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Subject:  Re: Building Bond Portfolios Date:  11/10/2002  9:20 AM
Author:  nnn12345 Number:  5165 of 35400


Clearly we see things a bit differently, but the focus is similar, we are both discussing fixed income- bond investments and how to improve one's investments and returns, at least I think that is what we are both discussing. That is my basic interest at least.

If you truely believe as you stated in a previous post that the risk of default of 5 year A rated bonds is 0.1 %, then what is the math behind sacrificing yield to chase higher ratings???? I understand the sleep better part of the equation very well and in fact agree that this is very important and is in fact why I like AAA's and some AA's. But if I were creating a large diversified portfolio to maximize returns and safety I don't think I would weight it as much in the AAA direction as you think is needed. If I did, and in fact I have done so,(my portfolio is heavily weighted AAA) I would readily admit that I am doing it for peace of mind and ability to sleep well, and not really creating the ideal maximum return vs risk bond portfolio.

In addition to buying many AAA bonds, I have bought A rated tobacco bonds, but this is due to what I consider a market imbalance creating a unique opportunity for the bond buyer, or in other words, a good deal in this market. This was done with considerable research. I like getting an A rated 9 year bond paying me 50% more than other bonds. Of course it has some unusual features and/or some risk, or why else would it be paying me 50% more yield??? What I especially liked about this particular issue was the relatively short maturity of 9 years.

I believe that default risk is minimized with decreasing bond term. This is important if you are considering buying bonds of less than AAA or AA quality, IMHO. At what I would consider short term, or in the 5 to 10 year range, there is much less default risk with the same credit rating vs long term of say 20 to 30 years. I prefer AAA's or strong AA's for long term, and for short term I am willing to consider A's.

I am not very keen on your strategy of purchasing real junk. This, IMHO, is best left to the big boys. But I try to keep an open mind and maybe some day I will test the junk bond waters.

I think your terminology of "screwing around" with bonds is more appropriate discussing the buying and selling of your junk bonds vs the buying and selling of investment grade bonds.
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