2-year CDs at Vanguard and Fidelity Today

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

Post by indexfundfan » Tue Apr 17, 2018 7:28 pm

Very interesting. One somewhat unrelated question -- at Fidelity / Vanguard, does your account get credited with the proceeds of the CD or bond on the maturity date? Or is it the next business day?
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Re: 2-year CDs at Vanguard and Fidelity Today

Post by Kevin M » Tue Apr 17, 2018 8:00 pm

indexfundfan wrote:
Tue Apr 17, 2018 7:28 pm
Very interesting. One somewhat unrelated question -- at Fidelity / Vanguard, does your account get credited with the proceeds of the CD or bond on the maturity date? Or is it the next business day?
Good question. I haven't had a bond or CD mature yet in a taxable account since I started buying brokered late last year, but for muni bond interest, here's what I've seen. For both, I think I see it show up as cash on the coupon date, or the next business day if coupon date is on a weekend, but it's not available until the second business day after that, so basically a T+2 settlement as when you buy or sell a CD or bond.

At Fidelity I have it set up to automatically send cash payments (so interest, dividends and proceeds from matured securities) to my external checking account (Ally) daily. Looking at coupon payments for 4/1, I see the payments in my Fidelity transaction history on 4/2 (4/1 was a Sunday), the EFT paid is shown on 4/4, and it hit my Ally checking account on 4/4 at 5:34 AM.

I didn't find a way to set it up automatically at Vanguard, so I just check and manually transfer it as soon as it's available. As at Fidelity, I see the Vanguard 4/1 coupon payment(s) on 4/2, it was swept into my settlement fund on 4/3, I was able to initiate the transfer to Ally on 4/4, and it hit my Ally account on 4/5 at 2:50 AM.

I also had some stock fund dividends paid at Fidelity on 4/11, EFT on 4/13, and in my Ally checking on 4/13 at 2:53 AM.

So it's easier and faster at Fidelity, but either way it looks like there's a 2-business-day settlement period between when the interest or dividend is paid and when it's EFT'd or available to be EFT'd to an external account.

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Re: 2-year CDs at Vanguard and Fidelity Today

Post by indexfundfan » Tue Apr 17, 2018 9:18 pm

Thanks for the write-up. The reason I'm asking is because it looks like for two-year treasuries, the settlement date of the new issue and the maturity date of the old issue line up on the last day of each month (or next business day). Hence my question whether I can get the proceeds on the maturity date to pay for the new bond.
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Re: 2-year CDs at Vanguard and Fidelity Today

Post by Kevin M » Tue Apr 17, 2018 9:50 pm

indexfundfan wrote:
Tue Apr 17, 2018 9:18 pm
Thanks for the write-up. The reason I'm asking is because it looks like for two-year treasuries, the settlement date of the new issue and the maturity date of the old issue line up on the last day of each month (or next business day). Hence my question whether I can get the proceeds on the maturity date to pay for the new bond.
Are you talking about rolling new issues? I think Fidelity will do that for you automatically, but I wouldn't want to do that because I don't know what yield curve will look like when my CD or bond matures. So I really haven't looked at Fidelity's ladder management functionality.

On secondary market, trades settle on T+2, so you can place an order to buy on the day your bond matures, and proceeds will be available on the day the new purchase settles. My taxable Fidelity and Vanguard accounts are margin accounts, so I have a backup if there are any problems, although I'd rather not pay any margin interest.

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Re: 2-year CDs at Vanguard and Fidelity Today

Post by happenstance » Tue Apr 17, 2018 10:25 pm

Thank you for the detailed insights in this thread, Kevin (and SpaceCowboy earlier). It's really helpful to understand your criteria (e.g. 20 bps for each year of maturity) and how you're screening for it with the yield calculations. It has been interesting to see how a brokered CD with commission can yield more than a new issue CD due to the discount rate.

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Re: 2-year CDs at Vanguard and Fidelity Today

Post by indexfundfan » Tue Apr 17, 2018 10:32 pm

Kevin M wrote:
Tue Apr 17, 2018 9:50 pm
indexfundfan wrote:
Tue Apr 17, 2018 9:18 pm
Thanks for the write-up. The reason I'm asking is because it looks like for two-year treasuries, the settlement date of the new issue and the maturity date of the old issue line up on the last day of each month (or next business day). Hence my question whether I can get the proceeds on the maturity date to pay for the new bond.
Are you talking about rolling new issues? I think Fidelity will do that for you automatically, but I wouldn't want to do that because I don't know what yield curve will look like when my CD or bond matures. So I really haven't looked at Fidelity's ladder management functionality.

On secondary market, trades settle on T+2, so you can place an order to buy on the day your bond matures, and proceeds will be available on the day the new purchase settles. My taxable Fidelity and Vanguard accounts are margin accounts, so I have a backup if there are any problems, although I'd rather not pay any margin interest.

Kevin
Actually I thought settlement is T+1 for bonds and CDs.
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Re: 2-year CDs at Vanguard and Fidelity Today

Post by indexfundfan » Tue Apr 17, 2018 10:39 pm

happenstance wrote:
Tue Apr 17, 2018 10:25 pm
It has been interesting to see how a brokered CD with commission can yield more than a new issue CD due to the discount rate.
I reasoned that it is because due to the poor liquidity, sellers have to take a big hair cut to be able to sell the CDs. I think these are usually the retail investors, so the quantity you see is generally small.

On the flip side, it will be bad if you need to liquidate a brokered CD on the secondary market. If there is a chance that this will happen, treasuries are better since the trading volume is much higher.
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Re: 2-year CDs at Vanguard and Fidelity Today

Post by stlutz » Tue Apr 17, 2018 11:55 pm

Actually I thought settlement is T+1 for bonds and CDs.
T+1 for Treasuries; T+2 for everything else.

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Re: 2-year CDs at Vanguard and Fidelity Today

Post by indexfundfan » Wed Apr 18, 2018 6:47 am

Thank you. Good to know.

I have some questions about discount and premium bonds.

Discount treasury bond
When a bond is bought at a discount, it will "appreciate" in value to par when it reaches maturity. My understanding is that this "appreciation" or accrued interest must be reported each year as ordinary income. For the purpose of state taxes, is this accrued interest taxable (if it is from a treasury bond) subject to state and local taxes?

Premium treasury bond
For treasury bonds bought at premium, my understanding is that the depreciation must be amortized. Will the amount amortized each year offset the income from the bond directly, or can this only be regarded as a capital loss that follows the rule of a maximum of $3000 offset against income?

Thank you.
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Re: 2-year CDs at Vanguard and Fidelity Today

Post by ofckrupke » Wed Apr 18, 2018 9:10 am

indexfundfan wrote:
Wed Apr 18, 2018 6:47 am
Discount treasury bond
When a bond is bought at a discount, it will "appreciate" in value to par when it reaches maturity. My understanding is that this "appreciation" or accrued interest must be reported each year as ordinary income. For the purpose of state taxes, is this accrued interest taxable subject to state and local taxes?
Let me preface with the remark that this stuff is google-able, and even though the published stuff is slow going it's not like the authors of the top pages of search returns have been careless in composition. Answers short enough to get read at this forum risk leaving something out.

Original issue discount based income (OID) is reported annually.
Market discount based income can be reported at disposition or, by election, annually (see code section 1278(b)). If annually, then the default method is pro rata (aka ratably calculated), but a constant-interest method may be (irrevocably) elected (section 1276(b)).

If the bond's interest income is taxable by the state, then discount related income is taxable by the state.
indexfundfan wrote:
Wed Apr 18, 2018 6:47 am
Premium treasury bond
For treasury bonds bought at premium, my understanding is that the depreciation must be amortized. Will the amount amortized each year offset the income from the bond directly, or can this only be regarded as a capital loss that follows the rule of a maximum of $3000 offset against income?
Any bond bought at premium must be amortized at disposition. A bond with non-exempt interest can by election be amortized annually prior to disposition (paradoxically most brokers will do this by default, taking the owner's silence as such an election). Since treasury debt interest is state-exempt, one must amortize premium annually for the state return anyway.

The impact of premium amortization is just the opposite of the treatment of discount: the amount amortized is subtracted from reportable interest income, and at the same time, one's basis is reduced by the same amount. Hence, if the bond's price at disposition was on the calculable amortization path between the price at purchase and par at maturity, all of the reportable income will be interest income, and none capital; capital gain or loss calculation uses this amortization path for baseline.

Since treasury debt interest is state tax exempt, for state purposes the premium must be amortized annually; the reported (exempt) interest reduced, and the cost basis for state taxation reduced by the same amount. (Out of state muni premium just swaps the roles of the two governmental taxing entities.)

As far as I was able to tell, there is no systematic financial incentive to amortizing a treasury differently for federal taxation than as required for one's state taxes (otherwise, it would be well known). That doesn't mean one would never, ever have cause to do so in a special idiosyncratic case...but the disadvantage of having to manage two separate cost basis records for such a scheme is obvious.

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Re: 2-year CDs at Vanguard and Fidelity Today

Post by Doc » Wed Apr 18, 2018 9:56 am

indexfundfan wrote:
Mon Apr 16, 2018 11:07 am
Doc wrote:
Mon Apr 16, 2018 10:59 am
I bought it at Vanguard. I paid $0.16 per thousand more than I would have at Schwab. (I didn't check Fidelity.)

I don't care about auto roll because as a rule I don't hold Treasuries to maturity except for T-bills.
That's interesting. I am curious. Can you disclose your strategy? Do you buy at 2-year and sell when there is a year left, or something else?
Sorry for taking so long to get back. Received a corrected 1099 at 17:00 E on Monday that has had me tied up. :x Ironically the correction was due to situations similar to what ofckrupke addressed in the previous post.

To answer your question: Most of our Treasury portfolio is in a ladder. Usually a 3-7 ladder but currently 4-8. (There are some advantages to this over holding to maturity. Google "riding the yield curve".) I also keep some shorter term Treasuries in a 1-3 or 1-5 fund or ETF as a ready reserve bucket. The short note I bought last week is a temporary cash reserve because of current DC news. I assume that the news will be better before the two years are up. Maybe wishful thinking.
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Re: 2-year CDs at Vanguard and Fidelity Today

Post by chw » Wed Apr 18, 2018 11:08 am

Of note, Charles Schwab is offering a 2 year stepped CD (2.25% year 1, 3.25% year 2) with a YTM of 2.75%- offered by Wells Fargo, with a settlement date of 4/30/2018. CD is callable by WF after 1 year. If willing to take on the call risk, this CD offers 10bps over current new CD offerings from Goldman Sachs, and Morgan Stanley.

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Re: 2-year CDs at Vanguard and Fidelity Today

Post by indexfundfan » Wed Apr 18, 2018 12:28 pm

Doc and ofckrupke, thanks for your replies.
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Re: 2-year CDs at Vanguard and Fidelity Today

Post by Kevin M » Wed Apr 18, 2018 12:44 pm

chw wrote:
Wed Apr 18, 2018 11:08 am
Of note, Charles Schwab is offering a 2 year stepped CD (2.25% year 1, 3.25% year 2) with a YTM of 2.75%- offered by Wells Fargo, with a settlement date of 4/30/2018. CD is callable by WF after 1 year. If willing to take on the call risk, this CD offers 10bps over current new CD offerings from Goldman Sachs, and Morgan Stanley.
Thanks for sharing this. I don't think I'd take the call risk for the minimum yield premium. If you're patient, you probably can find something close to 2-year CD at a premium of 5-7 bps net on secondary market (didn't see one today though at Fidelity, other than one with quantity 3 that was gone by the time I'd done my evaluation). On the other hand, 2.25% isn't bad for 1-year, although you probably can get close with a 1-year Treasury.

I did pick up some 3-year Morgan Stanley maturing 4/19/2021 with 2.85% coupon and net yield of 2.929%, so almost 8 bps over new issue at 2.85%, and 27 bps per year of maturity over 2-year secondary maturing 4/20/2020 at 2.660% net. So we're almost at 3% for 3-year CDs now.

Again, all of this is in an IRA, so no tax adjustments on the yield (or tax reporting concerns). In taxable, 3-year Treasury can be close to 3-year CD at higher state tax rates.

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Re: 2-year CDs at Vanguard and Fidelity Today

Post by indexfundfan » Thu Apr 19, 2018 10:57 am

Submissions for the 2,5,7 year treasury notes auction just opened at Vanguard. The auction dates are next week.

The rates for 2-yr or longer treasuries are not as good as CDs. But treasuries are a lot more liquid if you need to sell before maturity.

The rates for 1-yr or shorter treasuries are better than CDs at this time.
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Re: 2-year CDs at Vanguard and Fidelity Today

Post by Kevin M » Thu Apr 19, 2018 1:58 pm

indexfundfan wrote:
Thu Apr 19, 2018 10:57 am
The rates for 2-yr or longer treasuries are not as good as CDs. But treasuries are a lot more liquid if you need to sell before maturity.
True--CD yields are higher in a tax-advantaged account. Treasuries can be as good or better at these maturities in taxable depending on your marginal tax rates. Also true that Treasuries are much more liquid (smaller bid/ask spread and no commissions), but remember that you can still lose money or earn less than expected if you sell before maturity and yields have risen.

Just based on summary Fidelity quotes, you earn about 20 bps more for 2-year and 25 bps for 3-year CD, but the spreads probably are a bit higher if you buy CD on secondary market (I just bought a few 2-year secondary at about 2.7% vs. 2.65% for new issue), and you buy quantity of less than 100 Treasuries and select one closest to 2-year maturity.
The rates for 1-yr or shorter treasuries are better than CDs at this time.
Going by Fidelity summary quotes again, 1-year Treasury is 2.26% and 1-year CD is 2.20%. CD quote is for maturity 5/28/2019, so not really 2 year. Treasury quote is for maturity 5/15/2019, minimum quantity 400. Now let me look at something closer to actual 2-year at small quantities for both.

Actual best new-issue 2 year matures 4/26/2019 at 2.15%. It appears that minimum quantity is 1. Treasury closest to that matures 4/30/2019, and best yield for minimum quantity 1 is 2.217%. So spread is actually a hair better than the summary values, at a little less than 7 bps higher for Treasury.

Again, 1-year Treasury even better in taxable if you pay state taxes--for me it would be 2.49% TEY, which probably is a little better 1-year AAA muni for me.

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Re: 2-year CDs at Vanguard and Fidelity Today

Post by indexfundfan » Thu Apr 19, 2018 2:17 pm

Kevin M wrote:
Tue Apr 17, 2018 8:00 pm
indexfundfan wrote:
Tue Apr 17, 2018 7:28 pm
Very interesting. One somewhat unrelated question -- at Fidelity / Vanguard, does your account get credited with the proceeds of the CD or bond on the maturity date? Or is it the next business day?
Good question. I haven't had a bond or CD mature yet in a taxable account since I started buying brokered late last year, but for muni bond interest, here's what I've seen. For both, I think I see it show up as cash on the coupon date, or the next business day if coupon date is on a weekend, but it's not available until the second business day after that, so basically a T+2 settlement as when you buy or sell a CD or bond.

At Fidelity I have it set up to automatically send cash payments (so interest, dividends and proceeds from matured securities) to my external checking account (Ally) daily. Looking at coupon payments for 4/1, I see the payments in my Fidelity transaction history on 4/2 (4/1 was a Sunday), the EFT paid is shown on 4/4, and it hit my Ally checking account on 4/4 at 5:34 AM.

I didn't find a way to set it up automatically at Vanguard, so I just check and manually transfer it as soon as it's available. As at Fidelity, I see the Vanguard 4/1 coupon payment(s) on 4/2, it was swept into my settlement fund on 4/3, I was able to initiate the transfer to Ally on 4/4, and it hit my Ally account on 4/5 at 2:50 AM.

I also had some stock fund dividends paid at Fidelity on 4/11, EFT on 4/13, and in my Ally checking on 4/13 at 2:53 AM.

So it's easier and faster at Fidelity, but either way it looks like there's a 2-business-day settlement period between when the interest or dividend is paid and when it's EFT'd or available to be EFT'd to an external account.

Kevin
I secure messaged (I wanted to have an electronic record) both Schwab and Vanguard about when will my account be credited when a treasury note/bond matures. Vanguard says T+0, Schwab says T+1 where T is the maturity date. Go figure.

I will probably buy in this auction with Vanguard. I will show Vanguard the secure message if they charge me margin interest when I roll over in future.
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Re: 2-year CDs at Vanguard and Fidelity Today

Post by Kevin M » Thu Apr 19, 2018 3:04 pm

Some observations from buying CDs today at Fidelity. I used my new approach of downloading CD search results into a spreadsheet, to quickly identify maturities that provided the best yield premium for extending maturity (or just had the best yield for shortest maturity). My search criteria were maturity from 07/2018 to 05/2021, so 3m to 3y1m using Vanguard search terminology, with minimum yield of 2.70% (I want to beat new-issue 2-year at 2.65% net of commission). This search returned about 125 CDs (a few more or less depending on when I ran it). Shortest maturity that met the yield criterion was 02/28/2020, so about 1.86 years.

Initial search showed three CDs at net yield of about 2.7% with maturities of 2 years or less, but quantity of only 1 each. Normally I wouldn't mess around for less than 5 or 10, but I decided to in this case, and bought all 3.

I immediately ran another search, and two of the same CDs were available at same price, again with quantity 1, so I bought those two as well.

I also noticed that in this search some of the prices for the top-yielding 2-year CDs had come down a bit (so yields up a bit). I noted that there was a CD with maturity of about 2.5 years with about 27 bps per year extra yield over 2-year I was using as baseline (at 2.677% net), and quantity 8 available. This was by far the most attractive yield premium out to the maximum maturity of 3y1m.

So with prices apparently trending down, I decided to take a break, do a little Bogleheads, and come back later to look again. When I searched again at about 12:30 pm Pacific, price of the 2.5 year CD had come down, and was now giving about 36 bps/year of extra yield over the best 2-year yield, with a net yield of 2.862%. So slightly better than new-issue 3-year CD but only 2.52 years until maturity (10/26/2020). I placed an order for all 8, and got them.

I'm now almost out of cash in this IRA account until proceeds from a PenFed CD maturing later this month arrive at Fidelity. Transfer paperwork has been submitted to Fidelity and mailed to PenFed.

I really like this new approach of downloading the CD search results into a spreadsheet, as I can quickly identify the best deals, and don't have to type anything into a spreadsheet to evaluate them one by one. Much faster, easier and more efficient and effective.

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Re: 2-year CDs at Vanguard and Fidelity Today

Post by Doc » Thu Apr 19, 2018 3:12 pm

indexfundfan wrote:
Thu Apr 19, 2018 2:17 pm
I secure messaged (I wanted to have an electronic record) both Schwab and Vanguard about when will my account be credited when a treasury note/bond matures. Vanguard says T+0, Schwab says T+1 where T is the maturity date. Go figure.
I had an "incident" about this several years ago. The money from the maturing Treasury does not go directly from the Treasury to your broker. It goes to the "special guys" (Primary dealers ?) then from there to the brokers correspondent bank and finally gets to the broker and to your account. (The words and sometimes the IT don't get it all the same.)
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Re: 2-year CDs at Vanguard and Fidelity Today

Post by Kevin M » Fri Apr 20, 2018 12:52 pm

If anyone is looking for 10 ($10,000 face value) 3-year CDs in a Fidelity account, a good deal is CUSIP 61747MU74, with net yield of 3.015% after commission. This is about 31 basis points of extra yield over best 2-year at 2.668% net, and 15 bps over new issue 3-year at 2.85%. First 3-year I've seen that has broken 3%. Price is slightly lower than earlier in the day. I'd buy them, but I currently don't have available funds in a Fidelity IRA--minimum quantity is 10.

Price at Vanguard is higher at 99.75, which is 2.938% before commission. Price at Fidelity before commission is 99.43.

For comparison, when I checked earlier today, best yield for same quantity of 3-year Treasury was 2.583%, so CD has a nice yield premium in an IRA. Treasury TEY for me in taxable is 2.901%, so in taxable the CD yield premium is only about 10 bps, so perhaps not enough to compensate for illiquidity, but if sure you'd hold to maturity, CD is a bit better.

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Re: 2-year CDs at Vanguard and Fidelity Today

Post by hoops777 » Fri Apr 20, 2018 3:26 pm

I believe Schwab 2yr is 2.65 3yr 2.85. 5yr 3.05
I have a good chunk in VFSTX and the nav has been dropping lower and lower.I think I am selling and buying the 2yr cd.I am even money right now with the interest it has paid the last 15 months.The nav was 10.48 yesterday and will probably be close to 10 soon.
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Re: 2-year CDs at Vanguard and Fidelity Today

Post by Kevin M » Fri Apr 20, 2018 4:03 pm

hoops777 wrote:
Fri Apr 20, 2018 3:26 pm
I believe Schwab 2yr is 2.65 3yr 2.85. 5yr 3.05
Yeah, Schwab is probably selling the same new-issue CDs as Vanguard and Fidelity. These have been the 2-year and 3-year new issue rates for a couple of weeks now.

You often can do a little better in secondary market, even after commission of $1 per CD, an example of which was the subject of my previous post. Market is closed now, but I no longer see that one at Fidelity--maybe somebody here scooped it up? Yield on that CUSIP now is 2.937% before commission, so about 2.9% net at Fidelity, but much larger quantity available at that price. Still a premium of 5 bps over new issue, but I'd look for more in the 3-year maturity. I'd be OK with 5 bps premium at 2-year maturity.

I see at Schwab that secondary CD (and bonds other than Treasuries) commission is $1, with minimum $10, so you'll want to buy at least $10,000 face to get the best net yield. This rules out picking up the smaller lots that often have the highest yields.

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Re: 2-year CDs at Vanguard and Fidelity Today

Post by invstar » Sat Apr 21, 2018 12:59 pm

Yesterday I purchased 40 quantity of 3-year CD (Wells Fargo Bk N A Sioux Falls S D CUSIP: 949763FW1) at Vanguard ($2 commission) @97.898 and yield (to maturity and worst) was 2.928 after commission. Coupon rate is 2.250. Do you think this is a good deal? Thanks.

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Re: 2-year CDs at Vanguard and Fidelity Today

Post by Doc » Sat Apr 21, 2018 1:27 pm

invstar wrote:
Sat Apr 21, 2018 12:59 pm
Yesterday I purchased 40 quantity of 3-year CD (Wells Fargo Bk N A Sioux Falls S D CUSIP: 949763FW1) at Vanguard ($2 commission) @97.898 and yield (to maturity and worst) was 2.928 after commission. Coupon rate is 2.250. Do you think this is a good deal? Thanks.
Guys I don't get it.

The three year Treasury closed Friday at 2.632. After state tax at 6% that's ~2.79. Only 13 bps below the CD. Is the extra liquidy for the Treasury not worth 13 bps?
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Re: 2-year CDs at Vanguard and Fidelity Today

Post by invstar » Sat Apr 21, 2018 1:39 pm

Doc wrote:
Sat Apr 21, 2018 1:27 pm
invstar wrote:
Sat Apr 21, 2018 12:59 pm
Yesterday I purchased 40 quantity of 3-year CD (Wells Fargo Bk N A Sioux Falls S D CUSIP: 949763FW1) at Vanguard ($2 commission) @97.898 and yield (to maturity and worst) was 2.928 after commission. Coupon rate is 2.250. Do you think this is a good deal? Thanks.
Guys I don't get it.

The three year Treasury closed Friday at 2.632. After state tax at 6% that's ~2.79. Only 13 bps below the CD. Is the extra liquidy for the Treasury not worth 13 bps?
Doc,
Thanks but doesn't it make a difference in a tax-advantaged account?

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Re: 2-year CDs at Vanguard and Fidelity Today

Post by Doc » Sat Apr 21, 2018 1:56 pm

invstar wrote:
Sat Apr 21, 2018 1:39 pm
Doc wrote:
Sat Apr 21, 2018 1:27 pm
invstar wrote:
Sat Apr 21, 2018 12:59 pm
Yesterday I purchased 40 quantity of 3-year CD (Wells Fargo Bk N A Sioux Falls S D CUSIP: 949763FW1) at Vanguard ($2 commission) @97.898 and yield (to maturity and worst) was 2.928 after commission. Coupon rate is 2.250. Do you think this is a good deal? Thanks.
Guys I don't get it.

The three year Treasury closed Friday at 2.632. After state tax at 6% that's ~2.79. Only 13 bps below the CD. Is the extra liquidy for the Treasury not worth 13 bps?
Doc,
Thanks but doesn't it make a difference in a tax-advantaged account?
Like I said. I don't get it.

Why you would put a very tax efficient investment in tax advantaged. If you have any taxable assets at all a low return instrument is at the top of the tax efficiency spectrum and should be in taxable.

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Re: 2-year CDs at Vanguard and Fidelity Today

Post by Kevin M » Sat Apr 21, 2018 4:19 pm

invstar wrote:
Sat Apr 21, 2018 12:59 pm
Yesterday I purchased 40 quantity of 3-year CD (Wells Fargo Bk N A Sioux Falls S D CUSIP: 949763FW1) at Vanguard ($2 commission) @97.898 and yield (to maturity and worst) was 2.928 after commission. Coupon rate is 2.250. Do you think this is a good deal? Thanks.
Yes, that's pretty good, especially after $2 commission. It's about 7 bps over new-issue yield of 2.85%, so if you're comfortable with 3-year maturity, it's a good deal.

Market is closed, but Fidelity showing this at 97.896, so basically same as VG. After $1 commission at Fidelity it's 2.965%, so of course even better at 11.5 bps over new issue at 2.85%.

Still not quite as good as the one I saw at 3.015% after $1 commission, but there were only 10 of those, and the price wasn't near at good at Vanguard.

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Re: 2-year CDs at Vanguard and Fidelity Today

Post by Doc » Sat Apr 21, 2018 4:35 pm

Kevin M wrote:
Sat Apr 21, 2018 4:19 pm
... but there were only 10 of those ...
What kind of spreads do you see on the secondary market once you get away form the initial offering? Perhaps more important do the spreads increase a lot when market rates change say a year into the life of the CD?
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Re: 2-year CDs at Vanguard and Fidelity Today

Post by Kevin M » Sat Apr 21, 2018 4:48 pm

Doc wrote:
Sat Apr 21, 2018 1:56 pm
Like I said. I don't get it.

Why you would put a very tax efficient investment in tax advantaged. If you have any taxable assets at all a low return instrument is at the top of the tax efficiency spectrum and should be in taxable.
Now you're making a different argument. Asset location is a separate discussion, so I think for purposes of this thread we should assume that that decision has already been made, whether you agree with it or not.

Having said that, there can be a number of reasons to hold CDs in tax-advantaged--I certainly am. If you don't want to go beyond 3-year maturity with the current yield curves offering minimal reward for doing so, then 2.65-3% is not low yield--it's about the highest FI yield you're going to get without taking more credit risk than you might want to take.

The size of my fixed-income allocation requires that I hold FI in both tax-advantaged and taxable. So with these constraints, what else am I going to hold in tax-advantaged? Sure, I continue to hold some higher-risk, higher-expected return bond funds (e.g., intermediate-term investment grade), but I don't want to add to those with the current, relatively flat yield curve beyond 3-year maturity. So proceeds from maturing IRA CDs will continue to go into 2-year to 3-year brokered CDs, or whatever gives me the best, or at least reasonable, yield premiums for extending maturity.

Low yield in taxable for me now is 2.2% TEY in CA muni money market fund. That's now the 0-year yield I use as a benchmark to make my maturity-extension decisions in taxable. Low yield in tax-advantaged for me now is Prime MM at 1.79% at Vanguard--unfortunately only 1.65% in SPRXX at Fidelity. So even 2-year CD at 2.65% is 100 bps more than the highest-yield MM fund at Fidelity.

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Re: 2-year CDs at Vanguard and Fidelity Today

Post by stlutz » Sat Apr 21, 2018 4:50 pm

Guys I don't get it.

The three year Treasury closed Friday at 2.632. After state tax at 6% that's ~2.79. Only 13 bps below the CD. Is the extra liquidy for the Treasury not worth 13 bps?
I think there is some anchoring going on with these.

For those who got in on the 3% Pen Fed CD deal a few years ago, the brokered CDs at 3% for relatively shorter terms looks like a "great deal"--and one that isn't really available from direct CDs currently.

I own a fair number of brokered CDs (bought with significantly longer terms than 2 years). When I acquired them, the yield premium I got over comparable maturity treasuries was around 80 to 100 basis points. As such, brokered CD yields look very unattractive to me right now because I know the yield premium I used to get. A different form of anchoring.

All of that said, for those who don't stick to a rigid fixed income allocation, I think that short-to-intermediate term treasuries are the best option right now. The risk premiums being offered by other types of bonds just aren't there.

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Re: 2-year CDs at Vanguard and Fidelity Today

Post by Kevin M » Sat Apr 21, 2018 5:09 pm

Doc wrote:
Sat Apr 21, 2018 4:35 pm
Kevin M wrote:
Sat Apr 21, 2018 4:19 pm
... but there were only 10 of those ...
What kind of spreads do you see on the secondary market once you get away form the initial offering? Perhaps more important do the spreads increase a lot when market rates change say a year into the life of the CD?
Sorry, don't understand. Can you elaborate on what you're asking? By "get away from", do you mean extending maturity, so say looking at 2.5 year and 3.5 year instead of 2-year and 3-year? Or do you mean just what yield premiums do you get on secondary market for same maturities?

Answer to the latter is about 5-10 bps lately, but on some days maybe not even that.

What I was doing is using the best 2-year on secondary as the baseline yield, since I know the premium for extending to 2-year from 0-year is good, like 44 bps per extra year of maturity. Then I loaded all CDs that had at least this net yield out to 3-year maturity into a spreadsheet, and calculate bps/year of extra yield for each one. Then filter anything that beats some threshold, like 25 bps/year, or just look for the maximum bps/year--those are my candidates.

Now I've switched to just calculating the bps/year extra relative to a 0-year yield, say the Prime MM yield (even though I can't quite get that at Fidelity, which is where I've been buying lately). I can see that the bps/year starts dropping below 40 as you get to about 8/2020 maturity, so I set a filter to see if anything beats 40 bps/year at longer maturities. On Friday I found exactly one CD that met that criterion, which is the one I mentioned that was slightly over 3% for maturity 4/19/2021, so about three years. I would have bought it if I had the cash, but on Friday I was just refining my search technique.

I don't know if this is answering your first question at all, but thought it might be interesting to some folks anyway.

I really don't know what you mean about spreads changing into the life of the CD, and why that matters. I've only recently switched from direct CDs, mostly 5-year maturity with low EWPs, to brokered CDs in the 2-3 year range, due to big changes in the current fixed-income environment, so I don't know that I could answer the question even if I understood it, but I'll try if you can clarify.

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Re: 2-year CDs at Vanguard and Fidelity Today

Post by Doc » Sat Apr 21, 2018 5:18 pm

Kevin M wrote:
Sat Apr 21, 2018 4:48 pm
The size of my fixed-income allocation requires that I hold FI in both tax-advantaged and taxable.
OK start from there. Assume for whatever reason - space, tax advantage, or something else - you are going to hold your CD or Treasury in taxable. If you are paying 6% in state income tax the CD only has about 13 bps advantage over the three year Treasury. Is this enough to make up for the difference in liquidity? I think not but I don't know what kind of spreads you see on "aged" CD's especially if the equity market is in "turmoil" at the time.

Kevin, you buy CD's and I assume have some familiarity the market for them. What are the spreads like once you get away from the original issue date? Without knowing that it is hard to judge if the 13 bps is enough.
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Re: 2-year CDs at Vanguard and Fidelity Today

Post by Kevin M » Sat Apr 21, 2018 5:28 pm

stlutz wrote:
Sat Apr 21, 2018 4:50 pm
I think there is some anchoring going on with these.

For those who got in on the 3% Pen Fed CD deal a few years ago, the brokered CDs at 3% for relatively shorter terms looks like a "great deal"--and one that isn't really available from direct CDs currently.
I agree about the anchoring, in general, but the way you're characterizing it does not apply to me. All market yields have risen, especially the shorter-terms, so there's no point in anchoring on a 5-year security at 3%.
I own a fair number of brokered CDs (bought with significantly longer terms than 2 years). When I acquired them, the yield premium I got over comparable maturity treasuries was around 80 to 100 basis points. As such, brokered CD yields look very unattractive to me right now because I know the yield premium I used to get. A different form of anchoring.
And this is where we differ. You are anchoring on 80-100 bps yield premiums, while I am not anchoring on the 100-150 bps yield premiums I got on the direct CDs I bought in the last year or two I was buying them. Whether it was a 5-year at 2% or 5-year at 3%, what I was looking for was the highest yield premiums I could get, not at the absolute yield. Those yield premiums just don't exist anymore, so no point in anchoring on them.
All of that said, for those who don't stick to a rigid fixed income allocation, I think that short-to-intermediate term treasuries are the best option right now. The risk premiums being offered by other types of bonds just aren't there.
Again, this is anchoring on the past, and you are making a qualitative statement with no supporting argument. The yield premiums are shrinking, but you still can get 25-40 bps in secondary 2-3 year CDs relative to a Treasuries in smaller quantities in tax-advantaged-- a bit less if you are buying larger quantities, like 25-100. With the common guideline of extending maturity by a year for 20 bps more yield, how is 25-40 bps more yield without extending maturity at all not a good deal if you plan to hold to maturity?

Also again, in taxable with state income tax I'm more inclined to agree with you, although I've still been preferring mostly AA munis, but I certainly think Treasuries can be competitive in taxable if paying state income tax, and certainly are a lot easier to safely buy.

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Re: 2-year CDs at Vanguard and Fidelity Today

Post by Doc » Sat Apr 21, 2018 5:31 pm

Kevin M wrote:
Sat Apr 21, 2018 5:09 pm
Sorry, don't understand. Can you elaborate on what you're asking? By "get away from", do you mean extending maturity, so say looking at 2.5 year and 3.5 year instead of 2-year and 3-year? Or do you mean just what yield premiums do you get on secondary market for same maturities?
What are the spreads today on a 3 yr CD that was originally issued one year ago? That's what I mean by aged.

Asking another way: Assuming no change in the yield curve how much is it going to cost to sell the 3 year CD one year from now. Right now I'm seeing just over 2 bps spread for a 2 year Treasury - quantity 200. (That's the only quantity I can get a quote for with the market closed. It might be off by 1 or 2 bps for qty 25.)
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Re: 2-year CDs at Vanguard and Fidelity Today

Post by stlutz » Sat Apr 21, 2018 5:40 pm

What are the spreads today on a 3 yr CD that was originally issued one year ago?
A lot of CDs don't have bid prices listed and for the ones that do, spreads vary a lot. My basic rule of thumb for a 5 year CD would be about 1%.

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Re: 2-year CDs at Vanguard and Fidelity Today

Post by Doc » Sat Apr 21, 2018 5:42 pm

Kevin, you finally let the cat out of the bag. :D
Kevin M wrote:
Sat Apr 21, 2018 5:28 pm
... how is 25-40 bps more yield without extending maturity at all not a good deal if you plan to hold to maturity?
But what if you don't or can't for some reason. That's when the better Treasury liquidity comes into the thought process.

I just bought an on the run two year Treasury (in tax advantage even :shock: ) but I expect to sell it to rebalnce into equities within the next year. And if the sith doesn't hit the fan in DC after a year I'm going to sell it and buy short corporates.
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Re: 2-year CDs at Vanguard and Fidelity Today

Post by Doc » Sat Apr 21, 2018 5:46 pm

stlutz wrote:
Sat Apr 21, 2018 5:40 pm
What are the spreads today on a 3 yr CD that was originally issued one year ago?
A lot of CDs don't have bid prices listed and for the ones that do, spreads vary a lot. My basic rule of thumb for a 5 year CD would be about 1%.
Am I getting this right - 100 bps for a CD vs 3 or 4 bps for a Treasury?
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Re: 2-year CDs at Vanguard and Fidelity Today

Post by stlutz » Sat Apr 21, 2018 5:54 pm

But what if you don't or can't for some reason. That's when the better Treasury liquidity comes into the thought process.

I just bought an on the run two year Treasury (in tax advantage even :shock: ) but I expect to sell it to rebalnce into equities within the next year. And if the sith doesn't hit the fan in DC after a year I'm going to sell it and buy short corporates.
In cases where one wants to market-time the bond market (and I'm not using that as a pejorative term as I do it)--move between nominal treasuries, TIPS, corporates, munis etc. based on what is offering value at the moment--this is where individual bonds really don't make sense vs. using funds or ETFs.

A year and a half ago, lot of 2-4 years AAA-rated muni bonds offered yields higher than Treasuries on an absolute (not tax-adjusted) basis. A good buying opportunity for such bonds. The TIPS inflation breakeven was not much over 1%--again pretty attractive vs. nominal Treasuries.

I agree with you that the liquidity factor comes into play not just when you need the money but when you can't take advantage of better opportunities that come up.

That's why I like sticking with Treasuries now, whether as individual bonds or through a fund--better opportunities in the somewhat riskier segments of the fixed income market will arise over time. Why lock myself out of those to get a very small after-tax yield premium today?

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Re: 2-year CDs at Vanguard and Fidelity Today

Post by stlutz » Sat Apr 21, 2018 6:01 pm

Am I getting this right - 100 bps for a CD vs 3 or 4 bps for a Treasury?
I just logged onto Fidelity now to look at the 2-3 year CDs you were inquiring about. The range was between 50 and 100 bps. Longer range ones have wider spreads.

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Re: 2-year CDs at Vanguard and Fidelity Today

Post by Kevin M » Sat Apr 21, 2018 6:41 pm

Doc wrote:
Sat Apr 21, 2018 5:18 pm
Kevin M wrote:
Sat Apr 21, 2018 4:48 pm
The size of my fixed-income allocation requires that I hold FI in both tax-advantaged and taxable.
OK start from there. Assume for whatever reason - space, tax advantage, or something else - you are going to hold your CD or Treasury in taxable. If you are paying 6% in state income tax the CD only has about 13 bps advantage over the three year Treasury. Is this enough to make up for the difference in liquidity? I think not but I don't know what kind of spreads you see on "aged" CD's especially if the equity market is in "turmoil" at the time.
I've already said that I'd probably prefer Treasuries over CDs in taxable, but my state tax rate is a little higher 8%, so TEY is even better for me than at 6%. I hold some Treasuries in my taxable 3-year ladder, but more AA/AAA munis, because at the time I was buying I was still earning higher TEY's on the munis, and IMO, credit risk for AA/AAA is tiny for 2-year or 3-year maturities.

But even a 13 bps yield premium is worth it if I know I'll hold to maturity. Liquidity doesn't matter if you don't need it, and there's nothing wrong with taking advantage of an illiquidity premium just because the liquidity is valuable to others. Since you probably won't hold to maturity, the liquidity of Treasuries is a better fit for your needs, especially in the current environment in which yield premiums are thinner than in recent years.
Kevin, you buy CD's and I assume have some familiarity the market for them. What are the spreads like once you get away from the original issue date? Without knowing that it is hard to judge if the 13 bps is enough.
Why should I care? I'm not going to buy a 2-year CD if the yield isn't competitive whether it was issued five years ago or yesterday. They'll all get through my search criteria if the yields are competitive, and I look only at yield and yield premium for extending maturity, so don't care when it was issued. It wouldn't be hard to check if you can explain why it would matter to you (hypothetically, since I know you're not going to buy CDs anyway).

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Re: 2-year CDs at Vanguard and Fidelity Today

Post by Kevin M » Sat Apr 21, 2018 6:47 pm

Doc wrote:
Sat Apr 21, 2018 5:42 pm
Kevin, you finally let the cat out of the bag. :D
Kevin M wrote:
Sat Apr 21, 2018 5:28 pm
... how is 25-40 bps more yield without extending maturity at all not a good deal if you plan to hold to maturity?
But what if you don't or can't for some reason. That's when the better Treasury liquidity comes into the thought process.
Of course. The CD yield premium currently may not be sufficient if this is your situation. I thought I "let the cat out of the bag" a number of times in previous replies, but perhaps my memory is failing.
I just bought an on the run two year Treasury (in tax advantage even :shock: ) but I expect to sell it to rebalnce into equities within the next year. And if the sith doesn't hit the fan in DC after a year I'm going to sell it and buy short corporates.
Fine. Completely different strategy than what I'm doing. I should have plenty of maturing CDs, Treasuries, and munis to rebalance into stocks if warranted. And the CA muni MM at 2.2% TEY isn't bad for liquidity purposes now. I bought a 6-month Treasury in tax-advantaged a few weeks ago at just under 2%, which still isn't bad compared to 1.8% in Prime MM, but CA muni MM in taxable is better.

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Re: 2-year CDs at Vanguard and Fidelity Today

Post by Kevin M » Sat Apr 21, 2018 6:56 pm

stlutz wrote:
Sat Apr 21, 2018 6:01 pm
Am I getting this right - 100 bps for a CD vs 3 or 4 bps for a Treasury?
I just logged onto Fidelity now to look at the 2-3 year CDs you were inquiring about. The range was between 50 and 100 bps. Longer range ones have wider spreads.
Just checked the 203 CDs in 2-3 year range that met my criteria on Friday--there are bids for 178 of them. Average ask/bid - 1 = 58 bps, so yeah, much wider than Treasuries. Spread for the lowest maturity, 3/4/2020, is 11 bps. I see a number in the 15-30 bps range for shorter maturities, but agree that they seem to widen with increasing maturity.

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Re: 2-year CDs at Vanguard and Fidelity Today

Post by Doc » Sat Apr 21, 2018 7:14 pm

This whole thread is based on assumptions that are not elucidated and are not universally applicable.

From Kevin's perspective of a tax advantaged account and holding to maturity I have no disagreement at all with his ideas.

But these premises are not universally applicable and the exceptions are not acknowledged.

Caveat emptor.
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Re: 2-year CDs at Vanguard and Fidelity Today

Post by stlutz » Sat Apr 21, 2018 10:31 pm

Just checked the 203 CDs in 2-3 year range that met my criteria on Friday--there are bids for 178 of them. Average ask/bid - 1 = 58 bps, so yeah, much wider than Treasuries. Spread for the lowest maturity, 3/4/2020, is 11 bps. I see a number in the 15-30 bps range for shorter maturities, but agree that they seem to widen with increasing maturity.
Thanks for the info--that's more helpful. The big problem with my "research" this afternoon is that markets are of course closed. Fido also quotes much higher spreads on treasuries during non-market hours.

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Re: 2-year CDs at Vanguard and Fidelity Today

Post by Kevin M » Sun Apr 22, 2018 11:12 am

Doc wrote:
Sat Apr 21, 2018 7:14 pm
This whole thread is based on assumptions that are not elucidated and are not universally applicable.

From Kevin's perspective of a tax advantaged account and holding to maturity I have no disagreement at all with his ideas.

But these premises are not universally applicable and the exceptions are not acknowledged.

Caveat emptor.
If you look at the OP, it was only about differences between pricing and availability for new issue 2-year CDs at Vanguard. It had nothing to do with CDs vs. Treasuries vs. anything else, and nothing to do with investment strategy. It was just an observation that I found interesting.

You happened to be the first to reply, and your reply was about Treasury yield, considering liquidity, taxation, and ability to hold to maturity. So you turned the thread into a different discussion. Of course I don't mind that, and am always happy to have some dialog about it.

So in my first reply to you, I pointed out that I was buying in tax-advantaged, so taxation isn't relevant, and that I planned to hold to maturity, so liquidity wasn't relevant. Even though the original intent was not to compare CDs to Treasuries, I made it quite clear that I was talking about holding to maturity in a tax-advantaged account. Again, always happy to branch out and discuss related topics, but we could have kept the discussion constrained to what I was actually talking about.

I'm not going to comb through the whole thread, but in general in all recent discussions in this thread and others about fixed income in taxable accounts, I've agreed that Treasuries can have higher TEYs depending on your marginal state income tax rate. I've even said that at my tax rates, Treasuries are competitive with CDs, although looking at my quotes from Friday, secondary CDs had a slight edge for smaller quantities of Treasuries (less than 25). I've also acknowledged that if liquidity is a factor, Treasuries have the edge. So I don't see how you can say that the exceptions haven't been acknowledged. My bad if anything I've posted seemed to indicate anything to the contrary (and please point it out if I did, so I can correct it).

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Re: 2-year CDs at Vanguard and Fidelity Today

Post by Doc » Sun Apr 22, 2018 12:22 pm

Kevin M wrote:
Sun Apr 22, 2018 11:12 am
You happened to be the first to reply, and your reply was about Treasury yield, considering liquidity, taxation, and ability to hold to maturity. So you turned the thread into a different discussion. Of course I don't mind that, and am always happy to have some dialog about it.
Yes I was the first to reply and I brought up the comparison to Treasuries. :oops:

The second to reply was stlutz who brought up Treasuries. :oops:

The third and fourth reply were both from Evelyn who got back on CD's. :D

The fifth reply was from Feh who brought up short bond short term bond funds. :oops:

Gee whiz Kevin, three of the first four respondents went somewhere you didn't want to go but we all were making comparisons to CD's.

When we finally got to the end a lot of good information came out about CD's and alternatives and your CD choice for the limited conditions that you specified were agreed to by many including myself. :beer
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Re: 2-year CDs at Vanguard and Fidelity Today

Post by Kevin M » Sun Apr 22, 2018 12:32 pm

stlutz wrote:
Sat Apr 21, 2018 5:54 pm
In cases where one wants to market-time the bond market (and I'm not using that as a pejorative term as I do it)--move between nominal treasuries, TIPS, corporates, munis etc. based on what is offering value at the moment--this is where individual bonds really don't make sense vs. using funds or ETFs.

A year and a half ago, lot of 2-4 years AAA-rated muni bonds offered yields higher than Treasuries on an absolute (not tax-adjusted) basis. A good buying opportunity for such bonds. The TIPS inflation breakeven was not much over 1%--again pretty attractive vs. nominal Treasuries.

I agree with you that the liquidity factor comes into play not just when you need the money but when you can't take advantage of better opportunities that come up.

That's why I like sticking with Treasuries now, whether as individual bonds or through a fund--better opportunities in the somewhat riskier segments of the fixed income market will arise over time. Why lock myself out of those to get a very small after-tax yield premium today?
Interesting perspective--thanks for sharing it.

I haven't explicitly thought in those terms myself, but reflecting on it, I'm doing something similar I guess--I just hadn't thought about it as a long-term strategy.

In late 2010 I started gradually shifting from investment-grade and even muni bond funds into direct CDs, with average yield premiums of about 120 basis points over Treasuries of same maturities, and much better than that from August 2015 to October 2016 (average 160 bps premium). As we've seen, those premiums just don't exist anymore, so I've shifted strategy, and have been transferring proceeds from maturing IRA direct CDs to Vanguard and Fidelity, using the proceeds to buy mostly CDs (brokered, of course) in the 2-3 year range, since the yield premiums for extending maturities beyond three years aren't there--only 10 bps per year for going from 3-year new issue at 2.85% to 5-year new issue at 3.05% (and 3-year secondaries now approaching 3%).

Incidentally, the yield curve flattens out more and earlier for Treasuries, with only 22 bps for extending from 1-year to 2-year, 15 bps for extending to 3-year, and similar to CDs, about 9 bps/year for extending from 3-year to 5-year. This is based on Fidelity fixed-income yield summary page, but are in same ballpark as yields at Treasury.gov. Seems to me that if you want liquidity for better future opportunities, you don't want to go much beyond 2-year maturity in Treasuries.

To look at this another way, you get slightly higher yield from new-issue 3-year CD than from 5-year Treasury, and with secondary 3-year CDs approaching or at 3%, about the same yield as 10-year Treasury at a little under 3%. This is in tax-advantaged--in taxable, TEYs of Treasuries are competitive with CDs out to five year maturity at my marginal tax rates. The Treasury TEY yield curve is steeper than the CD yield curve out to 2-year maturity, so even though it flattens out more after two years, it still ties or slightly beats CDs at maturities beyond that in taxable (for me).

Maybe I'll post a chart of these yield curves in a new post.

In taxable, I started deploying cash from a rental sale late last year into AAA munis, checking with Larry Swedroe about my selection criteria. As I got my feet wet, I started including AA munis in my search criteria, and started buying mostly those (although now and then a AAA would still look the best). To avoid over concentration in any municipality or state, I also bought some Treasuries, as the TEYs were competitive once I screened out the munis that would overconcentrate this sub-portfolio in higher risk states and municipalities (even though 3-year default rate for AA munis is 0%, the higher yields obviously are telling us sometihng about risk).

In all of this, I've stuck mostly to maturities of three years or less, but bought a few out to about 4-year maturity.

Don't want to spend too much time on this, because I have another thread going about it, but the sub-portfolio in taxable is a monthly ladder, with first bonds starting to mature next month. The intention is to use some of the proceeds to fund monthly residual living expenses in retirement, and roll the rest over to whatever looks good at the time, or rebalance into stocks if warranted.

I still have a fair amount of direct CD proceeds maturing over the next 15 months, so plenty of liquidity to continue to take advantage of whatever looks good over that time period. Then I still have some direct CDs maturing in future years, but of course with early withdrawal options so I can withdraw early if the opportunities warrant it, so between these and the munis, CDs and Treasuries maturing in the next few years, plenty of opportunities to take advantage of whatever opportunities look good as the fixed-income environment changes (or again, to rebalance into equities if warranted).

Kevin
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Kevin M
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Re: 2-year CDs at Vanguard and Fidelity Today

Post by Kevin M » Sun Apr 22, 2018 12:38 pm

Doc wrote:
Sun Apr 22, 2018 12:22 pm
Gee whiz Kevin, three of the first four respondents went somewhere you didn't want to go but we all were making comparisons to CD's.
Never said I didn't want to go there--just that the OP wasn't about comparing these things. I actually said I'm happy to diverge and discuss related topics. Just pointing out that I made the constraints clear early in the thread.
When we finally got to the end a lot of good information came out about CD's and alternatives and your CD choice for the limited conditions that you specified were agreed to by many including myself. :beer
Granted. And I have tried to make it clear that I agree with choosing Treasuries, especially in taxable (I have done so myself), if the constraints or objectives are different. Now that we've got that settled, what's the next head of the pin we shall dance on?
:sharebeer

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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 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
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Re: 2-year CDs at Vanguard and Fidelity Today

Post by indexfundfan » 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
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