Hello, YieldAlley readers! In this issue:

• The Return of Corporate Bond Opportunities

• U.S. Stocks Drop as Strong Jobs Data Dims Rate Cut Hopes

• Getting 15% back on all your dining and restaurant bills

• And more!

NEWS

Standout Stories

📺 Just how many ads are there on ad-supported streaming apps, really? (Sherwood)

🛍️ Online holiday spending rises nearly 9%, fueled by deals and AI chatbots (CNBC)

📱 Top 3 tech trends that dominated CES 2025 (Yahoo Finance)

🏝️ Social Security Fairness Act signed into law by Biden (CBS)

👌 One Man’s Attempt to Get a Perfect 850 Credit Score (WSJ)

MARKET THOUGHTS

U.S. Stocks Drop as Strong Jobs Data Dims Rate Cut Hopes

• ECONOMY

  • U.S. job growth blew past expectations with 256,000 positions added in December, nearly double the forecast of 155,000, while wages grew 3.9% annually. The robust labor market, coupled with services sector expansion to 54.1 and a sharp jump in prices paid to 64.4, reinforces inflation concerns. Fed officials, in their December minutes, highlighted heightened inflation risks, with Governor Bowman emphasizing rates remain "uncomfortably above" the 2% target. Meanwhile, European unemployment held at a record-low 6.3% even as inflation ticked up to 2.4% from 2.2%.

• STOCKS

  • U.S. stocks retreated on the strong jobs data, with the Nasdaq falling 2.34% for its worst week since mid-November. Small-caps entered correction territory as the Russell 2000 underperformed for the fifth time in six weeks. Value stocks showed relative resilience against growth peers. European markets bucked the trend, with Italy's FTSE MIB leading gains at 2.82% and France's CAC 40 up 2.04%, as investors bet on ECB rate cuts despite rising inflation.

• FIXED INCOME

  • Treasury yields surged to November highs following the employment report, while UK gilt yields jumped to 4.8%, their highest since 2008, on fiscal concerns and Trump policy uncertainty. Corporate bond issuance saw strong demand despite widening spreads, with utility sector focus amid California wildfires. European bond markets reflected diverging central bank outlooks, with ECB officials signaling openness to summer rate cuts while Fed guidance suggested a more cautious approach.

INCOME BUILDING

The Return of Corporate Bond Opportunities

Last week, we hit the reset button on our cash strategy — claiming that the era of easy money is ending. We no longer have easy and risk-free opportunities to earn 5% or more. From T-Bills to ultra short-term ETFs, these opportunities have largely disappeared. While we identified some total return opportunities within longer-term government and agency bonds, a new opportunity has emerged in the corporate bond market.

The corporate bond market has roared into 2025 with a very busy start. Companies are rushing to secure funding and lock in rates amid Federal Reserve uncertainty and fluctuating Treasury yields. As a result, income investors face an interesting opportunity. Some companies are issuing bonds with yields exceeding 6% and call dates stretching as far as a decade out. However, these come with an important caveat: they are “callable bonds,” meaning the company can recall them after a certain time.

Callable Bonds: Pros and Cons

One of the most critical aspects for investors to understand in the current market is the call feature present in many new corporate bond issues. These callable bonds typically offer higher yields to compensate for the company's right to redeem them early, but this feature introduces an element of uncertainty into the investment equation.

Consider a bond with a 6% coupon and a 20-year maturity. If it's callable in one year, investors face two distinct scenarios: either enjoying that attractive 6% yield for just twelve months before reinvesting at potentially lower rates, or receiving that same 6% for the full two decades if the bond isn't called.

We recommend having a clear plan when purchasing any callable bond. Will you be comfortable having cash on the sidelines or know where to reinvest if your bond gets called? Likewise, are you prepared to hold until maturity? It's important to consider these two scenarios, as they are the most likely outcomes.

The Corporate Bond Opportunities

At the time of writing, the top corporate bond new issues on Fidelity are primarily from large global banks such as Deutsche Bank, Goldman Sachs, and Bank of America. These are systemically important financial institutions with strong credit ratings — ranging from A1/A to A2/BBB+ from Moody's and S&P, respectively. While less well-known, the National Rural Utilities Cooperative Finance Corporation also maintains solid investment-grade ratings (A3/BBB) and provides essential financing to America's rural electric infrastructure. These corporate bond offerings present an interesting yield/call protection trade-off.

These corporate bonds are offering yields well above current cash and Treasury rates. While money market funds and short-term Treasury bills yield around 4.2-4.5%, and even 30-year Treasury bonds yield under 5%, these corporate bonds are yielding between 5.5-6.05%. Importantly, all of these bonds are callable, meaning the issuer can redeem them at predetermined dates. The highest-yielding bonds come with earlier call dates — as soon as January 2026. For those seeking more call protection, options like the Bank of America bond still offer an attractive 5.70% yield with a first call date in January 2035, providing at least ten years of potential income at rates significantly above current Treasury yields.

Note: While corporate bonds can experience price fluctuations in the secondary market, investors who hold until maturity or until the bond is called will receive 100% of their principal back, plus all promised interest payments. Price fluctuations only matter if you sell the bond before maturity or call date.

Making Your Choice

The trade-off is clear: higher yields come with shorter call protection, while more consistent long-term income requires accepting a lower yield. Your choice should align with your investment goals and income needs. If you're seeking maximum current income and are comfortable with reinvestment risk, the higher-yielding, shorter call protection bonds might be appropriate. However, if you're building a long-term income stream and want more certainty, the lower-yielding bonds with extended call protection could be the better choice.

INCOME BUILDING

Cash Rates

Government Money Market Funds (7-Day Yields)

• SNVXX (Schwab Government Money Fund - Investor Shares): 4.08%

• SPAXX (Fidelity Government Money Market Fund): 4.02%

• TTTXX (BlackRock Liquidity Funds: Treasury Trust - Institutional Class): 4.25%

• VMFXX (Federal Money Market Fund): 4.27%

Brokered CD Rates (6-Month Rate)

• Charles Schwab: 4.24%

• E*Trade: 4.20%

• Fidelity: 4.20%

• Merrill Edge and Merrill Lynch: —

• Vanguard: 4.20%

ETFs (30-Day Yields)

• SGOV (iShares 0-3 Month Treasury Bond ETF): 4.37%

• BIL (SPDR Bloomberg 1-3 Month T-Bill ETF): 4.34%

• USFR (WisdomTree Floating Rate Treasury Fund): 4.45%

• TFLO (iShares Treasury Floating Rate Bond ETF): 4.31%

BONUSES

Brokerage, Bank and Credit Card Bonuses

One of the most compelling credit card bonuses available right now is the American Express Platinum x Resy Card. The offer structure is noteworthy: earn 100,000 points after spending $8,000 in your first six months, plus earn 15x points on dining purchases up to $25,000 during that same period. The offer can be found here (you may need to reload the page a few times to trigger the 15x dining rewards instead of 10x).

Maximizing this opportunity could earn you 475,000 American Express points – translating to $4,750 in value, or $5,225 if cashed out through Schwab (each point is worth 1.1 cents). The obvious challenge here is spending $25,000 at restaurants within six months. While we won't delve into specific strategies today, many cardholders purchase dining gift cards for future use or resell them (accepting a minor loss while still profiting from the overall bonus). For frequent diners, this card presents a valuable opportunity to earn 15x points on every restaurant dollar spent.

The card does carry a substantial $695 annual fee. However, this cost is significantly offset by several credits: $200 for Uber, $200 for airlines, and $199 for CLEAR. For those who regularly use these services, these credits nearly eliminate the annual fee's impact.

Feel free to reply with questions about specific strategies to fulfill this bonus.

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