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CDs and Money Market Still Viable Options

Now that we have maybe pushed out reductions in the Fed Funds rate until at least May (well who knows for sure?) it seems that we will have some delayed pressure to move share prices up on baby bonds and preferreds. Seems to me that at this time with interest rates some elevated into the 4.16% area we will have some difficulty moving share prices higher for income issues.

My money markets funds are showing a current yield in the 5.3% area while eTrade has CDs as high as 5.25% for 9 month and 1 year issues–5.15% for the 3 month. Of course folks can always find rates a bit higher in various places. These rates need to move some lower to get more movement into alternative investments (i.e. preferreds and baby bonds). With the Fed Funds rate in the 5.38-5.50% area there is no reason to think we will see lower (or much lower) money market or CD rates.

So the bottom line is that capital gains of any magnitude are on ‘hold’ for now (except special circumstances)- we need competing investments to move to lower yields to force folks to go out ‘yield hunting’ in preferreds and baby bonds.

16 thoughts on “CDs and Money Market Still Viable Options”

  1. Grid, what was the top of the monthly pay, non-callable CD market back in the fall? I want to say it was 5.1% for something like 3-4-5 yr duration, but there was a stretch there I wasn’t paying attention and can’t remember whether or not it moved up from there.

    1. Pig, I got all my 5-5.25% 5 year non callables last March. It never really got back up there if my recollection is correct. I took advantage of the bank mini crisis. When govt yields spiked last fall I cant remember. I know I got some higher 1 year ones though. I just cant remember though. During that time I did get some 2.5% ish fixed component TIPS though.

      1. Yeh I think you are right. 5.1% might have indeed been the top in the fall. I know we were talking about you wanting 6, lol. so thats when we then talked about “hey, no 6’s, but how about a 5.8 for a yr (5 yr Total)

        1. Yes, Pig, I bought that one with you. And recently just reupped a shorter one that matured with I think an 18 month 4.8% CD. I will have some more maturing in a couple weeks and need to stay disciplined and roll it right back in to a CD. I fell off the wagon this week, as I didnt roll it back into one. That damn CTA-B was too tempting yesterday and today and the last $5k crums were spent on 5 bonds of DPL Capital Trust II that were available at a plus 9% YTM so I blew the rest there.

  2. JP Morgan is calling some 15 mo 5.60 cds early in March. They’ve been playing a lot of games IMO

    1. I dont like games. That is why I only buy noncallable. Unless I am backdoor buying a longer and just expecting the minimum the call date anyways.

      1. I have a couple callables for the slightly higher rate. If called I’ll just buy something else. No worry since it’s my minimal return anyway.
        What’s the game? Not an unreasonable call though it seems borderline choice to call before the rate drops.

        1. For me its I dont want to play the game of wondering if or when a bank decides to call an issue before maturity. If I buy CD “A” to hold for duration “X”, I dont want it redeemed for duration “W” instead. I purchase noncallables to eliminate the asymmetric risk (I get that with some preferreds) and the cost is a bit lower yield. But since I have 2028 noncallables plus 5% the cost has seemed to wane for now being one cant get that yield/duration locked in anymore.

        2. Martin, That’s the way I play it as well. Maybe half and half of my CD’s callable vs uncallable. Always something to buy in its place.
          Interestingly enough, have several CDs callable in that mid 5% range and haven’t heard a peep on them being called.

      2. My friends couldn’t get hurt but yeah. Until covid there weren’t any short tern callable CDS. These seem to start 1 or 2 qtr last year. Not that I was paying that close attention. However when I buy its normally for a full boat so having 250k come early is….a mixed bag for me.!

        I guess its a sign of that market. It use to be if the broker couldn’t take out 60-75 basis points they wouldn’t touch it. I always wonder what the WS spread was when rates collapsed. I never did call my old friends for a quote. They worked for 25 and WS couldn’t touch/compete with that. Soooo if JPM is paying razor thin placement costs they cancel something for small difference. How small is the Q. I mean I think they’d have to be a 525 for ayr now. They’d call 560 to replace w 525???

  3. I have a small position in Tectp which has been very reliable. Just looked at the Tectonic Financial website to see their T Bank 13 month CD offer at 5.65% for those interested.

    1. TECTP suspended dividends a couple years ago. I remember it was a good dividend capture when they resumed and caught up on several cumulative dividends.

  4. Just got notice today that two CDsare going to be called early. Both are at 5.1%. Apparently Goldman Sachs and Schwab feel that rates are going down.

  5. The next 1-2 months could be very volatile (BTFP expiring). Unless Janet spins up her buy back and reissue at a higher rate program, March / April might be very interesting. I’m still interested in a safety trade with those entities that are too big to fail.

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