Agency bond question

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hoops777
Posts: 4161
Joined: Sun Apr 10, 2011 12:23 pm

Agency bond question

Post by hoops777 »

Schwab has a 5 year agency bond,FHB, yielding 5.25 %.

I am assuming there are no gotcha’s with these agency bonds other than being called.

I was going to buy a 6 month treasury yielding about 4.8.

I would be very happy to keep the agency bond for 5 years but realize it will probably be called in July at its first call date.

Any reason I should not buy the agency bond with the higher yield over the Treasury assuming they will both be done in 6 months ?

It is in my Roth.

Thanks
K.I.S.S........so easy to say so difficult to do.
prozario01
Posts: 93
Joined: Tue Mar 03, 2020 2:17 pm

Re: Agency bond question

Post by prozario01 »

That sounds bit high, as I was looking at some today well on Merrill Edge. Could no find anything better than 4.5% for 3 to 5 year range. I usually look at Yield to Worst - that's basically if you get called what is your worst-case return.

Is that coupon rate or actual yield (or yield to worst). Also, check the credit rating. Sounds a bit too high at 5.25% for 5 years.

One of the problems i see with Agency bond - lot of them has large minimum purchase requirement like $50K.
Topic Author
hoops777
Posts: 4161
Joined: Sun Apr 10, 2011 12:23 pm

Re: Agency bond question

Post by hoops777 »

prozario01 wrote: Mon Jan 23, 2023 3:33 pm That sounds bit high, as I was looking at some today well on Merrill Edge. Could no find anything better than 4.5% for 3 to 5 year range. I usually look at Yield to Worst - that's basically if you get called what is your worst-case return.

Is that coupon rate or actual yield (or yield to worst). Also, check the credit rating. Sounds a bit too high at 5.25% for 5 years.

One of the problems i see with Agency bond - lot of them has large minimum purchase requirement like $50K.
The credit rating was very high, and I believe the yield to worse was also 5.25.
K.I.S.S........so easy to say so difficult to do.
prozario01
Posts: 93
Joined: Tue Mar 03, 2020 2:17 pm

Re: Agency bond question

Post by prozario01 »

hoops777 wrote: Mon Jan 23, 2023 4:09 pm
prozario01 wrote: Mon Jan 23, 2023 3:33 pm That sounds bit high, as I was looking at some today well on Merrill Edge. Could no find anything better than 4.5% for 3 to 5 year range. I usually look at Yield to Worst - that's basically if you get called what is your worst-case return.

Is that coupon rate or actual yield (or yield to worst). Also, check the credit rating. Sounds a bit too high at 5.25% for 5 years.

One of the problems i see with Agency bond - lot of them has large minimum purchase requirement like $50K.
The credit rating was very high, and I believe the yield to worse was also 5.25.
I was looking for something today - at that rate, i would definitely get it. Check the other agency bonds around the same maturity - see if others are around that rate or not. Maybe my broker, they don't have that inventory - but i could not find anything near 5% for the Agency bond (it was around 4.5%).
Topic Author
hoops777
Posts: 4161
Joined: Sun Apr 10, 2011 12:23 pm

Re: Agency bond question

Post by hoops777 »

It was there a couple hours ago and I bought it.
I just looked and there is nothing close to that yield now.
K.I.S.S........so easy to say so difficult to do.
prozario01
Posts: 93
Joined: Tue Mar 03, 2020 2:17 pm

Re: Agency bond question

Post by prozario01 »

Good move if you can get 5 years at 5.25%
MikeG62
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Location: New Jersey

Re: Agency bond question

Post by MikeG62 »

prozario01 wrote: Tue Jan 24, 2023 8:50 am Good move if you can get 5 years at 5.25%
These are typically callable. OP said this one was callable in about 12 months.

I bought an Agency note in early Dec = 5.95% 10-year term callable beginning in 12-months. I wish it would remain outstanding for 10-years, but have no illusions that it will. I expect I will be called out of that position by the end of this year. Still 5.95% for 12-months state tax free is fantastic for as long as it lasts.
Real Knowledge Comes Only From Experience
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