Lets type about bond interest rates, credit risk and bond ETF ladders
 

Lots of inflation discussion about bond rates, CDs which should never be purchased, and maybe unrealistic expectations about future inflation.

Here is a really cool web site for those who want to play around with Bond ETFs and interest rate / return risk bond ladders

iBonds Ladder Tool | iShares – BlackRock

There are graphics attached, I just couldn't fit a screen shot without requiring glasses on one picture. ..

You can pick different types of bond ETFs, Treasury, Municipals, Corporates, High Yield

Then you can pick the amount of the portfolio, maturity, and get portfolio statistics, along with a graph showing you the ETFs and where they sit on interest rate curve.


Bonds are much different than equities, as they have fixed interest payments over a specific period of time. The price to pay for that fixed interest payment stream has two components: credit risk, which is the risk of getting the bond face price back at maturity, and interest rate risk, which is the fluctuation of demand for that payment stream at any particular price and point in time.

Interest rate risk only affects the current price and the longer the maturity, the greater the fluctuation in price. As the time to maturity becomes very short, the market price converges with the maturity value of the face price or value at redemption. If the bond is held to maturity, then daily market fluctuations are meaningless, and the only risk is credit risk, and if you will get all your money back, simply stated: a probability assigned to getting the face value back at maturity. . .

For small accounts, < $10M treasuries are the best starting point, and then increase returns with corporates and longer durations, but never longer than your expected life span, which is yes, uncertain.

The future is always uncertain, sometimes more uncertain that at other times.

enough for now,

If you purchase an I bond before the end of this coming week you will be guaranteed 7.12% interest for the first 6 months and then 9.62 % interest for the following 6 months. After that the rates of your bond changes every 6 months (may and nov) indexed to inflation. You must hold for one year. If cashed in between years 2 - 5 you forfeit the last three months interest. After 5 years no penalty. These I bonds are issued solely by the government. The only place to purchase is TreasuryDirect - Home. Google I Bonds on YOUTUBE - lots of videos at present.

Interesting information

Have done well over the years with a high yield bond fund (once called junk bonds).

Spreads out the risk by holding numerous corporate bonds by various durations.

For those unaware, you can purchase additional $5,000 per person per year directly from a tax refund but a physical bond will be delivered vs. using an online account.

I just passed my 1 year in a I-bond, (maximum invested), Whoo Whoo.

Now I'll wait 4 more years to withdraw my principal investment with interest.

This post is for the remaining portfolio after you hit the Ibond maximum, without withdrawal penalties and you want to structure a bond portfolio to maximize return and minimize risk. just buying once a year Ibonds is a limited option

Yes - just making folks aware of a unique opportunity that exists until the end of this week in the I bond market.

The amount you can buy is immaterial for many. Xyld and Qyld will earn 1percent a month as long as the market does not implode. Covered calls written on indexes

Interest rates are way too low, well below the inflation rate, resulting in bond holders earning a negative rate of return. The risk premium for owing speculative grade debt is also way too low relative to historic averages, and with many economists predicting a recession, future defaults rates would most likely more than wipe out the current risk premiums available on a well diversified portfolio of junk bonds. Laddering a fixed income portfolio can help reduce yield curve risk, but interest rates are currently so low that fixed income is simply a bad investment anywhere along the curve.

:1rotfl::1rotfl::1rotfl:

Qyld down almost 7% this year.

Xyld down 1.5%

For the short term 13 week T-Bills look to be the best option. What is the advantage going longer duration before the FED is done raising rates?

That is why right now we are in very conservative equity mutual funds.

Why not just buy real I-Bonds from US Treasury? No credit risk, and they are paying 7%. Individual - Series I Savings Bonds Rates & Terms: Calculating Interest Rates

"CDs which should never be purchased"

I disagree. It depends upon one's circumstances. Even with inflation, we have all the money we will ever need provided we just don't lose it. So, a few years ago when CD rates were much higher, I laddered out CD's for several years for 15-20% of my total portfolio just to have some money I didn't have to think about or worry about. The yields I booked were pretty much in line with A-AAA bonds, so why not?

Never mind