I see many callable bonds are selling well above par. For example, EMN.GG selling at $119; call frequency continuous.http://cxa.gtm.idmanagedsolutions.com/finra/BondCenter/BondD...If I buy this bond today and it is called tomorrow, do I only get back 100?
I see many callable bonds are selling well above par. For example, EMN.GG selling at $119; call frequency continuous.http://cxa.gtm.idmanagedsolutions.com/finra/BondCenter/BondD......If I buy this bond today and it is called tomorrow, do I only get back 100? ========================Maybe, or it may be callable at a premium. The call price is contractually set in the terms of the bond. This is spelled out in the "details" tab, if you look into buying it online.And if a bond is callable, that's where the "YTC" (yield to call date) and "YTW" (yield to worst) become pertinent.Bill
Hi Bill,There is no call date, it is continuously callable. This is what I see on Finra & on Fidelity. There is no call price specified so I assume it is at par; some bonds have a call price specified but many I see don't. It seems quite common, but I don't understand why such a bond would trade at a 19% premium when it can be called any day. Why would anyone take that risk?
Mike, Gaming calls can be tricky, especially bonds as thinly traded as that one. But sales are happening far above par. The spread is tight, and the coupon is modest. So a reasonable bet would be that the bond isn’t going to be called soon. The more important question to answer is why would anyone bid for those bonds? Do the math. They don’t offer a real rate of return after taxes are paid and inflation is subtracted. If you’re trying to lose money, there’s smarter ways to do it. How far out is that bond? How far down is that bond? Set up a scan that asks to see anything Baa2/BBB or better and no more than 6 years out. Then figure out which issuers you’d be willing to lend money to, because that’s what you’re doing. Even though you’re doing the trade in the secondary market with a counter-party, the underlying company determines your ultimate profitability. EMN is on a rip. http://finance.yahoo.com/echarts?s=EMN+Interactive#symbol=em... What else is happening in the chem industry? Is this better played from the debt side or the equity side? Lots and lots of questions needs to be answered before you chase those bonds. Charlie
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