I would be curious to know what you are investing in now? I sold out of my bond funds at the beginning of 2023 for a nice tax loss. I decided to invest the proceeds into MM funds, which were, and still are paying north of 5%. I am still happy to collect 5% instead of worrying about losing money again in bond funds. "Bond funds are back" is proclaimed now. Is it really time to get back into bond funds? I am investing for income now since I am retired at 65. I am still invested in balanced funds and PIMIX. What do you think?
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PRCPX TTM yield = 6.86%
TUHYX TTM yield =7.39%
PIMIX TTM yield =6.21%, looks fine. Stay domestic. PRSNX is the same flavor, but global, rather than domestic only. Its TTM yield is just 4.60%. I'm doing fine for myself with my domestic junk funds, as opposed to EM or anything fancy or complicated. I'd just say: keep it domestic.
MM Treasuries, are you in? We are good there, unless we "break the buck" again. A virtually guaranteed 5.1% in PRTXX is tough to beat, for peace of mind. Is the extra 1 or 2 percent yield worth it to you, if you were to move your dough? Maybe not, and I'd not argue with you.
I’m currently weighing the question. I’ll get back to you when I know for sure.
Honestly, I have a little in a money market fund, a little in a short-term bond fund and a bit in an intermediate-term global bond fund. Roughly equal amounts. I’ve resisted the temptation to play around with HY or inflation hedged products - neither of which I understand very well.
Fido’s analysis tool has me 45% equities / 32% bonds / around 20% short-term paper & money market, with the rest classified as “other” (probably metals). Most of that bond component comes from asset allocation, arbitrage, or L/S type funds, however.
Just watching the action today … Most bond etfs I watch are off .50% - give or take. The 10-year had jumped back above 4% at last look. Much better performance on the short end.
Anything longer is whatever is going on at DSEEX, VWELX, VWINX, FBALX, and PRWCX. I haven't seen anything that tempts me to venture too far out on my own. I think people are dreaming about rate cuts.
The only thing bond-like in the taxable is PFF, which has done better than most things I own YTD.
Everything is normal on the day AFTER maturity.
I think that Treasury has until midnight of the maturity date to actually send money to firms. But firms have their own policies when to credit the money.
I was looking at Boeing bonds. The one with CUSIP - 097023AE5. Why does Fidelity show a
cCurrentyYield so different from Yield to worst (see below) when there is call protection. Am I not paying attention to something obvious or do I need to read the issuing document?Basic Analytics
Ask Yield to Worst 5.364%
Ask Yield to Maturity 5.364%
Current Yield 7.229%
https://www.investing.com/rates-bonds/ba-8.75-15-sep-2031-scoreboard
However, a lot of other folks think a recession is unlikely soon, with employment holding up, and therefor inflation will come back without any rate cuts by May. Bad for Bonds but good for MMF
The old adage that the expected return from a bond or bond funds is likely it's current yield is probably reasonable. So with yields running 5 to 6% for exotic funds and 4.2 % for "core" that is likely what you will get long term. Inflation may go up but that much? Who knows?
The interest rate return on older bonds sold on the secondary (resell) market will tend to approximate interest rates on currently issued bonds at par 100.
If the original bond paid, say 2.5%, then on the secondary market it would have to pay a lot more than that right now or nobody would want it. To get an interest rate approximating newly issued bonds the seller would have to give you a significant discount. This is the exact opposite situation to the Boeing bond that you wondered about.
The same general mechanism is found on CDs and Treasuries being offered on the secondary markets. At times I've bought discounted CD offerings, for a number of reasons... perhaps I couldn't find what I wanted in new current issues.
Why could that be? Well, perhaps I wasn't thrilled about the CD issuers at a particular point in time... maybe just a bunch or "who knows?" banks in "who knows where". Or perhaps I couldn't find newly issued CDs with the maturity that I wanted. So I might look for an older CD on the secondary market from a major bank whose operating situation is easy to verify.
By this time in the interest rate cycle, hopefully, it is second nature for everyone here to know that. I was asking why the Current Yield (i.e., interest amount over market price) is [so much] higher than YTW when the bond can not be called.
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Fido Current Yield definition - "the ratio of the annual dollar amount of interest paid on a security to the purchase price or market price of the security, stated as a percentage. For example, a $1,000 bond purchased at par with a 3 percent coupon pays $30 per year, or a current yield of 3 percent. The same bond, if purchased at a discount price of $800, would have a current yield of 3.75 percent. A $1,000 bond purchased at a premium price of $1,200 would have a current yield of 2.50 percent."
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Based on that definition, I expected Current Yield and YTW to be similar when the bond can not be called.
On a page different from the page where Current Yield was quoted, Fidelity shows "Current Rate Effective Date 10/07/1991", which is about a month after the original issue date. If the Current Yield is being calculated as of 10/07/1991, then it makes sense it is so high relative to current YTW / YTM. Not sure why it is important for us to know what the yield was as of 10/07/91 but I am not going to worry about it.
YTM come from IRR or XIRR like Functions in Excel, or P-A-F-i analysis on generic calculators.
Funds use the current yield trick to boost current yield by buying premium bonds (at the expense of NAV deterioration), or go for gains by buying discount bonds. While both have the same YTM, the effects on current fund income and taxation are different.
https://www.nytimes.com/2024/01/16/opinion/red-sea-houthis-shipping-inflation.html
We can try this another way, using the Socratic method.
1. Suppose you buy a bond at $102 with a 5% coupon. Do you have enough information to calculate current yield? See Fido Current Yield definition. If you have enough info, what is that yield (rounding is fine here, this isn't an arithmetic quiz)? If not, what other information do you need?
2. Suppose further that the bond has an annual coupon (most bonds pay semiannually). Also suppose that the bond is callable in a year (right after making a coupon payment). How much money do you receive after a year: coupon + redemption? What is its YTW?
3. Suppose the bond is not callable, but matures in a year. How much money do you receive after a year: coupon + redemption? What is its YTM? Is this the same or different from the answer in #2? If it is different, why is it different? Is it the same or different from the answer in #1?
"Flunking sir."
"And what do you intend to do about it?"
"Buy some tooth paste and pay my utility bills sir."
"Be on your way."
Now that rates have more or less plateaued, I am willing to get out of cash. However, the yield curve is still inverted (though not as badly as before; see here: https://fixedincome.fidelity.com/ftgw/fi/FILanding) and as long as the yield curve IS inverted, I see no reason to go long-term. When the curve corrects, LT yields will probably rise and prices fall. Or, even if not, why take LT risk when ST is paying higher yields?
I had a T-bill mature this week, and I plowed the proceeds into FTBFX yesterday. I have two more T-bills maturing in April and May, and will decide what to do with them when the time comes. With rates peaked and likely to fall, I don't want to be stuck in cash and miss the rising NAVs. So I will likely use FTBFX, PIMIX, maybe BINC.
I am keeping RPHIX (for the time being). It may be too defensive, but I'll deal with the maturing T-bills first, and then decide about RPHIX. That fund has been a gem.
I never got an answer for my perhaps impolite question asking why RSIIX was not able to protect investors better during March 2020. Not that I am anticipating another pandemic but I always like to understand what happened. Other than that one incident, I think it is a good fund.
When rates are not stable, especially when they go up/down more stable funds are recommended such as RPHIX, CBUDX, CBLDX, RSIIX, DHEAX,OSTIX.
RPHIX is the closest to a MM, the next step is CBUDX and the rest.
I'm invested at 99+% in 2 very low SD bond funds + high yield + good performance in 2023 and YTD.
1. Current yield is annual dollar amount (i.e. coupon rate x $100) / current price
So current yield = 5% x $100 / $102 = $5/$102, or roughly 5%.
2. This is a simple interest problem, because there is only one coupon payment - at the end of a year. And the principal is also returned (called) then.
Principal = $102
Coupon = 5% x $100 (par) = $5
Redemption amount = $100
Final value in a year = $105
Simple interest = final value - principal = $105 - $102 = $3
Simple interest = principal x rate x time
$3 = $102 x rate x 1
YTW = rate = $3/$102 ~= 3%
The YTW is less than the current yield because $2 of the $5 coupon goes toward returning principal; it isn't interest.
3. Under the same conditions except that the bond matures in a year instead of being called in a year, all of the numbers above are the same. Same $105 payout in a year, same $102 principal. And the same $2 of the $5 coupon goes toward returning principal.
It makes no difference why the bond is redeemed - whether it is called or whether it matures. The calculations are the same, the yields to redemption are the same. YTM will be less than current yield for the same reason that YTW is less than current yield - part of the coupon constitutes return of principal, not interest.
And that return of principal is not taxed as income. Only $3 is taxed. See amortization of bond premium (ABP) in Form 1040 Schedule B.
https://support.taxslayerpro.com/hc/en-us/articles/360031245634-Schedule-B-1099-Transactions
(For taxable bonds, one can choose not to amortize bond premium annually. But that results in higher taxes being paid now, and at best recovery of the excess down the road when the bond is sold or redeemed. )
10 Yr Bond in 5% YTM Environment, par 100
3% coupon, price 84.56, current yield 3.55% << YTM
7% coupon, price 115.44, current yield 6.06% >> YTM
There is no reason to think or assume that posters here asking questions or raising issues are incompetent. If those replying assume that posters asking are the same or more competent as the ones replying, the quality of replies are bound to elevate if not for anything those replying are likely to read the posts carefully / closely before drawing their bazookas.
At the time I wrote the post I was remembering my last interaction with my college advisor.
"You're not thinking about going to graduate school. Are you?"
"Oh no professor. Not me."
"Well. That's fine. Go forth and something something something."
These types of issues can surface rapidly and unexpectedly, but are rare. The other one that stands to mind is at the beginning of the ‘07-‘09 financial crisis. Early in, the Fed stepped in to back money market funds, some of which would have fallen below their $1.00 NAV.
Sorry if this has already been answered or if I’ve missed the point of the question. I didn’t understand FD either.