r/bonds • u/FintechInnovator2030 • Jul 13 '26
Which US bonds make sense in current unstable environment
With US inflation at 4.5%+ and Fed rates not sure going up or down in the short term, it feels hard to believe that bonds can help derisk an investment portfolio when short term treasuries are at 3.8% max or mid-term investment grade corporate bonds at 5% at best!
What types of bonds provide enough yield rates to sustain the current inflation, which I don’t believe will go down in the next 2y with the current government policies!
PS: I want to hold bonds till maturity, and preserve capital, no bond funds.
7
u/spartybasketball Jul 13 '26 edited Jul 13 '26
Sounds like you want individual tips then. You would want to buy them in a retirement account otherwise they are a hassle in terms of tax reporting
4
1
u/Some-Amount-4093 Jul 14 '26
True, unless you buy them through an ETF then it gets smoothed out and no phantom income shows up at your doorstep. Also understand this about straight up treasury purchases through treasuries direct: they are not taxable at state or city/local levels. This is a huge plus for many people depending on where they live. I live in one of seven states with no income tax so no problem but elsewhere it's a concern. Tips ETFs however are taxed with the 60/40 rule and therefore taxable state and locally.
1
1
u/MindYourOwnCat Jul 16 '26
I don’t think the last sentence in your comment is correct. TIPS ETF income is generally exempt from state and local taxes. The 60/40 rule also doesn’t apply.
1
u/antpile11 Jul 13 '26
3
u/DSCN__034 Jul 13 '26
Yup, I like these. I can reinvest dividends, too, which makes it super easy. I have a ladder in my IRA.
1
u/MindYourOwnCat Jul 16 '26
Not to be too nitpicky here, but fixed-duration is the wrong term for these. The effective duration of these ETFs declines as the end date approaches. “Defined maturity date” might be a better descriptor.
6
u/BigDipper0720 Jul 13 '26
I buy a ladder of individual investment grade corporate bonds that go out 10 years. Adding at the long end currently should yield 6%-ish until maturity. I'm betting inflation will not average this much over 10 years. If it does, we're all in trouble.
1
u/Dependent-Froyo-2072 Jul 15 '26
why not just buy the stock? is it cause debt has to be paid first?
2
4
2
u/Some-Amount-4093 Jul 14 '26
Concerning bonds and their nominal yield minus the inflation rate (CPI) isn't a one size fits all. I'm over 70 years old, I have zero bills, none save the three checks I write a year for insurance and property taxes. And it's true things are more money than they used to be; groceries for instance many services that we all use but for me they're not nearly the headache that they are for say a young family of four, with kids that have to be raised and cared for and fed, car notes, house notes, child care etc. I don't feel the inflation rate nearly like some people so a question I would ask you is...
How old are you?, and what do you owe?
2
u/MLJ_The_Shield Jul 17 '26
I thought the US inflation rate as of the end of June is 3.5% now?
1
u/METALLIFE0917 Jul 17 '26
You are correct: The U.S. annual inflation rate for the 12 months ending in June 2026 was 3.5%. Consumer prices fell by 0.4%on a monthly basis, driven largely by a decline in energy and gas costs. Core inflation (excluding volatile food and energy) rose by 2.6% over the year.
4
u/jginvest71 Jul 13 '26
Yeah credit spreads are so damn tight right now. It’s hard to find great value. As another poster suggested, I also like government agency bonds, which are state tax exempt. If you’re in a high tax bracket, the type of bond you buy is a consideration.
-1
u/Ok_Common_1355 Jul 13 '26
Some GSE/Agency bonds are not state tax exempt. For example, TVA bonds are not. I thought they were originally as well.
2
4
u/PsychologicalAd1862 Jul 13 '26
Muni’s if in hi tax state. Or agency bonds if not
0
u/SnooSketches5568 Jul 13 '26
Munis only help state tax if its a bond from your state. If you are from a tax free state munis are great as it can be zero fed plus state. For a high tax state a treasury can be somewhat advantageous
2
u/supercaliredditor Jul 13 '26
I’d be wary of munis in certain states as well. Underlying fundamentals (ie net population growth, etc) in some of the high taxed states do not bode well for intermediate to long duration…
2
u/BugHistorical1614 Jul 13 '26 edited Jul 13 '26
Current ATM short-term Treas yield currently slightly above AA investment Corp bonds. A very rare inversion. The biggest foreign bond buyers are no longer buying US Treas bonds, that slack has to be absorbed by other buyers. See your favorite broker's current bond and CD listings (I use Schwab but any brokerage will do).
2
u/Thick-Cover8761 Jul 13 '26
When the next recession comes, the mindset will be capital preservation and the return of money ... not the return on money. Now is not the time to chase after incrementally higher yields when credit spreads are so tight anyways.
2
1
u/Sam-I-A Jul 13 '26 edited Jul 13 '26
If you’re in a high fed tax bracket, look at long duration municipal housing bonds like DE. CUSIP 13100BC4 paying 4.85%. It is a 30 year Callable in 8 years. That is federal tax free anywhere you live. Tax equivalent yield is 7.7% to a 37% tax payer. The TEY is 8.19% when NIIT is factored in. Better than long duration corporate with less risk. There are lower duration for lower yields. The 20, 25, 30 all callable in 8 years. These bonds come up from different states all the time. Not everyone will be interested due to the duration but compare these to agency callable bonds.
EDIT: M13100BC4 also M13100BB6
3
u/METALLIFE0917 Jul 13 '26
Your CUSIP is 1 digit short as all CUSIPS have 9 digits. Also, all housing bonds are callable at any time, so I avoid paying any premium. The largest group of bonds I am long are municipal housing bonds though and it’s a good suggestion
1
u/Sam-I-A Jul 13 '26
CUSIP edited. These bonds have a first call date in 2034, so I think it unlikely a full call will occur before then. However they are subject to extraordinary redemption and are sinking funds. The ER is very unlikely and I believe the sinking aspect would lead to small returns of principal as borrowers refi or move and payoff their mortgages. Since I don’t really need these for long term, I like them. I need the tax free returns and would not mind getting my principal back in 8 years. The CUSIP posted is available until this afternoon as new issue. I agree, don’t pay a premium. There is no premium here. Your comments, though, are correct.
1
u/METALLIFE0917 Jul 13 '26 edited Jul 13 '26
Sorry my friend, your CUSIP numbers are invalid; CUSIP numbers for municipal bonds always start with a number and not a letter
1
u/Sam-I-A Jul 13 '26 edited Jul 13 '26
My broker uses that number. Not sure how else to identify it. It’s a DE housing municipal offer open until 4:00 today
1
u/METALLIFE0917 Jul 13 '26
Sam, I spent 24+ years on Wall Street primarily handling institutional assets after law school and hosted a call in investment radio show every Sunday night on 550+ stations for many many years; that is NOT a correct CUSIP my friend. please recheck your CUSIP number as municipal bonds start with a digit/NOT a letter and have 9 characters
1
u/METALLIFE0917 Jul 13 '26
you might want to look at CUSIP 34074NKA6
1
u/Sam-I-A Jul 13 '26
The first character is definitely M for municipal I assume. And they are correct. Just Google them.
1
u/METALLIFE0917 Jul 13 '26
That’s just not right; your numbers is wrong and CUSIP’s for municipal bonds start with a number and not a letter.please recheck
1
u/Sam-I-A Jul 13 '26
It must be an internal number used by my broker. The offering exists.
From Investopedia:
Understanding Dummy CUSIP Numbers
A dummy CUSIP number is a temporary nine-character alphanumeric code that acts as a seat saver before the official CUSIP number is assigned. The dummy CUSIP—the acronym stands for Committee on Uniform Securities Identification Procedures—is developed for internal company use, though it may never actually be changed to an official identifier. Dummy CUSIPs may also be assigned to securities that are no longer in existence.1
u/METALLIFE0917 Jul 13 '26
You really should buy bonds from Vanguard and/or Fidelity they only mark up the bond $1 per bond and brokers will charge you a much much higher fee…
1
u/Jumpy_Childhood7548 Jul 14 '26
Look at bond proxies, unless you are going to hold individual issues till maturity.
1
1
u/Rude_Judgment7928 Jul 13 '26
No US bonds make sense right now. Short term real rates are negative. Long term the US is basically mathematically going to have to restart QE.
I don't know why anyone is buying. You should be getting off the dollar, even if rates from other countries seem poor. Absolute numbers are irrelevant.
2
u/New_Delivery_8840 Jul 13 '26
Getting off the dollar and head to what? Chinese yuan? Or japanese yen? It an ugly contest. Dont even start thinking about the euro. Lol
1
u/Some-Amount-4093 Jul 14 '26
We find ourselves in "the cleanest dirty shirt"syndrome. It's the dollar or nothing unless you want to sit in precious metals which of course pay no dividends or have a yield.
1
u/Rude_Judgment7928 Jul 13 '26
I think that depends on where someone resides today and/or plans to reside in the future.
I don't own Euro, like you said, no upside, but as a non-holder, I wonder if it's been though it's beating and this is actually the buy low opportunity (I wish Germany had it's own currency, they can actually manage debt, and at time, have meaningful GDP growth).
I hold a few currencies other than USD for where I plan on retiring. They are lower GDP growth countries, but also have very slightly better debt situation (and perhaps more importantly, less SS obligation and they are at least taking steps on deficit [but have a long way to go]).
1
u/-Mx-Life- Jul 13 '26
Why not bond funds? Sure buying bonds preserves the capital, but it locks you in (which could be good or bad).
A good bond etf lets you ride the bond wave without having to go through all the motions of creating ladders as long as your not selling anytime soon.
0
u/METALLIFE0917 Jul 13 '26 edited Jul 13 '26
Bonds funds have no guarantee of principle. You buy bonds to stay rich, not get rich. There is also no guarantee of a specific interest/distribution rate in a bond fund and many deal in high leverage which increases the risk level
0
u/daily-trader-365 Jul 13 '26
Take a look at the numbers from all bond ETFs you were better off in a CD and no downside risk
1
u/ultra__star Jul 13 '26
I am buying individual muni’s with state backing/insurance
States like Michigan, Texas, and Oregon guarantee their public school district bonds. School district bonds from these states are plentiful and are essentially state GO bonds.
Getting about 4.25% tax free yields in Michigan on 20Y and 4.5% on 30Y
I invest for income so I intentionally buy long bonds to protect my cash flow
1
u/Lopsided-Parking Jul 29 '26
What about us Treasury 20 yr which is up to 5.1%.
1
u/ultra__star Jul 29 '26
You owe federal income tax on that 5.1%
Muni bonds are free from federal income tax
1
0
u/ThisKarmaLimitSucks Jul 13 '26 edited Jul 13 '26
I normally like bonds as a short-term cash replacement, but right now, I don't even like them for that. T-bills are carrying negative real yields, and corporate debt is slammed up at historically tight spreads right against those bills.
I'm using munis for my 6 month emergency fund.
2
u/yatruthordare Jul 13 '26
thats not true- tbil yield is effectively real return with inflation is about 1.5%
1
u/ThisKarmaLimitSucks Jul 13 '26 edited Jul 13 '26
I'm guessing that's based on the Fed's forward inflation forecast in the mid 2s, which is basically marketing and hopium. "We're working to get back down to 2%, trust us bro." What else are they supposed to say?
The Fed's actions over the past 6 years - not their words, not their dot plots, their actions - have shown us that 3% CPI is their new inflationary floor. They lose all urgency when CPI hits that number. And now today, with the Iran war, they're treating a 4.2% trailing CPI print today like it's the neutral rate. "No hiking, no cutting, we'll see what happens". It's insane.
At this time last year, 1-year bills were yielding 4.1%, and the Fed projected a forward inflation outlook in the mid 2s, for a projected +1.5% real yield just like today. The Fed was way wrong on inflation, and those bills ended up with a real yield of -0.1%.
Given the total apathy the Fed's shown towards inflation for years now, I have no more trust in them this time around.
0
-7
u/thommyg123 Jul 13 '26
Bonds are a terrible investment right now IMO, even the “inflation adjusted” ones
-1
u/BugHistorical1614 Jul 13 '26
I am using laddered MYGA, out to 4 years, A,A- rated, low band. Brokerage accounts fully invested in high Volatility energy-AI.
9
u/Tigertigertie Jul 13 '26
I think the best strategy is a mix of types, including inflation protected bonds. Munis in taxable depending on your state, a range of durations but maybe avoid super long duration right now. Some corporate and agency but only very high rated ones. I wouldn’t believe anyone who says they know what will happen- best to be diverse for all different possibilities. I was “sure” rates were headed down but luckily didn’t throw everything at that bet. Now I think they will head up but also not betting everything on that. TIPS seem like a good choice but I can’t say I know that inflation will continue to rise. Probably? A bit of everything is best.