2-year CDs at Vanguard and Fidelity Today

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bayview
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Re: 2-year CDs at Vanguard and Fidelity Today

Post by bayview » Sun Apr 22, 2018 4:49 pm

indexfundfan wrote:
Sun Apr 22, 2018 4:42 pm
bayview wrote:
Sun Apr 22, 2018 3:50 pm
Here’s a noob question for you :D :

We have started building a three-year ladder of brokered CDs, all new issue. (We don’t have the experience, inclination, or know how to fine-tune things to get a few more bps, and probably never will.)

The displayed prices bounce around, as (of course) do the daily changes and current values.

What am I looking at here:
  • change in secondary market value
  • the interest being factored in
  • a combination of the above
  • something else entirely?
I ignore it as best I can, as the plan is to hold each to maturity while the ladder is built, but I’m awfully curious what this is supposed to be telling me.

(I maybe understand the balances on the T-bills, as they are bought at a discount.)

Anyway, for those of us who are new to brokered CDs (and individual bonds), a primer on deciphering the Vanguard holdings summary page would be appreciated. thanks
The prices of brokered CDs fluctuate because of changes in interest rates. If you are holding to maturity, you don't have to be concerned with the price fluctuations -- you will get back the par value at maturity (plus the interest payments based on the coupon rate on the CD).

This could help explain why when interest rates change, the price of bonds and brokered CDs change:

https://www.investopedia.com/university ... bonds3.asp
OK, thanks, that’s what I figured. Still odd to see the supposed “value” of each one fluctuate. I had hoped (in a not terribly concerned way) that it showed the effect of the interest, but no, not when it occasionally drops.
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Re: 2-year CDs at Vanguard and Fidelity Today

Post by hoops777 » Sun Apr 22, 2018 6:37 pm

I have never tried to sell one of my brokered CDs,but I would imagine it would not be that much of a problem if rates are going up.Example,you buy a 3 year cd at 2.85 a nd hold it for 18 months.Now the new 3 years are paying 3.85,but you have an 18 month paying 2.85 which would be a good rate in all probability.It of course all depends on the numbers and I am happy to hold to maturity.You win some and lose some.
My largest holding is a 10 year bought 4 years ago paying 3.4.Right now it is a 6 year and the 3.4 is very good and should remain decent until the maturity.I think we tend to get carried away with importance of the numbers when in the end it is not going to be that significant if you got 2.8 or 2.5 for a few years.
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Re: 2-year CDs at Vanguard and Fidelity Today

Post by Kevin M » Sun Apr 22, 2018 8:41 pm

bayview wrote:
Sun Apr 22, 2018 3:50 pm
Here’s a noob question for you :D :

We have started building a three-year ladder of brokered CDs, all new issue. (We don’t have the experience, inclination, or know how to fine-tune things to get a few more bps, and probably never will.)

The displayed prices bounce around, as (of course) do the daily changes and current values.

What am I looking at here:
  • change in secondary market value
  • the interest being factored in
  • a combination of the above
  • something else entirely?
I ignore it as best I can, as the plan is to hold each to maturity while the ladder is built, but I’m awfully curious what this is supposed to be telling me.

(I maybe understand the balances on the T-bills, as they are bought at a discount.)

Anyway, for those of us who are new to brokered CDs (and individual bonds), a primer on deciphering the Vanguard holdings summary page would be appreciated. thanks
It's a combination of things, mainly two things.

Since you're buying only new issue, you are paying 100 (100% of par, or $1,000 per CD), and the prices you see quoted are in these terms. For example, I see prices like 97.635 and 100.021 for CDs in one of my Vanguard accounts, but I may not have paid 100 for them, since I buy on secondary market.

Since CD yields have been climbing pretty steadily, whether you look at new issues or secondary market, this will tend to push the prices of your CDs down in the short term. So if you bought a 3-year at 2.80% just before the yield climbed to 2.85%, you would have experienced a small drop in price because of that. Assuming there were no bid/ask spread (the difference between what you would get to sell and what you pay to buy), and no secondary market anomalies (you often can get a slightly higher yield and lower price for same maturity than with new issue), the price would drop to about 99.86, so a drop of 0.14%. In reality you would get less than that if you sold due to the bid/ask spread.

The other main factor is that the CD will approach par value (100) as it approaches maturity, but it may actually increase above that depending on yields over the next three years. Say the yields remained exactly as they are, with all other assumptions from above. In one year you would have a 2-year CD with a coupon rate of 2.80% and a 2-year yield of 2.65%, so your CD would be more attractive than new 2-year CDs at 2.65%, and the price would increase to 100.29.

A year after that, you'd have a 1-year CD with coupon of 2.80% and yield of 2.15%, and price would be 100.64. By the time you had one month left to maturity, yield would be 1.60% and price would be 100.10. A month later at maturity price would of course be 100.

Of course yields are unlikely to remain the same. If in one year the 2-year yield is at 2.80%, your CD will be valued at 100, same as when you bought it. If the 2-year yield is higher, your CD will be worth less than 100, and if lower, it will be worth more.

Another factor to consider is that the prices you see may just be estimates, since there may be no active quotes for that particular CD. Market is closed now, so not a good time to check, but I just entered the CUSIP (first column in the balances and holdings screen) for one of my CDs, and got the message that there are no markets for the CUSIP entered. Also, even if there are both bid and ask quotes, I'm not sure if Vanguard shows bid quote, ask quote, or a midpoint between them. Maybe I can look into that when markets are open, since it will be more likely to find quotes then.

Hope that makes sense, and feel free to follow up with questions if it doesn't. Since you plan to hold to maturity, it's just academic for you, but you said you were interested.

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Re: 2-year CDs at Vanguard and Fidelity Today

Post by Kevin M » Sun Apr 22, 2018 8:46 pm

bayview wrote:
Sun Apr 22, 2018 4:49 pm
OK, thanks, that’s what I figured. Still odd to see the supposed “value” of each one fluctuate. I had hoped (in a not terribly concerned way) that it showed the effect of the interest, but no, not when it occasionally drops.
If you mean the accrued interest or interest that has been paid, then no, the quoted prices don't include this. You could have a positive total return due to interest payments, but still have a capital loss with price of less than 100. Similarly, the prices and values you see for your bond funds do not include accrued interest, although you can see that in a different view. Of course the bond fund values will include reinvested dividends, but there are no reinvested dividends or interest with brokered CDs.

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Re: 2-year CDs at Vanguard and Fidelity Today

Post by Kevin M » Mon Apr 23, 2018 11:18 am

Three-year new issue yields at Fidelity and Vanguard dropped back to 2.80% today (from 2.85% last week). However, you still can net 2.965% at $1/CD commission and 2.856% at $2/CD commission for 2.93 year maturing 03/29/2021. CUSIP 949763FW1,WELLS FARGO BANK NATL ASSN CD 2.25000% 03/29/2021 priced at 97.897, yield 3.0% before commission.

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Re: 2-year CDs at Vanguard and Fidelity Today

Post by sport » Mon Apr 23, 2018 3:03 pm

There are new rates for 2-year and 3-year CDs at Vanguard, from Wells Fargo. The 2-year rate is 2.75% and the 3-year rate is 2.90%.

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Re: 2-year CDs at Vanguard and Fidelity Today

Post by indexfundfan » Tue Apr 24, 2018 12:05 pm

The 2-yr treasury note just closed at auction with a rate of 2.498%.
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Re: 2-year CDs at Vanguard and Fidelity Today

Post by Doc » Tue Apr 24, 2018 12:32 pm

indexfundfan wrote:
Tue Apr 24, 2018 12:05 pm
The 2-yr treasury note just closed at auction with a rate of 2.498%.
I bought the then on the run 2-yr for 2.270% on 4/9/18. :oops:

Twenty bps in two weeks. :annoyed
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Re: 2-year CDs at Vanguard and Fidelity Today

Post by ofckrupke » Tue Apr 24, 2018 12:37 pm

Doc wrote:
Tue Apr 24, 2018 12:32 pm
indexfundfan wrote:
Tue Apr 24, 2018 12:05 pm
The 2-yr treasury note just closed at auction with a rate of 2.498%.
I bought the then on the run 2-yr for 2.270% on 4/9/18. :oops:

Twenty bps in two weeks. :annoyed
But hey, hold a year+ and you get that LTCG tax preference on that de minimis discount income. :twisted:

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Re: 2-year CDs at Vanguard and Fidelity Today

Post by Kevin M » Tue Apr 24, 2018 5:01 pm

sport wrote:
Mon Apr 23, 2018 3:03 pm
There are new rates for 2-year and 3-year CDs at Vanguard, from Wells Fargo. The 2-year rate is 2.75% and the 3-year rate is 2.90%.
Yep, also at Fidelity. I think I saw two banks offering the 2-year at 2.75%, but only one offering the 3-year at 2.90%. So the increasing 2-year and 3-year yield trend continues.

Today there was a secondary 1.82-year CD at 2.984% net at Fidelity, so 8 bps over the new-issue 3-year and with earlier maturity. The catch is that there was only 1 available. There were 10 of same maturity at 2.94% net, so still a good deal compared to the new-issue 3-year.

Note that 2-year Treasury yield has risen from 2.25% at beginning of month to 2.49% yesterday, and 3-year as increased from 2.37% to 2.64%, so it's not just CD yields that have been increasing.

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Re: 2-year CDs at Vanguard and Fidelity Today

Post by Kevin M » Tue Apr 24, 2018 5:09 pm

indexfundfan wrote:
Tue Apr 24, 2018 12:05 pm
The 2-yr treasury note just closed at auction with a rate of 2.498%.
And Fidelity now shows 2-year at 2.50%, but this almost certainly is for large quantities (100 or more) and perhaps somewhat longer than 2-year maturity.

Two-year CD provides at least 25 bps yield premium with new-issue at 2.75% (in tax-advantaged), so still good for those who are happy getting paid for illiquidity premium in an IRA.

In taxable, Treasury 2-year at 2.5% is TEY for me of 2.8%, so 2-year Treasury meets or beats 2-year CD in taxable (for me).

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Re: 2-year CDs at Vanguard and Fidelity Today

Post by hoops777 » Tue Apr 24, 2018 6:10 pm

Sold my short term bond fund and bought the 2 year 2.75 in my IRA.About a year ago I bought a 5 yr at 2.75 that was a great rate at Patelco recommended by Kevin.Things are changing fast.
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Re: 2-year CDs at Vanguard and Fidelity Today

Post by indexfundfan » Tue Apr 24, 2018 6:20 pm

Kevin M wrote:
Tue Apr 24, 2018 5:09 pm
indexfundfan wrote:
Tue Apr 24, 2018 12:05 pm
The 2-yr treasury note just closed at auction with a rate of 2.498%.
And Fidelity now shows 2-year at 2.50%, but this almost certainly is for large quantities (100 or more) and perhaps somewhat longer than 2-year maturity.

Two-year CD provides at least 25 bps yield premium with new-issue at 2.75% (in tax-advantaged), so still good for those who are happy getting paid for illiquidity premium in an IRA.

In taxable, Treasury 2-year at 2.5% is TEY for me of 2.8%, so 2-year Treasury meets or beats 2-year CD in taxable (for me).

Kevin
I bought in this auction. My state tax is 6% so by buying the treasury instead of CD, I'm sacrificing about 10 bps to get better liquidity and not have to worry about FDIC limits.
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Re: 2-year CDs at Vanguard and Fidelity Today

Post by Kevin M » Tue Apr 24, 2018 8:09 pm

indexfundfan wrote:
Tue Apr 24, 2018 6:20 pm
Kevin M wrote:
Tue Apr 24, 2018 5:09 pm
indexfundfan wrote:
Tue Apr 24, 2018 12:05 pm
The 2-yr treasury note just closed at auction with a rate of 2.498%.
And Fidelity now shows 2-year at 2.50%, but this almost certainly is for large quantities (100 or more) and perhaps somewhat longer than 2-year maturity.

Two-year CD provides at least 25 bps yield premium with new-issue at 2.75% (in tax-advantaged), so still good for those who are happy getting paid for illiquidity premium in an IRA.

In taxable, Treasury 2-year at 2.5% is TEY for me of 2.8%, so 2-year Treasury meets or beats 2-year CD in taxable (for me).

Kevin
I bought in this auction. My state tax is 6% so by buying the treasury instead of CD, I'm sacrificing about 10 bps to get better liquidity and not have to worry about FDIC limits.
That's a reasonable choice if the liquidity might be important to you, or if the FDIC insurance limits are a barrier for you.

Also, you are sacrificing about 10 bps compared to CD if you are itemizing and fully deducting state tax on Schedule A. If not, your marginal federal tax rate is relevant in calculating TEY. For example, at 27% federal and 6% state, your TEY at 2.5% Treasury yield is 2.724%, compared to 2.660% if you itemize and fully deduct state taxes. In this case, you're only sacrificing about 2.5 bps (assuming you can't beat new issue yield in secondary market).

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Re: 2-year CDs at Vanguard and Fidelity Today

Post by indexfundfan » Tue Apr 24, 2018 10:29 pm

There's one other factor which I considered but not mentioned. I have to keep MAGI low for ACA. A treasury note produces a smaller MAGI impact compared to a CD with the same TEY.
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Re: 2-year CDs at Vanguard and Fidelity Today

Post by Kevin M » Mon Apr 30, 2018 2:16 pm

There still is a new-issue 2-year CD at Fidelity at 2.75%, from Wells Fargo, but settlement now is 5/9/2018 (next Wednesday). The ones that settled this week are gone. So next step is to look for secondary 2-year CDs at 2.75% net or better, and when I looked earlier this morning, I did not see any.

Vanguard still has a 2-year new issue from Morgan Stanley that settles 5/3/2018. VG also has the WF new-issue at 2.75% that settles 5/9. They also don't have anything that will beat this on secondary market.

So if looking for a 2-year CD, I would either buy the new issue 2.75% at Vanguard that settles 5/3, or look for better deal on secondary at Fidelity over next few days.

Fidelity has new issue 3-year from WF at 2.90% that also settles on 3/9. Ditto at Vanguard.

However, Fidelity has CUSIP 02587DN20, maturing 04/05/2021, qty/(min qty) 315(1), gross yield 3.002$, 2.93-year term at 2.966% net. Vanguard has same at same price; net yield will be the same at $1/CD commission, but of course less at $2/CD commission. With this you get about 7 bps extra yield at shorter maturity compared to new issue. If looking for 3-year maturity, I would buy this at Fidelity or if paying $1/CD at Vanguard.

There are a few others that jump out as attractive, looking at my chart, but they are all for small quantities, like 1-3.

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Re: 2-year CDs at Vanguard and Fidelity Today

Post by Mitchell777 » Mon Apr 30, 2018 2:53 pm

Kevin - Thanks. I'm just starting to buy CD's and Treasuries again and your insights are very helpful

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Re: 2-year CDs at Vanguard and Fidelity Today

Post by Doc » Mon Apr 30, 2018 3:14 pm

Kevin M wrote:
Mon Apr 30, 2018 2:16 pm
There are a few others that jump out as attractive, looking at my chart, but they are all for small quantities, like 1-3.
Dang it Kevin now you've got me looking at these things.

At Schwab your Wells Fargo 2.75 shows ($1,000 minimum; $72,090,000 available in $1,000 increments)

But when I tried to place an order for $10k I get:

1) 100% required to execute this buy order.
2) This security is not marginable.

I can buy a whole ton of 2 yr Treasuries but does this mean I can't buy a $10k CD without cash up front?
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Re: 2-year CDs at Vanguard and Fidelity Today

Post by indexfundfan » Mon Apr 30, 2018 3:16 pm

Quick question : when buying secondary CDs or treasuries in a taxable account, does it matter if the CD or treasury is close to making a coupon payment? i.,e. would you be "buying into a coupon payment and paying tax on it"?
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Re: 2-year CDs at Vanguard and Fidelity Today

Post by Kevin M » Mon Apr 30, 2018 3:52 pm

Doc wrote:
Mon Apr 30, 2018 3:14 pm
But when I tried to place an order for $10k I get:

1) 100% required to execute this buy order.
2) This security is not marginable.

I can buy a whole ton of 2 yr Treasuries but does this mean I can't buy a $10k CD without cash up front?
That's strange. At Fidelity and Vanguard I buy all the time without the money in my settlement fund, and as long as I get it there in T+2, no problems. I do have margin accounts in taxable though, but I mostly buy the CDs in IRAs. But at Vanguard, the IRA money is not in my settlement fund when I place the order, but in the higher yielding Prime MM, which Vanguard does not count as available for trades. I then just place an order to sell the exact dollar amount of Prime MM to cover the trade.

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Re: 2-year CDs at Vanguard and Fidelity Today

Post by Kevin M » Mon Apr 30, 2018 4:02 pm

indexfundfan wrote:
Mon Apr 30, 2018 3:16 pm
Quick question : when buying secondary CDs or treasuries in a taxable account, does it matter if the CD or treasury is close to making a coupon payment? i.,e. would you be "buying into a coupon payment and paying tax on it"?
No. The accrued interest is taxable to the seller, not to you. However, you probably have to keep track of this yourself for tax reporting.

Vanguard and Fidelity report your accrued interest in their 1099-consolidated packages, but for the year securities are purchased. I bought some CDs, Treasuries and munis with accrued interest in late 2017, so accrued interest was reported to me, but no coupon payments were received. Normally I would expect to subtract the accrued interest in the year of the first coupon payment, but I used a CPA for 2017 tax year, and he subtracted it in 2017.

For munis, this only is an issue for state income tax for out of state munis. I'm not sure what my CPA did was correct, or that he did it exactly right, since some of the interest was for munis and some was not. I'll have to take a careful look at this when doing 2018 taxes.

If you do your own taxes, you need to handle accrued interest, market discounts, and market premiums correctly. If you use a tax preparer, hopefully he or she knows how to do this correctly. My CPA made tons of mistakes, all of which I caught by doing my own version of the returns (I used a CPA for one specific, complicated situation, but it was much more work than just doing my own taxes).

I buy brokered CDs mainly in IRAs, so it's mostly not an issue for me with CDs.

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Re: 2-year CDs at Vanguard and Fidelity Today

Post by indexfundfan » Mon Apr 30, 2018 7:32 pm

Kevin M wrote:
Mon Apr 30, 2018 4:02 pm
indexfundfan wrote:
Mon Apr 30, 2018 3:16 pm
Quick question : when buying secondary CDs or treasuries in a taxable account, does it matter if the CD or treasury is close to making a coupon payment? i.,e. would you be "buying into a coupon payment and paying tax on it"?
No. The accrued interest is taxable to the seller, not to you. However, you probably have to keep track of this yourself for tax reporting.

Vanguard and Fidelity report your accrued interest in their 1099-consolidated packages, but for the year securities are purchased. I bought some CDs, Treasuries and munis with accrued interest in late 2017, so accrued interest was reported to me, but no coupon payments were received. Normally I would expect to subtract the accrued interest in the year of the first coupon payment, but I used a CPA for 2017 tax year, and he subtracted it in 2017.

For munis, this only is an issue for state income tax for out of state munis. I'm not sure what my CPA did was correct, or that he did it exactly right, since some of the interest was for munis and some was not. I'll have to take a careful look at this when doing 2018 taxes.

If you do your own taxes, you need to handle accrued interest, market discounts, and market premiums correctly. If you use a tax preparer, hopefully he or she knows how to do this correctly. My CPA made tons of mistakes, all of which I caught by doing my own version of the returns (I used a CPA for one specific, complicated situation, but it was much more work than just doing my own taxes).

I buy brokered CDs mainly in IRAs, so it's mostly not an issue for me with CDs.

Kevin
Thank you. I guess if everything is on the 1099, I should be able to handle it when the time comes.
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Re: 2-year CDs at Vanguard and Fidelity Today

Post by Kevin M » Mon Apr 30, 2018 8:20 pm

indexfundfan wrote:
Mon Apr 30, 2018 7:32 pm
Thank you. I guess if everything is on the 1099, I should be able to handle it when the time comes.
Accrued interest is not on 1099-INT--it is in a supplemental page toward the end of the consolidated package.

Premiums and market discounts are reported on 1099-INT, but can either be included in the interest, or included in separate boxes specifically for these purposes.

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Re: 2-year CDs at Vanguard and Fidelity Today

Post by Kevin M » Thu May 03, 2018 1:06 pm

Today I received the proceeds of a matured PenFed Roth IRA CD at my Fidelity Roth IRA (using a direct Roth IRA transfer), so will start deploying it into CDs and/or Treasuries. Considering Treasuries and CDs, the best deal still looks like a 2-year new-issue CD at 2.75% if looking for the upper end of the steepest portion of the yield curves, and the highest yield at a given maturity (and return if held to maturity).

Here is a chart of basis points (bps) per year of extra maturity compared to my 0-year benchmark, Prime MM at 1.82%:

Image

Clearly the peak is right at 2-year maturity. However, this chart is based on secondary market CDs, and it turns out that the net yield for the 2-year CD at the peak of the bps/year is a CD maturing 5/4/2020 at a net yield of 2.74%. The new-issue 2-year CD at Fidelity matures 5/11/2020 with a yield of 2.75% (no commission, so this is the net yield). So this secondary CD doesn't look particularly attractive compared to the new issue.

The indicated 2-year Treasury yield on Fidelity summary page is 2.50%, so even comparing to this, the CD still provides a 25 bps yield premium. Looking at Treasuries maturing the closest to the new issue CD, the high yield I see is 2.496% for minimum quantity 200 maturing 5/15/2020. Since I would be buying 10-25, I see 2.485% for 25 and 2.482% for min qty 1 (there is no min qty 10 choice with higher yield--there is one with lower yield). So all it 2.48-2.49%--close enough to 2.5% to still consider the CD a yield premium to be about 25 bps.

I see a fairly large quantity of the the new-issue at 2.75%, so it's likely that they still will be available tomorrow, and maybe even early next week. So I probably will hold off on buying anything today, and continue to monitor the secondary market offerings until then.

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Re: 2-year CDs at Vanguard and Fidelity Today

Post by Kevin M » Thu May 03, 2018 2:40 pm

Checked again, and a good one had popped up. Bond CUSIP 61747MN98, Description MORGAN STANLEY BK N A UTAH CD 2.50000% 03/16/2020, price before commission 99.42, so 99.52 after commission. This comes to net yield of 2.766%, so better than new issue and almost two month shorter maturity. There were only 10 available, and I grabbed them.

This is a yield-extension premium of about 51 bps/year, so slightly off the chart I posted earlier.

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Re: 2-year CDs at Vanguard and Fidelity Today

Post by Kevin M » Mon May 07, 2018 12:31 pm

Here's something kind of interesting. Currently Fidelity is showing new-issue 2-year CD at 2.70%, while Vanguard shows 2.75%. So at first glance, it looks like Vanguard is offering a better deal.

However, the CD that Vanguard shows is a Goldman Sachs CD maturing 05/11/2020 (CUSIP 38148PJ65), and this same CD is available at Fidelity on secondary market at a yield of 2.845% before commission, which is 2.801% after commission. Vanguard doesn't have anything competitive on secondary market, So about 5 bps more yield for same CD on secondary market at Fidelity than new-issue at Vanguard. So Fidelity actually is offering the better deal for those willing to buy in the secondary market.

Also, minimum quantity for new-issue at Vanguard is 10 (which is typical), while for same CD on secondary at Fidelity it's 1.

Of course these things can change tomorrow, or even later today. I wonder if the secondary deal is signaling that a new-issue 2-year will be coming out at 2.80% soon.

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Re: 2-year CDs at Vanguard and Fidelity Today

Post by TBillT » Mon May 07, 2018 12:43 pm

Kevin M wrote:
Mon May 07, 2018 12:31 pm
Of course these things can change tomorrow, or even later today. I wonder if the secondary deal is signaling that a new-issue 2-year will be coming out at 2.80% soon.

Kevin
Kevin- Fidelity question for you, I used to like to use the Fidelity graphics function for CD's and bonds to pick out the best. Looks like we can only get the tabular data now. no more plots vs. maturity date?

Geez it's just a little more fun now to actually have something to plot up again now that the ST interest rates have perked up.

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Re: 2-year CDs at Vanguard and Fidelity Today

Post by Kevin M » Mon May 07, 2018 12:55 pm

TBillT wrote:
Mon May 07, 2018 12:43 pm
Kevin M wrote:
Mon May 07, 2018 12:31 pm
Of course these things can change tomorrow, or even later today. I wonder if the secondary deal is signaling that a new-issue 2-year will be coming out at 2.80% soon.

Kevin
Kevin- Fidelity question for you, I used to like to use the Fidelity graphics function for CD's and bonds to pick out the best. Looks like we can only get the tabular data now. no more plots vs. maturity date?
I don't recall seeing that at Fidelity, but yeah, now all I see in the search results is a "Table View" tab, implying that there should be some other view to select--but there is not.

I download the search results into a spreadsheet, and can then do my own analysis and create charts. More discussion about this in this thread: viewtopic.php?f=10&t=247796. I first look at a basis points per extra year of maturity chart to find the peaks of the steepest parts of the yield curve; peak of steepest now is two years. Then I look at the same point on a yield curve chart to identify the exact term to maturity, then look at my tabular results to see the details (like quantity available and minimum quantity).

Also, I use net yields (after commission), so I can compare directly to Treasuries at similar maturities, but for Treasuries must look at depth of book to see yields for smaller quantities--can't do this in a spreadsheet.

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Re: 2-year CDs at Vanguard and Fidelity Today

Post by Doc » Mon May 07, 2018 1:10 pm

TBillT wrote:
Mon May 07, 2018 12:43 pm
Kevin- Fidelity question for you, I used to like to use the Fidelity graphics function for CD's and bonds to pick out the best. Looks like we can only get the tabular data now. no more plots vs. maturity date?
Kevin M wrote:
Mon May 07, 2018 12:55 pm
I don't recall seeing that at Fidelity, but yeah, now all I see in the search results is a "Table View" tab, implying that there should be some other view to select--but there is not.
Once upon a time you got charts with Internet Explorer. Then along came Chrome and you couldn't get them on Chrome. Now you can't get the charts on Internet Explorer, Chrome or Edge as far as I can tell.

I think it was a Flash Player issue. Maybe.
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Re: 2-year CDs at Vanguard and Fidelity Today

Post by bpg1234 » Tue May 08, 2018 9:22 am

So I was waiting until this week to see if anything popped up on the secondary CD market for a 2 year issue that would beat the existing 2.75% rate. If nothing showed up I was then going to get the 2 year Wells Fargo that was being offered with the 5/9/18 settlement date but apparently this was removed at some point early yesterday morning and subsequently replaced late yesterday with a new 2.75% WF 2 year CD with a first settlement date of 5/23/2018.

I see there are some other issues on the secondary market (Citi and Morgan Stanley) with a settlement date for this week that would equate to 2.75% even with commission (if Flagship) but would have preferred a WF issue due to monthly distributions. I think this is the second time this has happened to me.

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Re: 2-year CDs at Vanguard and Fidelity Today

Post by TBillT » Tue May 08, 2018 11:31 am

Doc wrote:
Mon May 07, 2018 1:10 pm
TBillT wrote:
Mon May 07, 2018 12:43 pm
Kevin- Fidelity question for you, I used to like to use the Fidelity graphics function for CD's and bonds to pick out the best. Looks like we can only get the tabular data now. no more plots vs. maturity date?
Kevin M wrote:
Mon May 07, 2018 12:55 pm
I don't recall seeing that at Fidelity, but yeah, now all I see in the search results is a "Table View" tab, implying that there should be some other view to select--but there is not.
Once upon a time you got charts with Internet Explorer. Then along came Chrome and you couldn't get them on Chrome. Now you can't get the charts on Internet Explorer, Chrome or Edge as far as I can tell.

I think it was a Flash Player issue. Maybe.
Yes thank you.... the feature it was nice while they had it

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Re: 2-year CDs at Vanguard and Fidelity Today

Post by Kevin M » Tue May 08, 2018 4:20 pm

bpg1234 wrote:
Tue May 08, 2018 9:22 am
So I was waiting until this week to see if anything popped up on the secondary CD market for a 2 year issue that would beat the existing 2.75% rate. If nothing showed up I was then going to get the 2 year Wells Fargo that was being offered with the 5/9/18 settlement date but apparently this was removed at some point early yesterday morning and subsequently replaced late yesterday with a new 2.75% WF 2 year CD with a first settlement date of 5/23/2018.

I see there are some other issues on the secondary market (Citi and Morgan Stanley) with a settlement date for this week that would equate to 2.75% even with commission (if Flagship) but would have preferred a WF issue due to monthly distributions. I think this is the second time this has happened to me.
I'm pretty consistently finding better secondary deals at Fidelity, and since commission is $1/CD for everyone, I'd recommend Fidelity over Vanguard for CDs at this point. I bought some of the 2-year secondary at 2.80% net yesterday at Fidelity, and bought some more today at same yield. And of course these settle in 2 business days.

That's one problem with holding off on new-issue CDs until you get close to the settlement date--they might still be there two days before settlement, but they might not, and then the settlement date is pushed out at least a week (and in your case, two weeks). I've been buying almost exclusively secondary issues (at Fidelity).

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Re: 2-year CDs at Vanguard and Fidelity Today

Post by bpg1234 » Tue May 08, 2018 5:27 pm

Kevin M wrote:
Tue May 08, 2018 4:20 pm
bpg1234 wrote:
Tue May 08, 2018 9:22 am
So I was waiting until this week to see if anything popped up on the secondary CD market for a 2 year issue that would beat the existing 2.75% rate. If nothing showed up I was then going to get the 2 year Wells Fargo that was being offered with the 5/9/18 settlement date but apparently this was removed at some point early yesterday morning and subsequently replaced late yesterday with a new 2.75% WF 2 year CD with a first settlement date of 5/23/2018.

I see there are some other issues on the secondary market (Citi and Morgan Stanley) with a settlement date for this week that would equate to 2.75% even with commission (if Flagship) but would have preferred a WF issue due to monthly distributions. I think this is the second time this has happened to me.
I'm pretty consistently finding better secondary deals at Fidelity, and since commission is $1/CD for everyone, I'd recommend Fidelity over Vanguard for CDs at this point. I bought some of the 2-year secondary at 2.80% net yesterday at Fidelity, and bought some more today at same yield. And of course these settle in 2 business days.

That's one problem with holding off on new-issue CDs until you get close to the settlement date--they might still be there two days before settlement, but they might not, and then the settlement date is pushed out at least a week (and in your case, two weeks). I've been buying almost exclusively secondary issues (at Fidelity).

Kevin
Thanks Kevin for your perspective. Guess live and learn. Haven't seen anything on Vanguard in secondary today equating close to 2.8%. The one problem I have is I am buying in my IRA which is mostly at Vanguard and nothing at Fidelity.

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Re: 2-year CDs at Vanguard and Fidelity Today

Post by Kevin M » Tue May 08, 2018 6:58 pm

bpg1234 wrote:
Tue May 08, 2018 5:27 pm
Thanks Kevin for your perspective. Guess live and learn. Haven't seen anything on Vanguard in secondary today equating close to 2.8%. The one problem I have is I am buying in my IRA which is mostly at Vanguard and nothing at Fidelity.
It's quite easy to do an IRA transfer between Vanguard and Fidelity. I've done several from Fido to VG, and recently am doing them from banks and credit unions where CDs are maturing to Fidelity. Also did a couple to Vanguard, but then figured out that Fidelity has better deals for munis in taxable and CDs in tax-advantaged, so now am favoring Fidelity.

If you have a local Fidelity office, you can even drop the transfer form off there, and that will save a few days in transfer time. They also will review it for you to make sure it's good. But if not, mailing the form to Fidelity is fine (they then sign it and mail it to Vanguard).

EDIT: But as people often point out, the difference between 2.75% and 2.80% is only a few dollars of return, so it's not a huge deal. I'm just an optimizer, so try to squeeze out every penny as long as it's not much work, and to me it's fun.

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Re: 2-year CDs at Vanguard and Fidelity Today

Post by bpg1234 » Thu May 10, 2018 9:35 am

Kevin M wrote:
Tue May 08, 2018 6:58 pm
bpg1234 wrote:
Tue May 08, 2018 5:27 pm
Thanks Kevin for your perspective. Guess live and learn. Haven't seen anything on Vanguard in secondary today equating close to 2.8%. The one problem I have is I am buying in my IRA which is mostly at Vanguard and nothing at Fidelity.
It's quite easy to do an IRA transfer between Vanguard and Fidelity. I've done several from Fido to VG, and recently am doing them from banks and credit unions where CDs are maturing to Fidelity. Also did a couple to Vanguard, but then figured out that Fidelity has better deals for munis in taxable and CDs in tax-advantaged, so now am favoring Fidelity.

If you have a local Fidelity office, you can even drop the transfer form off there, and that will save a few days in transfer time. They also will review it for you to make sure it's good. But if not, mailing the form to Fidelity is fine (they then sign it and mail it to Vanguard).

EDIT: But as people often point out, the difference between 2.75% and 2.80% is only a few dollars of return, so it's not a huge deal. I'm just an optimizer, so try to squeeze out every penny as long as it's not much work, and to me it's fun.

Kevin
Kevin, as I get older I get concerned with the ability for my spouse to handle all of this stuff in different places so feel it's better for management sake for one brokerage account with my IRA. This is why I have been interested in brokerage CDs as it's very simple to do and manage as long it's IRA funds that will remain through to maturity.

As for Vanguard, I did get a 2 year issue on the secondary market this morning at 2.817% YTM so pretty good rate "for now". Thanks for all of your outstanding advice over the years.

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Re: 2-year CDs at Vanguard and Fidelity Today

Post by Kevin M » Thu May 10, 2018 12:18 pm

bpg1234 wrote:
Thu May 10, 2018 9:35 am
Kevin, as I get older I get concerned with the ability for my spouse to handle all of this stuff in different places so feel it's better for management sake for one brokerage account with my IRA. This is why I have been interested in brokerage CDs as it's very simple to do and manage as long it's IRA funds that will remain through to maturity.
Understood. Same thought crosses my mind occasionally (like yesterday). I'm actually simplifying somewhat by transferring proceeds from maturing CDs from banks and credit unions to Fidelity (and previously Vanguard).

Agreed that the CDs in an IRA shouldn't be too complicated, especially if keeping maturities fairly short.

My muni ladder in taxable would be much more complicated for beneficiaries to deal with, but again, at least it's fairly short maximum maturity, so even if munis weren't the best for them, they wouldn't have to hold them too long. Splitting up munis is a bit harder though, since minimum lot size is 5. And the tax reporting is a bit complicated as well.
As for Vanguard, I did get a 2 year issue on the secondary market this morning at 2.817% YTM so pretty good rate "for now". Thanks for all of your outstanding advice over the years.
Was that 795450P58 SALLIE MAE BK SLT LAKE CITY UT CD 2.70000% 05/11/2020? I bought 10 at a slightly lower yield, then saw another batch become available at the higher yield with minimum quantity 20. At $1 commission, that's about 2.81% net for the former and 2.83% net for the latter.

One thing I noted is although Fidelity and Vanguard had same price, Vanguard was quoting a higher yield. I've seen that before, so I just use my own yield calculation to be sure I'm comparing apples to apples. Could be one is using act/act and one is using act/365. That pretty much explains it if I change the day count convention parameter in the YIELD function.

It's crazy looking at the spike in the secondary CD yield curve at 2-year maturity.

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Re: 2-year CDs at Vanguard and Fidelity Today

Post by bpg1234 » Thu May 10, 2018 12:46 pm

Kevin M wrote:
Thu May 10, 2018 12:18 pm
Was that 795450P58 SALLIE MAE BK SLT LAKE CITY UT CD 2.70000% 05/11/2020? I bought 10 at a slightly lower yield, then saw another batch become available at the higher yield with minimum quantity 20. At $1 commission, that's about 2.81% net for the former and 2.83% net for the latter.
Yes believe so as I bought 50 which I think was the required minimum at the time so with $1 commission came out to the 2.81% and now the new batch is at 2.83%. So didn't take very long for a new secondary batch to top it!

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Re: 2-year CDs at Vanguard and Fidelity Today

Post by Mitchell777 » Thu May 10, 2018 4:12 pm

bpg1234 wrote:
Thu May 10, 2018 12:46 pm
Kevin M wrote:
Thu May 10, 2018 12:18 pm
Was that 795450P58 SALLIE MAE BK SLT LAKE CITY UT CD 2.70000% 05/11/2020? I bought 10 at a slightly lower yield, then saw another batch become available at the higher yield with minimum quantity 20. At $1 commission, that's about 2.81% net for the former and 2.83% net for the latter.
Yes believe so as I bought 50 which I think was the required minimum at the time so with $1 commission came out to the 2.81% and now the new batch is at 2.83%. So didn't take very long for a new secondary batch to top it!
I see the yield listed as 2.856% on this batch. What is the calculation to get to the 2.83%? I've never bought in the secondary market but I'd like to consider it and 2.83% sounds better than the 2.75% I received in new issue. . Thanks

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Re: 2-year CDs at Vanguard and Fidelity Today

Post by Kevin M » Thu May 10, 2018 4:44 pm

Mitchell777 wrote:
Thu May 10, 2018 4:12 pm
I see the yield listed as 2.856% on this batch. What is the calculation to get to the 2.83%? I've never bought in the secondary market but I'd like to consider it and 2.83% sounds better than the 2.75% I received in new issue. . Thanks
You are seeing the yield before commission. If you go through the first screen or two of the buy process, Vanguard and Fidelity will calculate your net yield (after commission). You can then just cancel at that point if you don't like what you see.

What I do is calculate the yields in a spreadsheet using the YIELD function. If you are paying $1/CD, you increase price by 0.1, and if $2/CD by 0.2. Then use the after-commission price in the YIELD function. So for a quoted price of 99.7, you would increase it to 99.8 or 99.9 for your yield calculation. This is what reduces the yield to the "net yields" that I mention.

As I said, Vanguard and Fidelity may show a different yield for same CD at same price. There typically are two day count conventions used for CDs--ACT/ACT and ACT/365. There is a day count convention parameter in the YIELD function that you set to either 1 or 3 for CDs (I usually use 1, as it seems most common). I just use the same convention regardless of what the CD uses, since if you hold to maturity I don't think it matters, and using the same convention gives you an apples to apples comparison.

Also, most CDs pay interest semiannually, so usually use 2 as the frequency parameter in the YIELD function. Some pay interest monthly, but the highest you can set the frequency parameter to is 4, so I set it to 4 for monthly payments, and that gets the yield pretty close to what you see quoted.

And yes, I almost always beat the new-issue yield in secondary market at $1/CD commission, but it's harder at $2/CD commission, which is why Fidelity might be better for accounts with less than $500K in Vanguard funds, but the difference in dollars is fairly small.

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Re: 2-year CDs at Vanguard and Fidelity Today

Post by Mitchell777 » Thu May 10, 2018 5:52 pm

Thanks Kevin. Stupid question but when I bring up, in Vanguard, a listing of both new and secondary issues that interest me I can click on the "BUY" action on new issues but cannot on the Secondary issues. For example I can't click on "BUY" for 2007GCNI Ally. The BUY button is not highlighted and can't click on it

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Re: 2-year CDs at Vanguard and Fidelity Today

Post by bpg1234 » Thu May 10, 2018 6:26 pm

Mitchell777 wrote:
Thu May 10, 2018 5:52 pm
Thanks Kevin. Stupid question but when I bring up, in Vanguard, a listing of both new and secondary issues that interest me I can click on the "BUY" action on new issues but cannot on the Secondary issues. For example I can't click on "BUY" for 2007GCNI Ally. The BUY button is not highlighted and can't click on it
You can only click the BUY button on secondary issues when the fixed income market is open which I believe is 8AM to 5PM M-F.

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Re: 2-year CDs at Vanguard and Fidelity Today

Post by Mitchell777 » Thu May 10, 2018 8:13 pm

bpg1234 wrote:
Thu May 10, 2018 6:26 pm
Mitchell777 wrote:
Thu May 10, 2018 5:52 pm
Thanks Kevin. Stupid question but when I bring up, in Vanguard, a listing of both new and secondary issues that interest me I can click on the "BUY" action on new issues but cannot on the Secondary issues. For example I can't click on "BUY" for 2007GCNI Ally. The BUY button is not highlighted and can't click on it
You can only click the BUY button on secondary issues when the fixed income market is open which I believe is 8AM to 5PM M-F.
Thanks!

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Re: 2-year CDs at Vanguard and Fidelity Today

Post by Kevin M » Thu May 17, 2018 5:03 pm

Today the 3-year new-issue rate hit 3% at both Fidelity and Vanguard. The 2-year rate hit 2.80% at Fidelity, but Vanguard still is showing 2.75%.

The 2-year at 2.80% is offered by WEBBANK--I'm not familiar with that bank, and this is the first time I've seen it offering the top-tier rates. It settles 5/30, so almost two weeks from today. WEBBANK also is offering the 3.00% rate at Fidelity, but so is Synchrony Bank. The SB offering settles on 5/25, while the WEBBANK offering settles 5/30.

I received proceeds today at my Fidelity IRA from a Mountain America Credit Union IRA CD that matured on 5/14, so only three days transfer time (part of the trick is to turn in the IRA transfer form well before the CD matures, and indicate to transfer proceeds when the CD matures, but still, this is the fastest IRA transfer I've experienced). The main point is that I'm again looking for good CD deals, having invested the last of my previous Roth IRA CD proceeds transferred to Fidelity Roth IRA two days ago.

However, the best secondary 2-year CD rate I saw today was 2.80%, so although it would settle much sooner, it still only matches the new issue rate, and typically the secondary rate will start to beat new issue rate a bit after the new-issue rate increases. For example, the 2-year CD I bought two days ago was the 2.75% coupon CD, but my net yield (after commission) was 2.85%. I now want to get at least 2.85% for a 2-year CD. This is 20-25 basis points over the Treasury 2-year yield of a little less than 2.6%

A secondary 3-year CD was available at net 3.07%, so 7 bps better than the new-issue at 3.00%, and of course much quicker settlement, but market close was approaching, and I didn't want to rush into this, as the yield curve bump at 2-year maturity still is the steepest. Still, this is a yield premium of more than 30 basis points over the 3-year Treasury at about 2.75%.

Here's the chart of the Fidelity net secondary CD yields vs. the Treasury large-quantity yields. CD data pulled at 3:32 PM eastern, and Treasury data pulled at 2:35 PM.

Image

Since this is in an IRA, the state tax exemption for Treasuries does not come into play.

Note that Treasuries still mostly beating CDs to about 1.7-year maturity, with a small exception at 1.45 years. The sharp CD-yield peak at 2-year maturity is still there, and there's another pretty steep increase from about 2.8 years to 2.87 years, and another 6 bps increase from 2.87 years to 3 years.

Looking just at new-issue CD yields, you get 50 bps for extending from 1-year at 2.30% to 2-year at 2.80%, and 20 bps for extending from 2-year at 2.80% to 3-year at 3.00%.

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Re: 2-year CDs at Vanguard and Fidelity Today

Post by Blueskies123 » Sat May 19, 2018 12:39 pm

I am new to looking at individual bonds and had a question.
Looking at Fidelity's bond screens I see that at the two year maturity mark CD's beat Treasuries but I also noticed Agency bonds yielding very close to CD rates. They are rated AA+, not AAA. Are these Agency bonds really any less safe or liquid than treasuries or CDs. They have decent sized premium to treasuries.
Is there any advantage of CDs to Agency bonds rated AA+?

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Re: 2-year CDs at Vanguard and Fidelity Today

Post by Kevin M » Sat May 19, 2018 3:27 pm

Blueskies123 wrote:
Sat May 19, 2018 12:39 pm
I am new to looking at individual bonds and had a question.
Looking at Fidelity's bond screens I see that at the two year maturity mark CD's beat Treasuries but I also noticed Agency bonds yielding very close to CD rates. They are rated AA+, not AAA. Are these Agency bonds really any less safe or liquid than treasuries or CDs. They have decent sized premium to treasuries.
Is there any advantage of CDs to Agency bonds rated AA+?
Good questions. I haven't really looked at agency bonds.

Looking at the Fidelity yields summary page, I see 2-year new-issue CD at 2.80% higher than 2-year agency at 2.72%, and you probably can get 2-year CD on secondary market at 2.85% if patient and you have time to look a few times during the day. I see 3-year agency at 2.94% compared to new-issue 3-year CD at 3.00%, and again, probably can get 3.05% or a bit more on secondary market.

Market is closed, so not sure how valid, this is, but clicking on the 2-year agency and looking at the top couple, I see bid/ask spreads of almost 50 basis points, which is a lot more than say 2-3 bps spread for Treasuries, and on the order of bid/ask for CDs.

AA+ is just a notch below AAA (and I'd consider FDIC-insured CDs as AAA), so it's very little credit risk, but still more than AAA. So I don't know why I would take even a little credit risk for lower yield and comparable liquidity to an FDIC-insured CD.

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Re: 2-year CDs at Vanguard and Fidelity Today

Post by stlutz » Sat May 19, 2018 3:45 pm

The agency bonds are rated AA+ because that is the rating of the US Government. So, same rating as Treasuries.

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Re: 2-year CDs at Vanguard and Fidelity Today

Post by Doc » Sat May 19, 2018 4:25 pm

stlutz wrote:
Sat May 19, 2018 3:45 pm
The agency bonds are rated AA+ because that is the rating of the US Government. So, same rating as Treasuries.
Hmmnn.

United States federal government credit-rating downgrades
The 2011 S&P downgrade was the first time the government was given a rating below AAA. S&P had announced a negative outlook on the AAA rating in April 2011. The downgrade to AA+ occurred four days after the 112th United States Congress voted to raise the debt ceiling of the federal government by means of the Budget Control Act of 2011 on August 2, 2011.
...
Both Fitch Ratings and Moody's, designated like S&P as nationally recognized statistical rating organizations (NRSRO) by the U.S. Securities and Exchange Commission (SEC), retained the U.S.'s triple-A rating. Moody's, however, changed its outlook to negative on June 2, 2011 and Fitch changed its outlook to negative on November 28, 2011.
...
Fitch Ratings on March 21, 2014 upgraded its outlook for the U.S. AAA credit rating, removing the nation from a downgrade watch after politicians put off another debt limit battle until next year.
https://en.wikipedia.org/wiki/United_St ... rades#2014
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Re: 2-year CDs at Vanguard and Fidelity Today

Post by Kevin M » Sat May 19, 2018 6:11 pm

stlutz wrote:
Sat May 19, 2018 3:45 pm
The agency bonds are rated AA+ because that is the rating of the US Government. So, same rating as Treasuries.
It's interesting that Fidelity shows both Moody's AAA and S&P AA+ ratings for most Agency bonds, but only Moody's AAA for Treasuries. A few Agencies only show S&P AA+ and nothing for Moody's.

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Re: 2-year CDs at Vanguard and Fidelity Today

Post by Mitchell777 » Tue May 22, 2018 4:27 pm

Is a multi-step coupon (CD) just a step up CD (different yields for later time periods)? I always thought the owner controlled if and when the step up occurred and I'm not sure how that would work with a secondary CD through Vanguard. Would the yield Vanguard shows take that all into account? Thanks

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Re: 2-year CDs at Vanguard and Fidelity Today

Post by Kevin M » Tue May 22, 2018 7:18 pm

Mitchell777 wrote:
Tue May 22, 2018 4:27 pm
Is a multi-step coupon (CD) just a step up CD (different yields for later time periods)? I always thought the owner controlled if and when the step up occurred and I'm not sure how that would work with a secondary CD through Vanguard. Would the yield Vanguard shows take that all into account? Thanks
Probably specified rate increases at specified dates. This is different than a raise your rate CD bought directly from bank or credit union, where you choose when to increase to a higher rate if available.

Please provide CUSIP and I'll take a look.

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