settle for less.  

 

 

I’m not saying bonds will beat Coke. Coke very likely wins vs 30 year 4% tsy.

 

on the other hand this bond apologist thought Buffett’s comparison of KO vs the bond to be a bit lacking given that long term bonds actually did pretty damn well over that time frame and provided like 70% of the return and (1-2% less CAGR than KO). I didn’t run the analysis myself but the other dude on Twitter said constant maturity 30 years was beating KO for majority of time frame until big duration sell off last year. 

alas thought 30 yr tsy’s don’t yield >7% like they did then, then I’d own 50% instead of like 5

 

[patience_and_focus]

12 hours ago, thepupil said:

I’m not saying bonds will beat Coke. Coke very likely wins vs 30 year 4% tsy.

 

on the other hand this bond apologist thought Buffett’s comparison of KO vs the bond to be a bit lacking given that long term bonds actually did pretty damn well over that time frame and provided like 70% of the return and (1-2% less CAGR than KO). I didn’t run the analysis myself but the other dude on Twitter said constant maturity 30 years was beating KO for majority of time frame until big duration sell off last year. 

alas thought 30 yr tsy’s don’t yield >7% like they did then, then I’d own 50% instead of like 5

 

Which brings the question of interest rate risk and risk adjusted returns ( hard to precisely compute). Assuming inflation is very hard to predict (especially the timeframe it will last), in benign or low inflation bonds seems to do ok and close to equity. What about high inflation? Just look at Buffet's record in 60s, 70s and 80s (30 years prior to this Coke period).

[TwoCitiesCapital]

1 hour ago, patience_and_focus said:

Which brings the question of interest rate risk and risk adjusted returns ( hard to precisely compute). Assuming inflation is very hard to predict (especially the timeframe it will last), in benign or low inflation bonds seems to do ok and close to equity. What about high inflation? Just look at Buffet's record in 60s, 70s and 80s (30 years prior to this Coke period).

In high inflation periods, short term bonds and cash tend to outperform equities, but the long bind would be killed - as we've seen over the last 18 months or so

[3259]

On 10/21/2022 at 2:27 PM, thepupil said:

 

I think the best thing in short term is i-bonds and CLO AAA ETF offered by Janus JAAA. 

 

It's floating rate and yields 6.0% ish, japanese banks are no longer buying and UK pensions are forced sellers and are puking CLO AAA out. Its the AAA tranche of securitized leveraged loans. you need a TON of defaults to get hit. it's a liqudiity / complexity spread more than a credit spread. 

 

this is like 1-3 yr floating rate paper yielding 6%...for perspective a year ago more like 1.5% and 3-4% in 2018.

 

I disagree with the general aversion to duration, but if you want a little extra on your short term, i like this (and i-bonds).

 

the JAAA ETF has gone from almost no AUM to $1B+, probably some tinfoil hat tail risks if everyone wanted out at once maybe. 

 

@thepupili like this idea but am concerned by the bid ask spread, which appears to be really hi unless I’m missing something. How do you think about that?

[CorpRaider]

Man I've seen multiple ads for money market funds from Fido over the past month and now IBKR is running ads for..."buy bonds!"  These MFers were hawking crypto 3 months ago.  Capitalism is funny sometimes.

Edited March 3, 2023 by CorpRaider

[Gregmal]

Totally lol. 4% on your cash is everywhere I look. Which I guess makes sense. It’s like waiving pussy at a computer nerd who just left college and got his first job at Google. Little does he know, that in 5 years he ll realize it ain’t nothing special despite the fact that he was deprived of it for so much of his life. 

[dealraker]

All the successful business owners both large and small around here have signs on the door: 

 

FOR SALE!  4% BONDS ARE OUR GOAL!

 

And the guests on CNBC are increasingly not SAAS investors or Woods types but sold-out-of-stocks people seeking addtional funds for fees.  "SALE NOW AND RUN TO SAFETY" is the chant, the underlying "you can't make it without me" is of course obvious.

 

Bruce is on the same relentless path: Cover-up the bad, show-case the good.

 

Life today "in plain English" as we state down here in our state.

 

 

Edited March 3, 2023 by dealraker

[Spekulatius]

Has anyone ever seen a bond investor getting rich? I haven’t , except money manager like Bill Gross, but of course they owned a business not bonds directly.

 

Bonds are a wealth preservation vehicle (and have their place for this purpose) not a way to build wealth.

[johnpane]

Marty Whitman? Howard Marks?

 

Distressed credit.

[Gregmal]

Ok, asterisk. Guys who trade bonds that behave like stocks have gotten rich lol 

[Red Lion]

4 minutes ago, Gregmal said:

Ok, asterisk. Guys who trade bonds that behave like stocks have gotten rich lol 

Even then it seems like the hedge fund / private equity partnership structures are actually what made them rich. 
 

I love the idea of buying distressed bonds, and I’ve done it a couple times, but the tax issue alone is a huge problem If you’re trying to get wealthy and not putting these in a 401k, it seems very hard to earn a post tax ROI comparable to more efficient equities. 
 

 

[SHDL]

39 minutes ago, johnpane said:

Distressed credit.

 

and/or use (lots of) leverage.

 

But in either case this it's a hard game to be playing as an individual investor.

[texual]

The past few weeks I began laddering with TreasuryDirect for new issues starting from 1 month up to 26 weeks, no further out at this time. This is checking account money that would not get anything just sitting. I have transferred a bunch into coinbase and bought USDC stablecoin with its 1.5% APY which is fine. They have a 4% debit card I use, but that rate fluctuates month to month. Got creamed on Intel and the dividend cut made me realize how shifty the economy is going to get if things worsen. Decided against using the brokerage and paying spreads. Don't know enough about CD's, munis or corporates to feel comfortable putting up nearly all my cash that I don't need for a few weeks at play. TreasuryDirect it is. I suspect a few more months of this will persist and then it will turn. At that point turn off the spigot and review opportunities in the market. I think every so often there is a window like this where anyone can safely make money with treasuries and not get stuck in a trap. Keep the duration short, ladder, and size appropriately. 

[thepupil]

3 hours ago, Spekulatius said:

Has anyone ever seen a bond investor getting rich? I haven’t , except money manager like Bill Gross, but of course they owned a business not bonds directly.

 

Bonds are a wealth preservation vehicle (and have their place for this purpose) not a way to build wealth.

 

My dad retired in 2007. He got "rich" (depending on your definition) through extreme concentration. He was an exec at a company that went public and put a lot in the stock at IPO. Company got LBO'd so he crystallized his gains, company later went bankrupt after he left. 

 

He stayed rich via bonds. Being 60% muni's w/ a typical Merrill lynch guy into the GFC saved my family's financial health as they weren't forced to make withdrawals at steeply discounted stock prices and didn't panic.. they owned a valuable unlevered home and by no means would have been destitute but a real life "sequence of returns risk" case study; if they went in 100% stocks, I'd imagine their standard of living would be lower than it is today.

 

Now in 2013, I took over and it was stil like 50/50 and thought that was too conservative and switched things up to more like 70-80% stocks / 20-25% cash and it's the best and most impactful financial decision i've ever made (we're now more like 70/30 with the 30 being in bonds not cash built up the bond position over last year or so. 

 

Bonds are indeed a wealth preservation tool. and for many that's the goal.