The early Morning Research! I'm excited to share some recent moves I've made in my fixed-income portfolio, especially in the world of Certificates of Deposit (CDs) and bonds. My primary goals are always about minimizing risk while maximizing yield, and getting that monthly payout, if possible. It’s been a fascinating learning curve, life, and I wanted to document and my thought process and what I’ve learned about some of the terminology.
My Treasury Bond Play: Long-Term & Low Risk (Mostly!)
I recently placed a purchase order for a U.S. Treasury Bond with a maturity date in August 2054. Yes, you read that right – nearly 30 years out, Resale!
Here’s why I liked it:
- Ultimate Safety Net: It’s a U.S. Treasury, backed by the full faith and credit of the U.S. Government. As a risk-averse investor, this is a huge plus.
- Discounted Price, Higher Yield: This bond was selling at a significant discount (around 87 cents on the dollar). This means while its coupon rate is 4.25%, my Yield to Maturity (YTM) is actually much higher, around 5.101%. That's because I'm paying less upfront and will receive the full face value at maturity, giving me a built-in capital gain.
- Non-Callable: Unlike some other fixed-income options, this Treasury bond is not callable. This is crucial for me because it means the government can't redeem it early if interest rates fall, ensuring I get those semi-annual payments and my principal back as expected.
My main takeaway: While it doesn't offer monthly payments (it's semi-annual), the long-term yield and near-zero credit risk of a U.S. Treasury, especially when bought at a discount, was too compelling to pass up. The trade-off for semi-annual payments is something I can manage for this particular portion of my portfolio.
Eyeing a Callable CD: A Bet on Stable Rates
Interestingly, despite my preference for non-callable options, I've also marked my calendar to place an order for a Callable CD from Cfg Cmnty Bk Lutherville Md. This one has a 4.300% coupon and offers monthly payments, which aligns perfectly with my desire for regular income.
The key term here is "callable." This CD can be called as early as August 28, 2025.
Why am I considering it despite the call risk?
My personal economic outlook suggests a modest interest rate increase rather than a decrease in the near future. The economy seems solid, and I see abundant opportunities with new technologies emerging – for example, the rise of independent journalists using YouTube as their platform is a clear sign of innovation and growth. If rates do indeed increase or stay stable, the bank is less likely to call the CD, allowing me to enjoy those monthly 4.300% payments for longer. If rates drop significantly, it's a risk I'm acknowledging: the CD could be called, and I'd need to reinvest at lower rates. However, for a shorter-term potential income boost, I'm willing to take that calculated risk based on my current outlook.
Exploring Corporate Bonds: Microsoft's AAA Appeal
I also looked into a Microsoft corporate bond. Here’s why this bond was attractive:
- Premier Credit Quality: With AAA/Aaa ratings, Microsoft is considered extremely creditworthy. The risk of default is incredibly low, almost on par with U.S. Treasuries, though technically higher as it's not government-backed.
- Attractive Yield at a Discount: This bond also trades at a significant discount, pushing its YTM to 5.382%. That's a great yield from such a strong company.
- Make-Whole Call Protection: It's callable, but with a "make-whole" provision until August 2056. This means if Microsoft calls it early, they'd generally have to compensate investors for the lost future income, making it less likely they'd call just to refinance at a lower rate.
Important Disclaimer:
Please remember, I am not a licensed financial advisor. This post reflects my personal investment decisions and thought processes based on my own research and market outlook. Investing in bonds and CDs involves risk, and your personal financial situation, risk tolerance, and investment goals should always guide your decisions. Always consult with a qualified financial professional before making any investment choices.
Happy investing!