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Author: charliebonds Big red star, 1000 posts Add to my Favorite Fools Ignore this person (you won't see their posts anymore) Number: of 35351  
Subject: Ford’s 6.350’s of ‘14 Date: 4/22/2011 1:16 PM
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Ford’s 6.350’s of ’14 were called this past Wednesday, offering buyers an improvement on their Yield to Maturity, but now creating a problem of what to do with the cash.

As you will recall, 2007 was a tough year for bond investing. Very little was available that offered a decent yield, and the bulk of them were the banksters that subsequently went under in 2008. But among the debris were some industrial issues of debt that merited taking a chance on, one of which was Ford. My entry into their 6.35’s of ’14 was 08/01/08 at 53.550 (all-in) for a projected YTM of 20.5% which was probably appropriate for where they had been notched down to. Lots more of their debt was available at similar prices and yields, but I chose a nearby issue, so as to front-run other creditors should they eventually be forced to file.

With the call, my YTM bumps up to 33.8% which is part of the reason I make the money I do in bonds, compared to the pitiful returns of the CD crowd whose obsession with “safety of principal” is actually a very reckless strategy, because it squanders purchasing-power, whose preservation and enhancement is the real game being played.

In other words, I buy CDs when they are attractively priced. I buy invest-grade debt (agencies, corporates, munis, treasuries, foreign sovereigns, etc.) when that is attractively priced. I buy spec-grade debt (aka, “junk”) when that is attractive priced. In other words, in marked contrast to the crowd that focuses solely on principal-protected instruments, I buy across the yield-curve and up and down the credit-spectrum, and I achieve returns that are roughly 3x theirs, but with far less relative risk.

But to each, his own (I suppose).
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