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My investment institution offers brokered CDs for clients to purchase. Out of these, the long term CDs offer relatively decent interest rates compared to bank CDs. For example, CDs with 10 year terms are above 3%. No cost to purchase. But taxed both by fed and state.
Most CDs are callable by the issuer every year (or so) during the 10 year term. While a 3.25% interest rate might seem pretty good now, it may not be the case in a few years. And even if overall market interest rates fall significantly, then the issuer just "calls" all their CDs and then offers the same for a lower interest rate. If the market interest rates increase significantly, then the issuer has the CD investor locked in at the lower interest rate. It seems like long term callable CDs are only a losing situation for the potential investor.
But these long term callable CDs are selling like hotcakes. On my online account I can see the volume of inventory in real-time. A single new issue of a CALLABLE CD is selling almost a $1,000,000 in a single day. What am I missing here?
Maybe a million in daily fixed income sales isn't much?
Clarification: There are several issues of CDs selling a million each. Some starting with 8000 shares ($1,000 each = $8Million) selling steadily throughout the day. Another new issue is now down to under 500 shares now, and will probably be sold out before the weekend.
Maybe there are lots of risk adverse investors? Also, 10 year terms still could include retirees who seek to preserve capital? If the CD is called way early in the 10 year term, the investors just buy another CD at the lower current interest rates?
My investment institution offers brokered CDs for clients to purchase. Out of these, the long term CDs offer relatively decent interest rates compared to bank CDs. For example, CDs with 10 year terms are above 3%. No cost to purchase. But taxed both by fed and state.
Most CDs are callable by the issuer every year (or so) during the 10 year term. While a 3.25% interest rate might seem pretty good now, it may not be the case in a few years. And even if overall market interest rates fall significantly, then the issuer just "calls" all their CDs and then offers the same for a lower interest rate. If the market interest rates increase significantly, then the issuer has the CD investor locked in at the lower interest rate. It seems like long term callable CDs are only a losing situation for the potential investor.
But these long term callable CDs are selling like hotcakes. On my online account I can see the volume of inventory in real-time. A single new issue of a CALLABLE CD is selling almost a $1,000,000 in a single day. What am I missing here?
What's the online platform? Also, there may be a penalty on the CDs for taking money out before the maturity date. Regardless, I'm interested in looking more into this.
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