Bond Discussion

This is a page where bonds can be discussed. I am thinking primarily $1,000 issues which are of interest to folks.

Like the other discussion pages posts will stay intact for a number of months.

52 thoughts on “Bond Discussion”

  1. As a bond dummy, I was reading where Arizona and other states are/will be getting rid of their Unilever bonds. Forgetting politics and solely from a monetary standpoint , wouldn’t this be similar to stocks and the high selling possibly depress the price (assuming there isn’t the same demand)? I can’t figure out how it really hurts the company when it’s already issued and they have the funds, other than possibly in the future that there are less buyers for future bond issues.

    1. Dufus,
      With regards to a number of states and certainly including AZ, they have to sell in order to comply with state law(s). Totally agree with the moves… To determine how it affects the pricing of the bonds, you have to dig into how many have been issued/what overall $ amounts we’re talking about. What has already been sold might not even move the needle and you also have to consider that Unilever may at any given time, change course with how they are going to deal with this issue from these anti-Semites. BJ has their own BOD, but they are under the UL umbrella. So who knows…

      UL’s common stock is ~ the same price today that it was 4yrs ago. Their earnings and revenue have been going backwards for a number of years. Not hard to wonder why, IMO. ESG and BDS initiatives surely have changed the world of investing.

  2. A bond-market preferred, First Midwest Capital Trust (320870AA6), is on offer at YTM = 4.973%, maturity 12/1/33, rated Baa3/BB-. Moodys seems more on top of it with a recent positive credit watch. Their subordinated debt is Baa2/BB+ and financials look good, IMHO. I just bought some.

      1. The document does seem to call them “6.95% junior subordinated deferrable interest debentures”, but I really didn’t try to read thru it all. My posting was quoting Etrade, which called them Trust Preferreds. I just looked up the CUSIP on FINRA, which says the Bond Type is “Trust Preferred Capital Security”.

        1. That just means the denomination was created from a larger security, and isn’t indicative of a preferred stock.

          1. OK. The bottom line is that I’m happy with my purchase, in today’s market, and plan to keep it to maturity.

  3. Tim, I second (third? fourth?) the suggestion to rename this sub-thread to “$1000 issues” or “Institutional Issues”.

  4. A sampling of institutional preferred issues, all either investment grade or close. No garbage in this list. Not much yield, either. Generally not suitable for me in the present environment but may be suitable for others.

    Check the price charts on some of these issues (at FINRA). Some sold at 60-70% of face back in April 2020. 40-50% 1-year returns.

    I know people will look at the yield figures. The most important column is actually Column M. This column pretty much determines what I would buy and what I would avoid. Will explain later but if anyone wants to take a stab please do.

    Take note of COF Series E. It’s the only live floater included. It’s effectively a 3.91% yld cash sub with no call risk (meaning you lose nothing if called, not that it can’t be called).

    The spreadsheet is copyrighted but I grant a royalty free license to anyone (with the following exception) for personal, non-commercial use. No license is granted to any person or entity affiliated in any way whatsoever (other than solely as a reader or subscriber) with HDO from Seeking Alpha.

    THIS SHEET DOES NOT UPDATE. IT WILL BE OBSOLETE AT 9:31 AM TOMORROW MORNING.

    https://docs.google.com/spreadsheets/d/1TBpn5WI0plP2tCk66cfTSmL88E1yJI9HFynvpyMXa4c/edit?usp=sharing

    1. I tried to access the spreadsheet using my Google account and got to an Access Requested page but haven’t gotten an email with the access code. Is something else needed?

    2. Thanks for posting, Bob. I’ve requested access to your sheet. Please be on the lookout for the request.

  5. Does anyone know of a good free site for programmatically accessing bond prices?

    finra-markets.morningstar.com is fine for manual quotes, but it has some cookie stuff happening that I haven’t been able to work around with lynx/wget.

    1. David – I hope someone has an answer to your question because right now it’s all manual. What you can do to ease things a bit is make a watch list at FINRA and with that you can return up to 50 prices at a time rather than one at a time. 50 is the maximum but that is per browser. I keep lists on 3 different browsers so I can see up to 150 prices simultaneously.

  6. I see we are still living with the misleading title of “Bond discussion”. I will post notwithstanding.

    Here is an institutional note issue from Arbor Realty;

    https://ir.arbor.com/node/15336/html#tDOTN

    This is a back door issue, meaning it’s the registration of an existing non-registered issue that came with demand registration rights. This is a common scenario in the institutional market.

    I believe the issue will become tradable, on certain platforms, at the end of August, after the exchange offer expires.

    This is a SENIOR note, 5% coupon, no adjustments, maturing in 2026, with limited callability. I estimate it will trade such as to result in a YTC of about 4%. It may be suitable for someone with a 5-year time horizon who wants to be sure of getting his principle back when those 5 years are up.

    Won’t be me but it may be you.

  7. One question that arises is how liquid institutional aka $1,000 face value preferreds are compared to the $25 par issues we usually discuss. I decided to take a snapshot at a single time this afternoon to compare. I captured the bid and ask prices to be able to calculate the “spread” both in dollars/cents and in percent. Understand that this is a single datapoint and bid/ask prices change a gazillion times each day. So if you retook the data at any other time, the answer likely would turn out differently. It is beyond the capabilities of my TRS80 to calculate these numbers for all issues for all times during regular market hours.

    The $25 data is based on 508 “high quality” preferreds/babys. High quality in this sense means that it is currently paying the dividend and has an average daily trading volume of >= 2,500 shares. Stated differently, the data does NOT include any of the Grid issues that we would typically classify as “illiquid.”

    The results:

    Bid/ask spread Percentage of $25 issues

    1 to 5 cents 37.4%
    6 to 10 cents 28.7%
    11 to 15 cents 11.8%
    16 to 20 cents 8.3%
    21 to 128 cents 13.8%

    Median bid/ask spread cents= 7
    Median bid/ask spread percent= 0.27%

    For comparison, I used 67 ~US preferred holdings from the actively managed preferred ETF ticker FPE.

    Median cents= 600 aka $6.00
    Median bid/ask spread percent= 0.53%

    So if you had commission free trades on BOTH, the $25 issues have a substantially lower spread. However, I am not aware of any platform for $1,000 issues that has commission free trades. If you pick the “wrong” brokerage, you can pay both a commission PLUS a wider spread than I have stated. Best case, I would assume you pay $1.00 per $1,000 face, so that adds roughly 0.1% both for buying and another 0.1% for selling. So a more accurate bid ask spread percentage for $1,000 issues is roughly 0.73% which is close to 3X more than the $25 issues.

    Another factor is that small investors often times do NOT meet the minimum quantity to buy at the listed bid or ask. It is common to have bid and ask sizes shown of $500,000. When you try to buy say $25,000, many times the buyer/seller will NOT fill your order with that “small” quantity. You might have to raise you offer price to find a seller at that quantity.

    BOTTOM LINE is that you should plan on having wider bid/ask spreads when dealing in the $1,000 issues. This makes “flipping” a little more difficult, although buying to hold should be fine. Also note that this whole set of $25 does NOT include ANY of what we would consider illiquid issues. Obviously the spread on those often times is substantially more than the 0.27% from this data.

    1. Tex, my limited forays and call ins reflect your assessment. But I did get a great deal on the EIX reset though I am certain that was because it was a big IPO dump from underwriters.
      Bob has stated before he gets better spreads on Interactive Brokers so that can factor in also. Plus there are times where I can narrow the bid ask spread myself on $25 bonds. I cant do that one $1000 exchange.

    2. T2 – pls continue to do the research and report findings. I offer some thoughts to round out yours.

      If one is going to trade institutional issues with any seriousness I strongly urge doing so at IBKR. (Buy once and hold forever doesn’t matter so much). One just needs to know that Buying “bonds” (which includes preferred) at IBKR is different than buying off other bond platforms and different than buying exchange traded issues. There is a learning curve but it is worth the effort it in my experience.

      Let me address the bid/ask and spread issues. If you’re buying an exchange traded issue (not OTC) at IBKR or any other broker and see you a bid/ask quote, trades should execute at those prices. The same is true for non-change traded bonds bought at all the platforms I am familiar with EXCEPT IBKR.

      For example, if I go to Vanguard, input a CUSIP, and it returns a bid and/or ask, I can transact at those prices. (There may be multiple bids/asks at different quantities but the price is still the price). I don’t have the option to input a bid of my choosing. I either take or leave what’s there, or I try back later.

      It’s different at IBKR. The bid/ask you see is an indicative price, not a true bid/ask. Even if you input an order at the bid or ask it may not execute. But more importantly, you have the option to input a price of your choosing, without regard to what bid/ask are showing. Your trade may execute, at your price, immediately, or hours or days later.

      To use a made up (but typical) scenario, I go to IBKR as a buyer, input a CUSIP and see indications of 100/100.5. I check recent transactions at FINRA and see recent trades have gone off as low as 99.75, or 0.75 below the indicative ask. I put in a bid for 10 shares at 99.75. Nothing. I let it sit a while. Maybe all day. Maybe it executes and maybe it doesn’t. But it often does.

      Or, I may leave the bid at 99.75 and up the quantity. All you see on the platform is the one indicative bid/ask but behind that are multiple dealers and there is clearly either a machine or a human making decisions. Often, I will get the shares at my price by upping the quantity. And at a meaningful price improvement over what I could get at Vanguard.

      In the end, at IBKR, you really don’t know what the true bid/ask is because the quotes shown are indicative only and may vary with quantity, unlike exchange quotes.

      I have gotten to short term trading at IBKR. I won’t name names but I will tell tell you that I’ve done so by going to much bigger trades on the buy side. I have bought as many as 100 bonds at a time and sold them off within days (sometimes same day) at a meaningful profit.

      Worth noting that commissions at IBKR are 1 buck per bond up to 10 bonds then 25 cents per bond after that. A 100 bond buy costs me 32.50. I don’t need price improvement to cover that cost.

      I would never try trading institutionals at any other brokerage. The spread and commissions would be too much to overcome I think.

      1. Bob – that’s an interesting trading platform at IBKR that I hadn’t heard of before. If you input the same CUSIP for a very liquid bond at IBKR and Vanguard at the same time, how does the indicative bid/ask compare to the listed bids and asks on Vanguard? If you enter a bid/ask on IBKR does it show up on Vanguard? I can enter bids or asks on Fidelity but they never show up on my other account at Etrade and I suspect that Fidelity keeps them in-house. Also, they expire at the end of the day.

        1. Coaster asks: “If you input the same CUSIP for a very liquid bond at IBKR and Vanguard at the same time, how does the indicative bid/ask compare to the listed bids and asks on Vanguard? ”

          Coaster, bonds are very different from stocks regarding bid/ask prices that show at different brokerages. Listed stocks have universally true bid and ask prices for all brokerages at any given point in time. It is called the NBBO (National Best Bed and Offer.) So other than commissions, the price you pay/receive should be identical regardless of which brokerage you use.

          There is NO NBBO for bond markets or universal way for them to display bid/ask prices. Each brokerage has to decide on their own how to “route” bond orders. There are two large ATS (Alternative Trading System) Market Axess and Tradeweb that transact most of the retail corporate bond trades in the US. Think of these as being electronic versions of the NYSE for bonds. For most corporate bonds, there is no physical “pit” where they are traded, orders are all “matched” electronically.

          When you submit an order to buy/sell, the brokerage has an algorithm decide how to route the order. First they might try to fill it from their own inventory, if that does not “Fill”, they might route it out to Market Axess or Tradeweb or XYZ. The brokerage has an algorithm decide what bid/ask prices/quantities to display. Here is where it is tricky. As 2WR and Bob have said, some brokerages build in a commission to the prices they display. Others add a separate commission above and beyond the bid/ask prices they display. There is no universal rule.

          A few months ago I posted one day of trading details for the CoreCivic (CXW) preferred CUSIP 21871NAB7. What prompted that study was I kept seeing trades that were outside of the bid/ask prices I was looking at. Say the bid/ask I was seeing was 100/100.5. I would routinely see trades occurring at say 99.0 and 101.5 while the bid/ask was unchanged at 100/100.5. It is impossible to say what brokerages were doing those trades. All you can see is after the fact what trades were consummated at the FINRA website.

          Commissions for bond trades are called “concessions,” but I have called them commissions in this post. Some brokerages have clearly stated commission policies so you know up front how much you are going to pay. IBKR does NOT have a policy. You never know until the trade is done how much you will pay. IBKR charges different commissions depending on where the order gets filled in addition to the quantity. Small quantity fills get hit the hardest. You might submit an order for 50 bonds ($50k) but only get filled for 1 or 2. The highest commission I have seen is $8 per bond (0.8 in price) when only 1 got filled. There is NOT a way on IBKR for you to set a minimum buy/sell quantity, so you have to hope you get a larger quantity filled.

          BOTTOM LINE is that as others have mentioned, buying from the “bond desk” takes more time and is more complicated to make sure you are not getting fleeced.

          1. Tex – Thanks for a very complete summary. I know that Etrade connects me to Tradeweb, I see that on the screen when they log me out. Fidelity retail, I believe, routes to National Financial Services and I’m not sure where from there. I’m aware that there’s variable places where small markups are added to the bid/ask before I see it. At least at Fidelity & Etrade I know what the commission will be above the bid/ask. If the trade goes thru I’ll always get the price and quantity I want. IBKR sounds quite different, and I’m interested in hearing how they work.

            Sometimes I’ll see a bid or ask from the same broker on both platforms but with somewhat different pricing and/or a different minimum quantity. I’ll know they’re from the same broker if the quantity is some odd number. When I want to buy something I always check both platforms for the best pricing and minimum.

            Ten bonds is a big purchase for me, most of my trades are less than that. I’m mostly a buy & holder, so fees don’t affect me as much as a trader.

        2. Coaster – IBKR will trade many more CUSIPS than will Vanguard.

          When markets are open I will give you some live comparisons of IBKR and Vanguard.

  8. Thanks to Tim for setting this up. For Bob-in-DE, I agree with your comparisons and would like to see your postings on specific issues.

    None of my postings are a recommendation for anybody to buy or sell anything, please do your own due diligence.

    In the bond market, I mostly shop fixed-rate corporates in the BB to BBB ratings range out to about 2043. Most below this are too risky for me, and there’s little yield above. The big Kahuna of yield and uncertainty in this range is Pemex/Petroleos Mexicanos (Ba3/BBB). Yields can be over 7%. Moodys rates it as stand-alone, and S&P assumes implicit support from Mexico. The market seems to be at a B range. I own a full bucket from years ago.

    Prospect Capital (Baa3/BBB-) is a big issuer in this space. There’s two bonds with higher coupons (74348YP39 & 74348YR94) that are pegged to par and you can get 5% until they call them. I own the P39. I also own 74348TAT9, which is make-whole, but its thinly traded.

    Recent purchases include PDC Energy (69327RAJ0, Ba3/BB, 5/15/26) at a YTM = 4.86% and Transalta (89346DAE7, Ba1/BB+, 3/15/40) at YTM = 5.11%.

    I also own some variable-rate bonds and preferreds, will post later about them.

    1. Just got a notice from Fidelity today that my P39 Prospect Capital is being called. Bummer.

  9. Even though there hasn’t been a corp bond worth buying in at least 6 months, I think it will be valuable to have this section still focused on corp bonds.

    1. Another way to think of it, is do we want discussion of $1000 preferreds clouding up the other boards? It’s probably not of interest to most people.

      The name of this board is confusing, though. Baby bonds will presumably still be discussed on the other bonds and this board should really be for par $1000 securities that trade by CUSIP.

  10. Glad to see this new section.

    I’ve been hearing that par $1000 intitutional preferreds may be cheaper on average than retail $25 preferreds. I’ve seen a couple instances of that with the EIX par $1000 preferred (which I’m long) and the ET preferred (where I’m looking for an entry). So, I decided to start digging deeper.

    I’m using FPF’s holdings to find $1000 preferreds. It can be hard to make comparisons as many par $1000 preferreds are fixed-to-floating or fixed resets but I found a couple where I can make reasonable comps to the par $25 world and so far they don’t seem particularly cheap. (note: prices are from a few weeks back when I did this analysis):

    1) Citigroup Series D, 5.35% coupon, BB+ rating (CUSIP: 172967GR6). Price: 103.66 with a May 2023 call date. YTC is about 3.4%. This preferred is comparable to the Capital One preferreds. While this compares well to the 5% COF-I trading at 26.80 with a 12/2024 call date (YTC = 2.1%), I’d rather own the 4.375% COF-L trading at 25.30 with a 9/2026 call date.

    2) Huntington Bancshares Series G, 4.45% fixed until 10/2027 then resets at the 7 year Treasury + 4.04%. Price: 107.74 (equal to 26.90). This is mostly comparable to HBANP with a 4.5% coupon and 4/2026 call date. Main difference is HBANP is fixed while the Series G resets in 2027 at a nice spread and 1.5 years extra call protection. HBANP’s price, though, is lower at 26.25.

    However, this is just two random samples I took. I’d be interested if others have a feel for whether institutional prefs are currently trading cheaper on average than retail prefs. If they are, the next question is how to search and screen $1000 prefs.

    1. Thanks for the specific examples, LI (and Bob-in-De to come I’m sure). To be honest, I’ve never tried to buy a 1k preferred via CUSIP # although I’ve been active in 1k bonds always…. I’ll need to experiment to see just how difficult or easy it is to put orders in at Fidelity and/or TDA. If it requires 30 minute phone calls, I’ll pass..

      1. 2WH

        I do my bond purchases online via TD Ameritrade.

        Click first on Research and Ideas then go to the Advanced Search of Bonds and CD’s.

        I think their search engine works best if you have the exact name of the firm. Also, the search defaults to investment grade , so sometimes they have inventory of non-investment grade issues that do not come up.

        When purchasing, you can place a limit order of ~0.9985 of the quoted price. When selling, you put out a request for bids and replies come back within a couple of hours. If you like the price, you click yes.

        I normally use this site to ensure I’m not getting fleeced.
        http://finra-markets.morningstar.com/BondCenter/Screener.jsp

        1. Added thought, Greg. When one is perusing an issuers bond selections on your Finra link, look at the maturity date. If it shows 3999 as maturity date of bond, its a $1000 preferred stock. They list on initial screener as a bond, but you have to tag the actual bond link to see it being identified as a preferred.

          1. Certainly correct on the 3999 date but more than a few of the listings when opened incorrectly identify preferred as some specie of bond. As always the definitive source of info on what you’re looking at is the prospectus or similar filing.

          2. is there a trick to searching by date?
            I just get a drop down calendar on FINRA and not an easy way to change to 3999.

            1. Sorry Justin. I only stumble onto them by pulling up a specific company and then scrolling through each of the companies offerings to find them.

        2. Greg – My experience is with TDA and Fidelity and to a small degree with ETrade but now I only have a dormant account at ETrade…. Unquestionably imho Fidelity offers a far more flexible and extensive bond platform than TDA. Unless things have changed (I’ve not even looked at TDA’s bond platform recently) what TDA shows you is not that actual best bid or asked available in the marketplace – they show you the price you can buy or sell at TDA with them acting as principal not broker…. That means they show you marked up or marked down prices without actually disclosing the amount of their baked in profit based on the bid/asked you’ve been shown.

          At Fidelity, not only are you shown the best bid and best asked for each issue shown, you are given the option to put in a bid or asked of your choosing and then your bid gets shown in the overall marketplace at a price that reflects their $1/bond flat commission. So it’s very similar to placing limit orders on stocks, baby bonds or $25 preferreds. And as far as asks, you’re not limited to then putting your bonds out for a bid for you to sell what you own. You can set your price and they will list it for you in the marketplace, with $1/bnd commission included. So my experience, which does not include Bob’s fav, IBKR, favors Fidelity by a wide margin. I’ve never tried IBKR, though. Also, BTW, I believe Fidelity has a maximum commission of $50 and they may have lowered their minimum to something like $2 only or perhaps eliminated it all together, I’m not sure….. Bottom line, unless TDA has recently improved their platform there are much better platforms out there, especially if they are still acting as a principal… I don’t remember if TDA does this too or not, but Fidelity also shows you full depth of market on each issue so you can see how liquid the market is on the issue you’re following.

    2. LI – I will give this more time when I have more time but the short version is this.

      Retail issues and institutional issues from the same issuer are almost never apples-to-apples comparisons. Compared to retail issues, institutional issues are usually or often:

      1) senior in rank.

      2) have honest floating rate or reset provisions (no built in rate drops at time of issue).

      3) have better call provisions, including “make-whole”, a provision almost never seen in retail.

      4) have meaningful covenants.

      5) trade with greater liquidity, often at tighter bid-ask spreads.

      6) make good cash subs (past call, floating rate, pinned to par)

      There is also the issue of availability. Many issuers have gone entirety or mostly to institutional issues. Some issuers have never issued paper into the retail market and must be bought institutional if at all. If you are after a nice, BBB rated preferred from BNY Mellon, you better think institutional. Mo more retail issues but 5 in the institutional market right now.

      Before I go: if the folks here are interested in Institutional preferred and note issues I will post. SO SPEAK UP. If there is no interest I have better thing to do. I could be writing another letter to the SEC, for example.

      1. I’m certainly interested. If you have any spreadsheets with issues you track that you’re willing to share, that would be much appreciated. Hard to get info on these issues.

        1. I can probably dig up the prospectus for 80-90% of the institutional preferreds, if they were issued in the last 5 years.
          Just out of curiosity, is there any broker’s that completely botch these? Pay as interest, bad cost basis, etc?

      2. Bob, my anecdotal observations through the recent years seems the public vs. institutional can ebb and flow where the value resides over time. Here is 2019 regulatory testimony from Southern Ca. Gas and their assesment of preferreds in 2019 at institutional level. This appears to dictate capital allocation decisions for companies via debt or preferred avenue.
        As stated above, at this time, SoCalGas does not anticipate issuing any new or
        retiring any Preferred Equity during this Cost of Capital cycle. Despite a downward trend in bond rates, the relative cost of preferred stock has increased significantly in recent years. This increase in the cost of Preferred Equity is due to a shrinking buyer base that has severely limited demand for traditional institutional utility preferred stock. In recent years, SoCalGas has been successful in issuing Long-Term Debt at relatively low costs to fund its large capital investment plan, thus reducing the need to rely on Preferred Equity. Accordingly, SoCalGas proposes reducing the authorized Preferred
        Equity ratio to the current recorded ratio of 0.40%.
        As far as seniority, each prospectus needs to be analyzed to see what the specific details are. As ones I am familiar with are typically equal standing. But there definitely can be various stack levels of preferreds and of course whether parent or subsidiary issuing can affect that also.

      3. “Before I go: if the folks here are interested in Institutional preferred and note issues I will post. SO SPEAK UP. If there is no interest I have better thing to do. I could be writing another letter to the SEC, for example.”

        Assuming these are not too difficult to buy (ideally online), I would be interested

      4. Always very interested in the 1k Institutional issues. Would not have found or had access to the EIX and ET opportunities earlier in the year without the great info provided here. So yes, big proponent of this new area of the forum.

      5. I would certainly be interested in receiving more info on institutional debt issues. I’m more of a long term holder.

      6. Me too, Bob. You post, I will read. SEC already has plenty of issues to not investigate.

    3. Agreed that I’d love to see more info on the $50/$100/$1000 preferreds. Yes, there’s a link to them from the “Preferreds” menu at the top (https://innovativeincomeinvestor.com/50-and-100-preferred-shares/), but as noted, the list is incomplete. It has WFC-L, but not BAC-L or USB-A. It’s missing the former-sandbox SLMNP, though that sad situation may mean it should remain off the list. We all appreciate Tim’s wonderful diligence and limits of time for the site, so it’s certainly understandable if these don’t make the cut of important things that could be done.

  11. Apple just came out with 4 tranches of new bonds. I love this one. 2061 maturity with a coupon of 2.85%. NO THANKS.

  12. Let the first comment here be a suggestion. Most of the issues in this category will, in fact, be preferreds, not bonds. The list of preferreds I follow has 107 entries. The bond list about 10.

    Names do matter and I can see potential readers skipping past the topic believing it to be solely about bonds when their interest lies elsewhere.

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