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Investment grade bonds returning more than 6%?????

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rated:
How can this be true? What is the catch here?

Is it possible to find a mini bond sold less than its par value?

http://socialize.morningstar.com/NewSocialize/forums/p/363261/37...

If you seek investment grade bonds with over 6% explore mini bonds, aka exchage traded debt. Good site is dividend yield hunter. Good hunting. BTW-there is all kinds of risk, and trade offs. Biggest risk here imo is company calling in the bond and reducing your return if paid above par (which will have to today). Another non default risk if rates go higher may be lost investment opportunity elsewhere. It is always a trade offs of risks.

http://www.dividendyieldhunter.com/exchanged-traded-debt-issues-yield/  

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You're not going to find investment grade at this yield. To go this route you're going to have to either go the junk bo... (more)

LeveragedSpeculator (Dec. 21, 2016 @ 1:38p) |

The best thing to come out of this thread is the 1.5% pricing at 3:1 at Interactive Brokers.

Spac3d (Dec. 30, 2016 @ 9:41a) |

Sadly not.  Most corporates at IB are in the 1-5x leverage range, and for unrated or junk rated bonds, I would say 3x mi... (more)

xerty (Dec. 30, 2016 @ 10:09a) |

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rated:
You'll lose all your money. Prepare to go broke in 3 years. I lost $100k on those type of bonds. Maybe one day you'll learn something. 

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fire67bird said:   You'll lose all your money. Prepare to go broke in 3 years. I lost $100k on those type of bonds. Maybe one day you'll learn something. 

Didn't you say you were done here?

rated:
fleetwoodmac said:   How can this be true? What is the catch here?

Is it possible to find a mini bond sold less than its par value?

http://socialize.morningstar.com/NewSocialize/forums/p/363261/37... 

If you seek investment grade bonds with over 6% explore mini bonds, aka exchage traded debt. Good site is dividend yield hunter. Good hunting. BTW-there is all kinds of risk, and trade offs. Biggest risk here imo is company calling in the bond and reducing your return if paid above par (which will have to today). Another non default risk if rates go higher may be lost investment opportunity elsewhere. It is always a trade offs of risks.

http://www.dividendyieldhunter.com/exchanged-traded-debt-issues-yield/  

  
What more is there to explain?  You've answered your own question.

 

rated:
Don't corporates have all kinds of hidden options/features that make them hard to value? Never in the investor's favor...

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I think you guys are missing something

Solarcity is not investment grade

Show me one investment grade bond that pays over 6%. I can not find one

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Solarbonds are not investment grade. For one, they are not sellable to anyone else - you buy and you hold them to maturity. For two, they are backed up by a belief that the borrower won't miss or stop payments, and nothing else. If the borrower defaults, a SolarBond holder cannot even lay claim on the underlying solar panels - they are owned by SCTY the company, the bond holder owns just the "payment stream". For three, of they were anywhere near inestment grade, Solar City would be able to sell them to PIMCO, Goldman Sachs, DoubleLine or Nuveen, without talking to schmoes like you or me.

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TravelerMSY said:   Don't corporates have all kinds of hidden options/features that make them hard to value? Never in the investor's favor...
  
Some corporate bonds have call options, but most are straight debt. 

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fleetwoodmac said:   How can this be true? What is the catch here?

Is it possible to find a mini bond sold less than its par value?
 

  Sure, but almost never investment grade ones.  You can find shipping company unsecured debt trading at 0.80 on the dollar, but there's been a lot of pain in the shipping sector including a major bankruptcy.  Ask yourself why the debt market would be wrong, ie that the discount to par doesn't reflect the credit risks of a default.  Unless you have a good reason to believe the market price is wrong, and this goes for anything (stocks, bonds, etc), why would you think something was a particularly attractive investment?  It would be like saying penny stocks are "cheap" because they cost less than $1/share, or that Berkshire is overpriced at $100,000 or whatever for an A share.

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fleetwoodmac said:   Show me one investment grade bond that pays over 6%. I can not find one
there are 6%+ yield muni bond funds that require 80%+ of held bonds to be investment grade or higher, and are trading at a 9% discount to NAV. leveraged, of course. maybe none at that yield that are 100% inv grade, but there are ~4% yield muni funds that are 100% inv grade....and 4% is worth 6% at tax time, for some of us.

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TravelerMSY said:   Don't corporates have all kinds of hidden options/features that make them hard to value? Never in the investor's favor...
  Some things work in the investor's favor, like bond covenants.

But yes, most corporate bonds have call features to them-- the company can prepay them at a premium, just like you can prepay your mortgage.

The good news is that from 2009-2013, there was really no point in putting a call feature on corporate bonds, because they were getting issued at like 2-3% anyways.  Since then, however, some of these bonds have gone down in price-- investors have eaten capital losses on them (offset by interest)-- as yields increased.  So you can often buy them at a discount.  One number to look at is the "Yield To Worst", which factors the optimal call date into the yield.

To answer your question, read through the indenture agreement-- the bond prospectus.  Bonds with call features will clearly note them, and have a list of call dates and call prices. They will almost always be above the issue price (which is usually par, or 100).

-Look for bonds rated BBB/Baa or better unless you really know what you're doing.  Junk (BB/Ba or less, and there's a gigantic gulf between a BB/Ba and BBB/Baa rating relative to BBB vs an A rating)  can sometimes have a place in your portfolio, but only in an actively managed fund IMO.  It's often best bought after we're well into an ugly bear market and "smart" money is running for the hills, although that's often the best time to buy equities.
-Owning individual bonds is sometimes a better idea than owning a mutual fund with a Target term or duration because you can do a better job of capturing the upward sloping term structure without having to incur transaction costs buying and selling bonds.

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prostoalex said:   Solarbonds are not investment grade. For one, they are not sellable to anyone else - you buy and you hold them to maturity. For two, they are backed up by a belief that the borrower won't miss or stop payments, and nothing else. If the borrower defaults, a SolarBond holder cannot even lay claim on the underlying solar panels - they are owned by SCTY the company, the bond holder owns just the "payment stream". For three, of they were anywhere near inestment grade, Solar City would be able to sell them to PIMCO, Goldman Sachs, DoubleLine or Nuveen, without talking to schmoes like you or me.

Wow. If all true then lendingclub is probably a better option, and that isn't exactly a compliment

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Czechmeout said:   
prostoalex said:   Solarbonds are not investment grade. For one, they are not sellable to anyone else - you buy and you hold them to maturity. For two, they are backed up by a belief that the borrower won't miss or stop payments, and nothing else. If the borrower defaults, a SolarBond holder cannot even lay claim on the underlying solar panels - they are owned by SCTY the company, the bond holder owns just the "payment stream". For three, of they were anywhere near inestment grade, Solar City would be able to sell them to PIMCO, Goldman Sachs, DoubleLine or Nuveen, without talking to schmoes like you or me.

Wow. If all true then lendingclub is probably a better option, and that isn't exactly a compliment

Lendingclub and realtyshares etc exist is because the large investors, who know what they're doing, don't want to touch that debt at the rates offered. Thus, it's offered to people who can't do a good risk assessment, in hopes of finding some suckers who will blindly invest.

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canoeguy1 said:   
Czechmeout said:   
prostoalex said:   Solarbonds are not investment grade. For one, they are not sellable to anyone else - you buy and you hold them to maturity. For two, they are backed up by a belief that the borrower won't miss or stop payments, and nothing else. If the borrower defaults, a SolarBond holder cannot even lay claim on the underlying solar panels - they are owned by SCTY the company, the bond holder owns just the "payment stream". For three, of they were anywhere near inestment grade, Solar City would be able to sell them to PIMCO, Goldman Sachs, DoubleLine or Nuveen, without talking to schmoes like you or me.

Wow. If all true then lendingclub is probably a better option, and that isn't exactly a compliment

Lendingclub and realtyshares etc exist is because the large investors, who know what they're doing, don't want to touch that debt at the rates offered. Thus, it's offered to people who can't do a good risk assessment, in hopes of finding some suckers who will blindly invest.

solarbonds are not much different.

rated:
I bought some Century Link exchange traded debt, CTW @ 7.5%, BB rated
I bought it in a portfolio margin account at interactive brokers that lets you go ~6:1 leverage. I did 3:1 and they charge 1.5% interest.

So that trade is 7.5% * 3 = 22.5%/yr - 3% interest = 19.5% per year.

I wanted to test the theory to see if you could really leverage 6:1...yes you can. I'm trying to decide if I want to keep any money invested this way or not. My portfolio of exchange traded debt and preferred stocks averages 6.58%. I've been in for about a month now and through a quarterly dividend (which deducts from the share trading price and the market has to trade it back up). The market hasn't traded it back up but I didn't expect it to quite yet with a Fed interest rate increase and only being in a week or so out of a quarterly dividend.

The most intriguing thing to me is the portfolio margin and the 6:1 leverage. Instead of seeking yield in higher risk areas, use portfolio margin to leverage lower risk trades. (I don't think you can leverage bonds. I think it has to be something with a ticker symbol.)

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myfrogger said:   I bought some Century Link exchange traded debt, CTW @ 7.5%, BB rated
I bought it in a portfolio margin account at interactive brokers that lets you go ~6:1 leverage. I did 3:1 and they charge 1.5% interest.

So that trade is 7.5% * 3 = 22.5%/yr - 3% interest = 19.5% per year.

I wanted to test the theory to see if you could really leverage 6:1...yes you can. I'm trying to decide if I want to keep any money invested this way or not. My portfolio of exchange traded debt and preferred stocks averages 6.58%. I've been in for about a month now and through a quarterly dividend (which deducts from the share trading price and the market has to trade it back up). The market hasn't traded it back up but I didn't expect it to quite yet with a Fed interest rate increase and only being in a week or so out of a quarterly dividend.

The most intriguing thing to me is the portfolio margin and the 6:1 leverage. Instead of seeking yield in higher risk areas, use portfolio margin to leverage lower risk trades. (I don't think you can leverage bonds. I think it has to be something with a ticker symbol.)


Having worked for Lehman, let me just say that the nice thing with a cash account is that the bottom is $0, nobody can hit the sell button besides you, and you don't have to worry about silly clauses like "personally liable" "recourse against account owner".  Gives you a nice warm fuzzy feeling, especially when your company is going bankrupt.

 

rated:
myfrogger said:   I bought some Century Link exchange traded debt, CTW @ 7.5%, BB rated
I bought it in a portfolio margin account at interactive brokers that lets you go ~6:1 leverage. I did 3:1 and they charge 1.5% interest.

So that trade is 7.5% * 3 = 22.5%/yr - 3% interest = 19.5% per year.

I wanted to test the theory to see if you could really leverage 6:1...yes you can. I'm trying to decide if I want to keep any money invested this way or not. My portfolio of exchange traded debt and preferred stocks averages 6.58%. I've been in for about a month now and through a quarterly dividend (which deducts from the share trading price and the market has to trade it back up). The market hasn't traded it back up but I didn't expect it to quite yet with a Fed interest rate increase and only being in a week or so out of a quarterly dividend.

The most intriguing thing to me is the portfolio margin and the 6:1 leverage. Instead of seeking yield in higher risk areas, use portfolio margin to leverage lower risk trades. (I don't think you can leverage bonds. I think it has to be something with a ticker symbol.)

  You had better be right about Century Link debt. Good luck.

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What he doesn't tell us is you only get that rate with qualifying landline service subscription.

rated:
myfrogger said:   I bought some Century Link exchange traded debt, CTW @ 7.5%, BB rated
I bought it in a portfolio margin account at interactive brokers that lets you go ~6:1 leverage. I did 3:1 and they charge 1.5% interest.

So that trade is 7.5% * 3 = 22.5%/yr - 3% interest = 19.5% per year.

I wanted to test the theory to see if you could really leverage 6:1...yes you can. I'm trying to decide if I want to keep any money invested this way or not. My portfolio of exchange traded debt and preferred stocks averages 6.58%. I've been in for about a month now and through a quarterly dividend (which deducts from the share trading price and the market has to trade it back up). The market hasn't traded it back up but I didn't expect it to quite yet with a Fed interest rate increase and only being in a week or so out of a quarterly dividend.

The most intriguing thing to me is the portfolio margin and the 6:1 leverage. Instead of seeking yield in higher risk areas, use portfolio margin to leverage lower risk trades. (I don't think you can leverage bonds. I think it has to be something with a ticker symbol.)

  
As a wise man once said: "leverage is your friend...until it isn't."

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I think you can lever bonds more than stocks at IB, depending on which bond. Xerty really is the expert on it here.

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SlimTim said:   What he doesn't tell us is you only get that rate with qualifying landline service subscription.
  
+1 and it takes an acct./ MBA to figure out your bill and discounts...

rated:
myfrogger said:   I bought some Century Link exchange traded debt, CTW @ 7.5%, BB rated
I bought it in a portfolio margin account at interactive brokers that lets you go ~6:1 leverage. I did 3:1 and they charge 1.5% interest.

So that trade is 7.5% * 3 = 22.5%/yr - 3% interest = 19.5% per year.

I wanted to test the theory to see if you could really leverage 6:1...yes you can. I'm trying to decide if I want to keep any money invested this way or not. My portfolio of exchange traded debt and preferred stocks averages 6.58%. I've been in for about a month now and through a quarterly dividend (which deducts from the share trading price and the market has to trade it back up). The market hasn't traded it back up but I didn't expect it to quite yet with a Fed interest rate increase and only being in a week or so out of a quarterly dividend.

The most intriguing thing to me is the portfolio margin and the 6:1 leverage. Instead of seeking yield in higher risk areas, use portfolio margin to leverage lower risk trades. (I don't think you can leverage bonds. I think it has to be something with a ticker symbol.)

  1) if this century link debt is not recallable then what is the risk? What was the duration of the debt? Rating is BB, I dont think it will bankrupt in 2 months. But if the debt to expire in 2 years that is a different story. Lots of risk here

2) is the 6.85% annual return or in 1 month?

rated:
Centurylink is longer term debt, maturity date is 9/15/2051 so it will definitely be affected by interest rates. Shorter term maturities may still fluctuate a bit, but perhaps not as much, and as long as you're OK with the yield to maturity and don't plan to sell, you'll keep getting that regular payment. Even with Centurylink that is true--it's your liquidity that matters if you need to sell (and you'll sell at the traded price). The ones I've been looking at have been 3-7 years out typically. You can invest in all kinds of maturities.

The 6.58% I mentioned is the average of the dozen or so debts & preferred stocks I have in my account per year without leverage. I'm personally levered 3:1 meaning 6.58X3=19.74%/yr - 3% margin interest = 16.74%/yr. You could leverage more or less. Centurylink pays higher than average for my portfolio. 90% of my portfolio is rated, and some may say that is investment grade. BB rating is a little low, but perhaps better than the unrated ones.

If bonds can be leveraged, that can be really cool...I don't know much about bonds.

I echo the comments about risk and leverage, however I am comfortable with it in theory. If you want to be safe than invest only a portion of your money and only invest what you're willing to lose, ETC, ETC. Some people may disagree but I like the concept of leveraging lower risk trades (not necessarily Centurylink specifically--that's an example) with portfolio margin vs looking for the unicorn stock or trade that will make money unlevered.

I was intrigued after the election when the debt market came down to reasonable levels---but who's to say it won't continue to drop. If you were in before the election then you're suffering a decent loss right now (and more extreme if levered).

rated:
And also... I don't know what you mean by this question so I don't know how to answer it: "1) if this century link debt is not recallable then what is the risk?"

There's definitely risk, as with everything.  And people rank risks differently which is why there are opportunities (and losses).

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myfrogger said:   And also... I don't know what you mean by this question so I don't know how to answer it: "1) if this century link debt is not recallable then what is the risk?"

There's definitely risk, as with everything.  And people rank risks differently which is why there are opportunities (and losses).


If the bond is not recallable then the only risk is the price of the debt which can go down, right? Or rating downgraded?

rated:
fleetwoodmac said:   
myfrogger said:   And also... I don't know what you mean by this question so I don't know how to answer it: "1) if this century link debt is not recallable then what is the risk?"

There's definitely risk, as with everything.  And people rank risks differently which is why there are opportunities (and losses).


If the bond is not recallable then the only risk is the price of the debt which can go down, right? Or rating downgraded?

  Default risk.

rated:
BostonOne said:   
fleetwoodmac said:   
myfrogger said:   And also... I don't know what you mean by this question so I don't know how to answer it: "1) if this century link debt is not recallable then what is the risk?"

There's definitely risk, as with everything.  And people rank risks differently which is why there are opportunities (and losses).


If the bond is not recallable then the only risk is the price of the debt which can go down, right? Or rating downgraded?

  Default risk.

  Default risk means non payment of interest
I don't think this will happen with rating BB as it is. It would only happen if the financials of the company go south but then the rating will reflect that anyway and you will sell it at that point (with a loss). How much of a loss?

rated:
fleetwoodmac said:   
BostonOne said:   
fleetwoodmac said:   
myfrogger said:   And also... I don't know what you mean by this question so I don't know how to answer it: "1) if this century link debt is not recallable then what is the risk?"

There's definitely risk, as with everything.  And people rank risks differently which is why there are opportunities (and losses).


If the bond is not recallable then the only risk is the price of the debt which can go down, right? Or rating downgraded?

  Default risk.

  Default risk means non payment of interest
I don't think this will happen with rating BB as it is. It would only happen if the financials of the company go south but then the rating will reflect that anyway and you will sell it at that point (with a loss). How much of a loss?

  Default could also mean non-payment of principal. And, sometimes those happen without a prior ratings downgrade. Agreed that the risk of this happening to a BB corporate bond is low, but it is still a risk.

rated:
You're not going to find investment grade at this yield. To go this route you're going to have to either go the junk bond route or lever up.

rated:
The best thing to come out of this thread is the 1.5% pricing at 3:1 at Interactive Brokers.

rated:
TravelerMSY said:   I think you can lever bonds more than stocks at IB, depending on which bond. Xerty really is the expert on it here.
  Sadly not.  Most corporates at IB are in the 1-5x leverage range, and for unrated or junk rated bonds, I would say 3x might be typical but sometimes you get nothing - just depends on the bond.  Investment grade I've seen up to 6x, but I haven't seen anything higher outside of treasuries.  For bonds that trade in the stock market, you get somewhere between 1-6x with portfolio margin, totally at the whim of IB's risk department.  Again, for lower liquidity issues like some of these baby bonds, 3x might be typical but sometimes you get no leverage at all.

As for risks, long term fixed income instruments like the Century Link bonds or perpetual preferreds, the main risks are credit (non-payment and/or default), and interest rate (ie rates rise and earning 6% fixed is a loser when short term bank accounts pay more).  If you use margin, now you have the additional risks of financing (margin is a floating rate cost which rises with the Fed, while you may have financed fixed rate investments), margin requirements (IB may wake up one morning and decide it requires 110% for everything since "junk bonds are risky" instead of 25%, and you're hosed if you're on margin without access to credit or cash elsewhere), and of course margin calls (the prices of your investments go down for whatever reason, justified or not, and you need to put up more collateral before the close or you get partially liquidated at a loss).

the main thing I can advise is to be really careful in your investment selection and due diligence.  Since bonds don't default all that often, even junk bonds, it's easy to think you're doing something right when you're just taking a small risk that didn't show up.  With leverage, your returns will look better in good times,but much much worse when that small risk shows up and Lehman (or whoever their similar blue chip sudden bankruptcy equivalent is next year) blows up.  Good luck!

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