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What fixed yield equals instant retirement on 4% WR or 5% WR?
I think preferreds could go on clearance sale again amid the next recession. Right now, nobody is talking about bank loan or mortgage defaults, and the word "contagion" has only so far been applied to sketchy crypto firms who borrowed dollars from each other using sketchy cryptocoins as collateral.
The narrative could change overnight, and we could again find ourselves talking about debt issues and bank solvency. The time to buy is *after* questions about the continuation of the US financial system have been percolating on mainstream financial media for at least a week.
As a note to self, today, on 6/30/2022 yields were:
And the 5-year inflation breakeven is 2.59% and falling.
My screener shows me several long-duration bonds from BBB+ companies yielding around 7%.
For example, Disney (CUSIP: 254687AH9) and Reynolds (CUSIP: 761713BB1). There are several more plays if willing to go BBB or BBB-.
These are intriguing plays in a world where the 5 year inflation breakeven just hit 2.5% and the 10 year breakeven is 2.33%! That's quite a spread - four and a half percent for IG bonds. Are these the good ole days?
Looks like an attractive yield for corporate IG bonds. There is some risk if inflation were to get out of control, 1970s style. But in the base case where inflation slowly returns to 2% those yields are pretty nice!
Update / necropost:
I decided to start buying bonds last week. I'm staying away from financials for now, but still picking up 7.5% to 8% long-duration yields on profitable BBB to BBB- name brands like Energy Transfer, Viatris, Oneok, and Omega Health Investors.
These bonds lost 2-4% in the last 7 days as interest rates have been moving fast, but I've also only deployed about 10% of my cash portfolio so far. DCAing is the only alternative to the risk of missing these high yields altogether, so I'll have to accept the inevitability of imperfect timing. I hope to buy through the dip.
The game plan is to load up to 80% of my portfolio into bonds over the next several months. For the remaining 20%, I might then buy extra-long-duration stock index call options, or calls on TLT or ZROZ, depending on volatility.
I think the odds of "something breaking" are close to 100% at this point. When that happens, inflation will be an afterthought and we'll all be debating how quickly the FOMC will cut rates. I predict my bonds will appreciate faster than stocks at that future time, because their value is tied directly to market interest rates. Stock values are more directly tied to earnings which typically take years to recover.
If bonds recover faster than stocks, that will represent an opportunity to tilt out of fast-appreciating bonds and into slow-appreciating stocks in the early innings of a recovery. And if things don't turn out that way, maybe I've locked in all the yield I need to retire on.
Preferred stocks might be a good deal in the near future too, but for now I'm avoiding financials (bad loan / contagion risk) and finding more-senior long-duration bonds to be a better deal.