Secondary vs new brokered CDs

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Hector
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Secondary vs new brokered CDs

Post by Hector » Tue Oct 08, 2019 12:52 pm

I was reading some old posts about brokered CDs and I saw Rick Ferri preferring secondary CDs over new CDs. I was surprised to see that.
When I look at non-callable CDs with 0-5 years maturity at Charles Schwab, and sort it from high to low APY/YTM, I see there is only one new CD (ranked # 193 in sorted view) out of first 200 in the list.
For people who buy brokered CDs, do you mostly find secondary CDs with higher rate?

Its mentioned that Prices shown are inclusive of concession or mark-up.

jebmke
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Re: Secondary vs new brokered CDs

Post by jebmke » Tue Oct 08, 2019 12:59 pm

It has been a while since I bought CDs but from Aug-Oct last year I was buying and I found that the new issues came in spurts - sometimes there were very few and sometimes a lot.
When you discover that you are riding a dead horse, the best strategy is to dismount.

elainet7
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Re: Secondary vs new brokered CDs

Post by elainet7 » Tue Oct 08, 2019 12:59 pm

higher rates but all are callable unfortunately

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Hector
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Re: Secondary vs new brokered CDs

Post by Hector » Tue Oct 08, 2019 2:37 pm

elainet7 wrote:
Tue Oct 08, 2019 12:59 pm
higher rates but all are callable unfortunately
The list that I saw today was for non callable CDs.

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jeffyscott
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Re: Secondary vs new brokered CDs

Post by jeffyscott » Tue Oct 08, 2019 9:54 pm

When I was buying brokered CDs, I bought mostly secondary for the higher yields. I also liked that they always settle in two days, with new issues they may offer them weeks ahead of time and that may mean the money is sitting in a low yield settlement account waiting for the CD purchase.

Schwab makes it easier to look for secondaries than some other brokerages do, because, as you note, they show YTM net of commission in their table.
Time is your friend; impulse is your enemy. - John C. Bogle

elainet7
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Re: Secondary vs new brokered CDs

Post by elainet7 » Wed Oct 09, 2019 7:22 am

the non callable cds secondary are priced Way Above Par-no way I would buy them
New Issues are non callable generally at Vanguard

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jeffyscott
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Re: Secondary vs new brokered CDs

Post by jeffyscott » Wed Oct 09, 2019 8:44 am

elainet7 wrote:
Wed Oct 09, 2019 7:22 am
the non callable cds secondary are priced Way Above Par-no way I would buy them
Why would it matter if they are priced above or below par?

At the time I was buying it was typically the opposite, but I bought based on YTM and didn't really pay attention to the price.
Time is your friend; impulse is your enemy. - John C. Bogle

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dm200
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Re: Secondary vs new brokered CDs

Post by dm200 » Wed Oct 09, 2019 8:51 am

Hector wrote:
Tue Oct 08, 2019 12:52 pm
I was reading some old posts about brokered CDs and I saw Rick Ferri preferring secondary CDs over new CDs. I was surprised to see that.
When I look at non-callable CDs with 0-5 years maturity at Charles Schwab, and sort it from high to low APY/YTM, I see there is only one new CD (ranked # 193 in sorted view) out of first 200 in the list.
For people who buy brokered CDs, do you mostly find secondary CDs with higher rate?
Its mentioned that Prices shown are inclusive of concession or mark-up.
Until recently, I managed (part time) an organization that held a lot of Vanguard brokered CDs.

We mostly purchased new issues for two reasons:
1. We had to keep all such investments 100% FDIC insured - so we could not buy at a premium.
2. We usually did not see higher returns on secondary offerings

I did watch for better returns on secondary market purchases - and when I could purchase a CD with a higher return AND no premium, I did purchase it.

As an individual, though, I would not hesitate to take a very, very small risk and by at a premium if the total return was better than a new issue.

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jeffyscott
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Re: Secondary vs new brokered CDs

Post by jeffyscott » Wed Oct 09, 2019 8:57 am

jeffyscott wrote:
Wed Oct 09, 2019 8:44 am
elainet7 wrote:
Wed Oct 09, 2019 7:22 am
the non callable cds secondary are priced Way Above Par-no way I would buy them
Why would it matter if they are priced above or below par?

At the time I was buying it was typically the opposite, but I bought based on YTM and didn't really pay attention to the price.
Ah, dm200 reminded me of the answer to my question, the FDIC insurance coverage would be based on the face value not the price paid.
Time is your friend; impulse is your enemy. - John C. Bogle

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dm200
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Re: Secondary vs new brokered CDs

Post by dm200 » Wed Oct 09, 2019 9:01 am

Ah, dm200 reminded me of the answer to my question, the FDIC insurance coverage would be based on the face value not the price paid.
Yes! So, if you buy at a discount - the FDIC coverage is greater than what you paid.

elainet7
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Re: Secondary vs new brokered CDs

Post by elainet7 » Wed Oct 09, 2019 10:18 am

non callable brokered cds at vanguard are selling at 110-112; crazy to pay

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quisp65
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Re: Secondary vs new brokered CDs

Post by quisp65 » Wed Oct 09, 2019 10:44 am

I buy above par sometime. I figure the risk of a bank going under is low and if one eventually did I would get most of it back and the extra interest I earned over the long haul would make up for it.

However I need to understand bank default risk better to know how common it is and where I should draw the line on how much over par.

So if a CD selled for 103.00 would that be 100 \ 103 = 0.97087 So I would lose roughly 3% if the bank went broke?

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