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Author: opentolearn Two stars, 250 posts Add to my Favorite Fools Ignore this person (you won't see their posts anymore) Number: of 35365  
Subject: Learning attempts Date: 10/26/2002 6:34 PM
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I recently saw a couple of ads in ourlocal Los Angeles Paper and I would like your comments, (as I'm still struggling to learn).

Fed and State Tax Free -Coupon 4.50% - Cuppertino, Ca.2002, Refinancing Capital Imp. COP - Aaa/AAA rated, AMBAC INSURED:
Matures 7/01/24, yield to maturity 4.50% Priced at 100, callable 7/01/09 @$102 - $25,000 minimum.
the way I understand it, is even tho it's offered at par, the likelihood of it being called is low, and money would be tied up until 24 - not a good idea?

Fed Home Loan Bank (FHLB) bond S&P AAA rated
Coupon 6%, matures 10/30/17, yield to maturity 6%, priced at 100, callable 1/30/03 @ $100 - $50,000 minimum.
again at par but money tied up a long time

What other information should I be looking at. It was very helpful when you explained the difference between State obligation vs. Revenue.

I then went to CNN Money and looked up Bonds with AAA and maturities up to 2007. All of them were at a premium. I was looking for AAA only, as I want safety first, and I don't want to tie up money too long in this climate. This is a sample of what I found:

All AAA, quantities of 25.
Federal Housing.
<t>
Coupon 4.55 Matures: 9/17/04, Yield 2.06 LY 2.060 Price 104.575
Coupon 4.15 Matures: 4/26/05 Yield 2.44 LY 2.446 Price 104.095</t>


Federal Nat.Mortgage
<t> Coupon 6.40, matures 8/14/07, Yield 3.48 LY 3.48 Price 112.943</t>

questions: What's the difference between Yield and LY - they are both the same. Also the fact that they all are at a premium, does that mean when they mature the Yield is even less because they will be at 100 rather than the price purchased, or is that accounted for in the premium price


If you can educate me further I'd appreciate it. I'm not the quickest learner, but I do stick with it. thanks a bunch.
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Author: Crosenfield Big gold star, 5000 posts Old School Fool Add to my Favorite Fools Ignore this person (you won't see their posts anymore) Number: 5031 of 35365
Subject: Re: Learning attempts Date: 10/26/2002 8:48 PM
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The CA Cuppertino bond is probably not subject to AMT, but I'd ask the broker to be sure. Maybe this isn't an issue for you.
Right, your money is tied up for a long time. You must buy a minimum of $25000 worth of bonds.

The Federal Home Loan Bank bond you must buy $50000 worth. It pays 6%, which is about market now.

In the premium bonds, the reason the yield to maturity is so much different from the call is because of the premium.
I don't know "Yield" vs "LY" but sometimes there is a yield to maturity and yield to call figure.
No way would I tie up money for 5 years for this kind of rate.
People are so spooked out of the stock market now that they have bid bonds up to these absurd levels.

There's a huge disparity right now between lower credit issues and the excellent credit bonds. If you wanted to stick your toe into the lower credit issues like Charlie favors, you might do well. I'm into paying down my mortgage, and buying dividend-paying blue chips. My bonds and GNMAs keep getting called and prepaid. Hold my nose and accept 4.5% on a 25 year muni? Er, no thanks.
Best wishes, Chris

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Author: imcharliehm Three stars, 500 posts Add to my Favorite Fools Ignore this person (you won't see their posts anymore) Number: 5033 of 35365
Subject: Re: Learning attempts Date: 10/26/2002 10:05 PM
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Chris,

It's not just Charlie that favors lower-credit issues. This week's "Barrons" featured the Monrads (of Northest Investors Trust, a junk bond fund) and the Oct 21 issue of "Business Week" did a one-pager on Martin Fridson (junk strategist for Merrill Lynch and author of Financial Statement Analysis: a Practioner's Guide) who thinks current market conditions -- a washout of the weaker issuers-- favors the sector going forward.

Caveat to anyone tempted to follow their lead:
All of those guys are very experienced bond investors and very heavy-duty number crunchers. If you suspect you can't match their skills, you are probably right and have no business buying less than investment-grade bonds on an individual basis.

Charlie

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Author: upatnite2 Two stars, 250 posts Add to my Favorite Fools Ignore this person (you won't see their posts anymore) Number: 5036 of 35365
Subject: Re: Learning attempts Date: 10/26/2002 11:07 PM
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What's the difference between Yield and LY - they are both the same

In the case mentioned, LY is the "lowest yield", and definitely something to be aware of, as the yield and LY can be vastly different.

Rating Qty Issue Coupon Maturity Yield LY Price
Aaa / AAA 100 Federal Ho 4.500 01-23-2006C 3.923 -2.965 101.750

Call schedule: 1/23/03
Yld to Call -2.965

upatnite2

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Author: opentolearn Two stars, 250 posts Add to my Favorite Fools Ignore this person (you won't see their posts anymore) Number: 5040 of 35365
Subject: Re: Learning attempts Date: 10/27/2002 12:42 PM
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Hi Upatnite2

In the case mentioned, LY is the "lowest yield", and definitely something to be aware of, as the yield and LY can be vastly different.

Rating Qty Issue Coupon Maturity Yield LY Price Aaa / AAA 100 Federal Ho 4.500 01-23-2006C 3.923 -2.965 101.750

Call schedule: 1/23/03
Yld to Call -2.965


Am I understanding this correctly?Is the negative number because it was bought at a premium and is called on 1/23/03. If it isn't called and goes to maturity, the yield would be 3.923. If so I assume the LY is always the same as maturity if it is not callable?

Thank you everyone for all the good help. I will be busy buying Bond books.

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Author: Juggernaut8 Big red star, 1000 posts Add to my Favorite Fools Ignore this person (you won't see their posts anymore) Number: 5044 of 35365
Subject: Re: Learning attempts Date: 10/27/2002 2:56 PM
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Thank you everyone for all the good help. I will be busy buying Bond books.

otl-

If you haven't read Graham's "Intelligent Investor" and "Securities Analysis" (only 1st-3rd editions) you should really check them out. Good stuff about both stocks and bonds.

-J8

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Author: Crosenfield Big gold star, 5000 posts Old School Fool Add to my Favorite Fools Ignore this person (you won't see their posts anymore) Number: 5047 of 35365
Subject: Re: Learning attempts Date: 10/27/2002 5:36 PM
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Thanks! I hadn't seen that term but the difference had to have something to do with calls. Sometimes there are several different calls, so LY would be the worst-case scenario (other, of course, than the issuer going bankrupt and defaulting!).
I learned something today and you get my rec!
Chris

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