Pacific Gas & Electric (PCG) serves most of N Cal. Lawsuits over fires --not entirely their fault-- forced them to file BK, which is generally a disaster for owners of the common and the debt alike. But this time, them who bet on the bonds did well, whereas the stock jocks are likely still underwater. The fires are history you can look up. But by that Fall, the stock was under pressure and hit a local low on 11/15/18, on truly massive volume, creating a possible entry. Let's assume our stock jock got in at market close i.e., 17.74. He/she would still be down by half, given that PCG closed Friday at 9.09. Whereas, this --in fact-- is what I did. "If the stock is getting trashed", I thought, "probably the bonds are, too." So I went shopping and picked up their some of 6.35's of '38 at 91.830 in one account and another maturity at a better price in another. As the bad news increased and the leftists became more belligerent, the stock crashed, but the bonds increased in price. Why? Because "someone knew something" and was bidding the bonds. Who? I have no idea. But pricing said that owners of the debt weren't at much risk.Nonetheless, I began to be uncomfortable with my exposure to the uncertainties of the situation and traded out of a portion of it at a tidy profit, leaving the rest to ride, which resulted in a swap of new debt for old (the 4.55's of '30 and the 4.95's of '50), both of which are currently trading at a prem to par, offering me an avg cap-gain of 24% on my basis in the trade, which needs to be boosted by coupons received before they were stopped, plus some recent workout cash. So, let's call it a YTP (Yield to Present) of around 18%, or what a decent junk bond used to pay. This isn't how all --or even most-- bond BKs turn out. On rare, rare occasions, I've been made entirely whole, as in, full return of principal, as well as all accrued coupons. On others --and far more commonly-- I received only pennies back on dollars risked. But this time, buying the debt, rather than the common, was the better trade. -----------------Date Open High Low Close* Volume1-Nov-18 46.84 47.35 46.56 47.18 4,194,7002-Nov-18 47.46 47.59 46.76 47.44 3,733,2005-Nov-18 47.95 48.84 47.60 48.71 4,427,7006-Nov-18 48.90 48.93 47.93 48.58 5,332,9007-Nov-18 48.68 49.42 48.45 48.80 3,837,0008-Nov-18 48.96 49.24 47.06 47.80 7,940,5009-Nov-18 44.48 44.58 39.79 39.92 23,627,10012-Nov-18 33.16 35.15 24.95 32.98 44,033,20013-Nov-18 32.60 33.26 30.76 32.72 17,907,50014-Nov-18 26.95 29.20 22.35 25.59 53,543,10015-Nov-18 24.01 24.18 17.26 17.74 107,155,70016-Nov-18 25.21 25.51 23.01 24.40 54,698,40019-Nov-18 22.37 23.39 21.54 23.26 22,846,00020-Nov-18 24.17 24.41 23.08 23.51 16,367,40021-Nov-18 23.64 24.55 23.64 24.30 10,688,60023-Nov-18 24.07 24.08 23.26 23.84 5,736,50026-Nov-18 23.52 25.16 23.34 25.12 9,648,20027-Nov-18 25.56 27.00 24.96 26.97 19,132,50028-Nov-18 27.52 27.52 26.29 27.46 13,017,20029-Nov-18 27.10 27.60 26.22 26.76 10,133,10030-Nov-18 26.81 26.99 26.02 26.38 9,689,900
If only we could see charts/lists like this for bonds!
Mark, Actually, you can see historical data for (most) bonds, plus a price chart. Go to FINRA. In the left-hand column, click on <Bonds>. That gets you to a search page. Select the bond type (muni, corp, etc.) and enter the CUSIP. Their trade codes are confusing, but can be unraveled. What you'll see is that us small retail traders often are often enough executing at prices close to the big boys. A
Mark, In addition to pulling a price chart for any bond you're considering, you should also be building a yield-curve for all of the issuer's debt, whose interpretation is pretty straight-forward.- If 'normal', then traders aren't worried, which isn't to say the debt is risk-free. - If 'inverted', traders are betting on a Ch 11 filing, and in 20 years, I've never seen an instance where they were wrong. -if 'humped', then they're worried about mid-range liquidity problems and the longer-term stuff (especially) should be avoided.Also, spreads are worth looking at and taking cues from. (As with stocks, you want tight spreads, or else you've just given away money that has to be made up.)So, the vetting procedure (for a corp) becomes this. Chart the common. Chart the debt. Pull ratings (and discussions) on the common. Ditto for the debt. By and large, Moody's reports --if timely-- are informative and trustworthy. (If you're an options geek, see what those guys are saying as well through their pricing.) Then grind through the Q10's looking for problems. What you want to find is debt that has problems --or else it offers too little return to mess with other than serve as a cash-equivalent), but not the likelihood of permanent capital impairment *unless* you're deliberately targeting "junk", in which case, a whole 'nother set of metrics gets applied. (More another time.)Next --optionally-- discount the bond for taxes and inflation over your intended holding-period and try to determine whether it really is the best present opportunity in its risk class and maturity range. (More on that another time.)Lastly, size a position appropriate to your account/goals/risk-tolerance and then see if you can --in fact-- get filled in that size. If not, pull the book and see by how much you have to bid up to get a fill. Sometimes, you bite your tongue and pay up. Other times, you back off and look for s different opportunity. Often enough, you'll find that not all the discounters --Schwab, Fido, ET, IB-- are offering the same lot with the same mins and you've gotta execute through a broker that doesn't have the lowest commish schedule. Arindam
I had a PG&E single that got worked out as 500 ea of the 4.55's of '30 and the 4.95's of '50, plus some workout cash that also looked to be about the value of the missed coupon payment. I'm regretting only buying a single as I'm pretty sure these lots are un-sellable.
Generally, 2 bonds is the current marketable minimum, with 5 (or more) being the old standard. But... as always.. "it all depends". I've been able to sell singles at the National Best bid. It all depends on whether some desk somewhere is trying to build a position. So, a question. Now that the uncertainties over the fires are behind PG&E and you're ITM on the trade, why walk away from it?
I believe the main reason they're so deeply ITM is the across-the-board rally in long bonds. With such a small position size, I'm inclined to take the profit. It was a speculation on PG&E not going bankrupt anyway, with the pocket change the account had in it at the time. Either way it's fine, these bonds can sit in my account until they mature.
ranshadow, I'd disagree that PGE&E's debt is benefiting from convexity in line the upper-tier issuers. From the getgo, the big boys knew they would be made whole, because they were sitting at the BK table to ensure it. If you do trade out of your position, what will you replace it with? You saw the news about the recent 2-yr auction, right? The Fed doesn't intend to take interest rates to zero. They already have. But with PG&E's debt, you're at least being paid to accept its risks. My suggestion? Track its price and hold tight as long it stays steady.
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