I've had 3 bonds get called recently that were within a year or two of maturing. I'm not really complaining because they weren't yielding much more than some online CD's are now and that money is now freed up so I can buy higher yielding/higher rated bonds or DCA into this dip in stocks.

I would think with rates going up companies would be on the winning side of bonds issued when rates were much lower but instead they are calling them early (at least mine) when new issuance yield rates are going up fast. Just curious of why they didn't just hold until maturity and lock in that lower rate as long as possible?

You sure they weren't adjustable rate bonds about to reprice?

Getting new issuance out before all the rate increases this year.

Feds basically saying expect a half point each meeting all year. Lot cheaper to finance new bonds now than in 6 months.

No. Basic callable bonds. I actually paid a couple dollar premium in the secondary market when I bought them 4 years ago and there was a higher premium when they got called @100 so in hindsight maybe it is best to sell callable bonds running a decent premium a year or two before maturity?

Is it possible that someone would pay a premium for a bond in the secondary market and then have it get called immediately after by the issuer at the original price so the poor bastard would lose his premium without getting any dividends?   I think I'm going to avoid this callable BS from now on unless I buy it at a discount.

I thought about that but why not just let your remaining low rate bonds mature and issue new ones at the going rate right now? Just overlap them.

what are the CUSIP numbers of the bonds, and i'll tell you why

Says a lot about their expectations for rates going forward.
As previously pointed out, they expect rates higher when the bond expires.
So they'd rather call them early and fix those rates now on new debt.

34540TPS5   093662AE4

I was wrong on the 3rd one, it actually matured, damn time flies.

34540TPS5
this is a Ford Motor Credit note, it was issued in 2017 at 4.05% and it was a tiny tiny tiny issue amount like 8.4milliion, they just paid it off, there would be no reason at all to refinance this it's just tiny, the benchmark rate for double Bs is 6.22% as of market close yesterday.  Just for scale, Ford has about 48billion in short-term debt, and 74 billion in long-term debt, less the current portion of long-term debt which is about 35 billion, in all their total debt is around 122B, 8.4million is less than a rounding error.

this is also inside of the FMC special purpose entity, and what they are doing in there is much harder to see, since it's technically "off-balance sheet"

093662AE4

This one is H&R Block, this is a straight-up refinance.  The original 500MM bond was issued in 2012 @ 5.5% coupon, maturing in nov 2022, so it was coming due.
In June 2021 they filed a prospectus for a new 500MM bond at 2.5% coupon, maturing in 2028.  in the prospectus they clearly state the purpose is to buy back the 5.5% bond.

So they just refinanced a 10-year note @ 5.5% with a 7-year note @ 2.5%


Keep in mind that debt refinance is usually planned many many months in advance.  In this case, it looks like they knew they didn't want to pay off a 500MM debt obligation all the way back in 2021, likely well before June, and rates were super low back then, and it was an easy decision to refi it.


as for reinvestment, you're probably better off reinvesting into a high-dividend yield ETF or HDY equity with a fortress balance sheet

Thank you sir for the knowledge and advice. How about this one?  30161MAG8 It was bought at the same time as the others in '17 but is non-callable, is now valued at what I paid for it (it was running a large premium that slipped away since the recent rate hikes ), pays 6.25 and doesn't mature until 2029. Let it keep riding or sell it?

I guess the question on everyone's mind is will the fed keep hiking until the economy crashes or turn dovish at the first sign of inflation and demand faltering. I'm thinking DCAing into or out of investments for the next 18 months or so is the only way to go here since the Fed holds all the cards and we are not insiders or remote viewers. Of course if a true crash happens its back up the truck and load up time so you definitely want to keep some cash handy for penny on the dollar bargain hunting across the board.

You're welcome.  So yeah, this is a long-dated maturity for sure, it matures in 2039.  If you bought it today, the YTM is 5.963%, so specifically in your case, what matters is what your cost-basis is.  If you paid a little less than what the market price for the security is as of the last close of the market, your YTM will be higher, and of course if you paid more than market price then your YTM will be lower.

We do not really have an allocation to corporates at the moment, and most of that is for tax reasons, however, particularly in the muni market, there are opportunities to exploit mis-pricing in long-dated maturities, and we tend to pick up long-dated bonds when we think they are mispriced, which allows us to boost the portfolio yield, recently most of the activity on the fixed income side, for us, has been on the long end of the curve (because that is where most of the selling is happening).

However, there are caveats, maturities on the long-end of the yield curve have substantially more "interest-rate risk" or "maturity risk" than do securities with shorter maturities (on the short end of the yield curve).  This interest-rate risk is highly prevalent in a rising interest rate environment.  Sometimes with these longer-dated maturities, we let them pay coupons until the price returns to sanity and then sell to pick up the capital return.

On the whole, we, almost always without exception, prefer investment grade (BBB+ and up, usually nothing below AA), non-callable bullets without credit enhancements.

That's a little bit on the bond and how we're looking at OUR fixed income tranche at the moment.

To your question regarding the Fed... Here's my take, and I think it's pretty reasonable, others may disgreee.

The Fed is finding itself in probably THE MOST difficult position it has been in many many decades.  Inflation is out of control and the Fed's analysis of the causes of inflation over the last 18 months was frankly dead wrong, and chair powell essentially admitted as much on friday in his interview with NPR.

They should have begun open market operations to taper the balance sheet, at least 6 months ago, if not earlier, and should have begun rate hikes at least as early as January.  But they didn't and here we are.  Coulda, shoulda, woulda, right?

What has happened over the past few years, is that during the pandemic we pretty much put the economy into an articifial coma.  We classify consumer spending for GDP purposes really into 2 categories, goods and services.  Services spending made up almost 80% of gdp in 2018, but during the pandemic, with the economy in a coma, spending on goods is where consumer dollars went, on top of that extra government dollars into consumer hands pushed that goods spending even higher.  Supply chains are sticky right, it takes significant capital investment and time to build factories and add capacity into goods manufacturing supply chain, plus the labor market on the good production side was put to sleep.  So we had sky rocketing demand for goods, and shrinking supply, prices goes up up up right, that's econ 101.  Even when the labor market started coming back, we're almost but not entirely back to the labor force participation rate that we were at before the pandemic, the demand for goods was still very elevated.  Only recently has consumer spending on services started to move back in the direction to where it normally is, and of course we still have ugly ugly inflation numbers.

What the Fed needs to do is "reset demand".   By doing so, that may give manufacturers, home builders, commodity prices a chance to "catch their breath".  The only way they can do that is by making capital much more expensive, which they are doing and will continue to do until the inflation numbers come to heel.

It has been my contention all along that the Fed, has no ability whatsoever to "engineer a soft landing" such a thing does not exist, and has only happened once in the entire history of the Fed (since 1911) and there is ample evidence is was more luck than skill (1994-1995).

The Fed will have to hike rates, and shed trillions off it's balance sheet and that WILL push the economy into what I think will be a short and likely shallow recession.  We've already had one quarter of negative GDP growth, I suspect next quarter will also be negative, by simple fact the the GDP deflator is so high (inflation). Two negative quarters of real GDP growth constitutes a recession by the NBER definition.

Chair Powell earlier last week took 75bps rate hikes off the table (kind of) by saying the committee hasn't discussed a 75bps hike, the equity market rallied on the news and closed up and the very next day, erased those gains and then some, clearly the market wasn't buying what he was selling.

Last Friday, Powell admitted the Fed is late to the party in the rate hike game, duh, and that they were wrong about inflation being transitory, duh, and that is likely the next 2 rate hikes will be 50 bps, duh, and that 75bp hike is NOT off the table, mmhmmm, and admitted they have little control over the factors that determine whether or not the economy lands softly, mmmhmmm.

Further, he admitted that there is likely to be some economic pain as a result of the Fed's inflation fighting activities (read between the lines recession).

The Fed is now finally talking seriously about how it plans to get this inflation problem under control.  Let us hope they are serious and don't get wobbly on it.  So yes, I believe in order to get inflation to heel, the Fed has no choice but to force the price of capital so high that it is likely to trigger a short/shallow recession, because that is probably the ONLY way they can get the demand reset the economy and the supply chain so desperately need.

Whew long thread I know.

The question as to whether you let it ride or not.  I will have to answer that a bit later, I have to run, but I'll be back this afternoon.


Recall the 5 components of interest rates; where:
Real Interest Rate (or Required Return on Invesment) = real risk-free rate + default risk + interest-rate risk + liquidity risk + inflation expectations

Recall components of Rate of Return; where:
Rate of Return = capital return + income return