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Building a Monthly Income Ladder with Utility Baby Bonds (SREA, CMSD, SOJD)

The "Invisible Hand" of the market is a curious thing. Lately, I’ve been reflecting on the paradox of our current economy. Everywhere I look, the market is erupting. Yet, in my daily life... especially during my side-hustle... I see a different reality. I see a plague of "I Want" disease. People choose immediate, depreciating "wants" over the long-term power of compounding. For me, the choice has always been clear: I’d rather own the debt of a utility company than a fleeting luxury.

With interest rates in a state of flux and Jerome Powell stepping aside for new leadership, the era of the "easy" 5% High-Yield Savings Account (HYSA) is showing cracks. Just this past Wednesday, April 22nd, I watched my HYSA rate get trimmed to 3.25%. But the Economy is moving aggressively in many segments.

When the bank pulls back, I lean into the alternatives. Specifically, I’m looking at Junior Debt... often called "Baby Bonds."

The Middle Ground: What is Junior Debt?

In the world of finance, Junior Debt rests above Preferred stock but below Senior Debt in the event of a bankruptcy or liquidation. There is an added layer of security here that I find compelling.

These "Baby Bonds" trade on the open markets in $25 par value increments. They are highly accessible... almost anyone could contribute $25 increments to debt that helps with societal expansion or security. I’ve been on Etrade for approximately 30 years, and I value this access to alternatives abroad, though my mindset remains more focused on Treasuries and Bonds than traditional stocks.

The AIS Strategy: The Utility Ladder

While I’ve "spiritually" invested in preferred ETFs like PFF for years, I am now shifting toward direct ownership of debt in the Utility and Pipeline sectors. These are prime Augmented Income Strategy (AIS) candidates. I am not "swing trading" these holdings; I am parked for the yield and the security of the asset class. I view the modern broker as a paid assistant... watching the alerts I set to receive a text when prices reach my target.

I’ve focused on three specific instruments to create a monthly income ladder:

  • SREA (Sempra Energy): A powerhouse in the Southwest. I hold this in my personal account, my IRA, and my daughter’s account.
  • CMSD (CMS Energy Corp): Purchased this past Friday with a bit of impulse after seeing my HYSA yields drop.
  • SOJD (Southern Company): My order is currently floating to round out the monthly payment cycle.

The Spreadsheet Struggle

A technical note for those using Google Spreadsheets to assist in trading: I’ve encountered significant problems finding reliable data for these specific assets. While my broker is solid, these Baby Bond tickers often don't populate correctly in Google's cloud database. It requires a bit more manual oversight than your standard S&P 500 stock.

Why Buy Now? The "Below Par" Advantage

Many of these bonds are trading below their $25 par value. If the Utility has better margin options or cheaper debt offers, they could pay these bonds off. In that situation, I would receive a capital gain.

This ties directly into the "Big Beautiful Bill." Smaller retail investors filing jointly can earn up to $100,000 in Capital Gains and pay NO Federal Taxes on those gains starting in 2026. Buying below par makes this a very attractive, tax-efficient play.

Resources & Risks

I find these quite difficult to find, as they aren't as popular as Stocks or Senior Debt. For a comprehensive list, I recommend the List of Baby Bonds at Innovative Income Investor. However, I urge caution... some of these look "sketchy" to me. Don't act on impulse or yield alone. DO YOUR OWN HOMEWORK...

With maturity dates ranging between 2079 and 2080, these are legacy assets. If the debt isn't called, it's likely it will be left to a loved one, continuing to pay out long into the future. These pursuits will be monthly for me, as I build this JR Debt Ladder, I'm moving away from Treasuries... until I change my mind.

Disclaimer: This post is for informational purposes only and does not constitute financial, tax, or legal advice. Junior Debt carries specific risks including deferred interest and principal loss. Please consult with a qualified professional before making investment decisions.

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