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In perusing the Vanguard list of available corporate bonds on the secondary market, I am perplexed by the interest rates offered. I know that there is much higher risk in buying corporate bonds than just continuing to purchase CDs, but it seems that the interest rates offered are oddly high. For example, I could buy an Alcoa bond of about 2 years duration and get around 6% interest for a couple of years. It seems to me that the likelihood of Alcoa being unable to make good on its bonds is extremely low. Clearly the market thinks otherwise.

In other words, there seem to be many corporate bonds out there that look like screaming bargains. So what am I missing? We are a couple of years from retirement so can't take huge risks, but the money market rates are so low right now that it seems unwise to park 75% of our portfolio there.
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First, be aware of the trust preferred issues in the list in message 25209 on this board--

Trust preferreds are mostly long bonds issued by an array of companies of various bond ratings. They are listed on the NYSE and can be bought and sold at discount broker commissions. Plus unlike bonds, sales prices are posted. So you know what the market price is.

Most bonds must be held to maturity because to sell them you must sell to the bond dealer at your broker and because prices are not published, you never know if you got a good price or not. You must take whatever they offer you. Bid-ask spread can be wide.

Corporate bonds (and muni bonds) are attractive now because of fear during the recent market downturn. People dumped these bonds and bought Treasuries instead. They bid up Treasury prices to record low yields.

Yes, it is an excellent time to buy these bonds. But some worry that the economy could get much worse and if we did have a second GReat Depression, these bonds would be in trouble. I would suggest a diversified portfolio--not too much in any one issue. Then they are all unlikely to fail at the same time. Trouble with one gives you time to work out something with the rest. Of course, bond funds provide this diversification for small investors. They are OK if you think as I do that interest rates will stay steady or low for the next few years. But when rates rise, it would not be good to be holding bonds.
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Hi Guys,

I have found the site: to be invaluable! It shows actual trades for muni's; gov's; and corporate's. It offers several different ways to look.

Peruse the site, you will like it. I have used it several times to see what a particular muni was selling for, before contacting my broker. I could get them to 'match' the sell that was already posted.

For the muni's one can find the 'sell to customer'(retail); 'bought from customer'(wholesale); and also 'inter-dealer' trades). I have only used it for muni's, as I can call up Arizona, and see all the trades in AZ muni's for the day.

It isn't 'live feed', but can be refreshed during the day to get it updated.

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Another site I found useful...

It lets you search outstanding bonds for a particular stock or ticker symbol. They may not be available currently but it lets you create a watchlist and of course get that critical CUSIP number. You can also get the trading history of wholesale and retail trades...just like loveoldcars mentioned.

What I have also discovered is that a retail customer will pay a substantially different price based upon the quantity purchased. There are different dealers with higher pricing for small orders and lower prices for larger orders. You can see the differences in the history.

Kind of like the old "odd lot differential" in stock trades many years ago.
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Hello pauleckler

Do these trust preferreds that you mention have a call date at the issuer's option and a much longer maturity date ?

Here is an interesting post on the differences between regular preferreds and trust preferreds...

This makes me wonder if they even have a maturity date !!
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"Do these trust preferreds that you mention have a call date at the issuer's option and a much longer maturity date ?"

If you find an issue of interest, all your questions will be answered in the entry for that ticker symbol. If you really want the gory details, follow their link to the original prospectus for the issue.

Most of the trust preferreds are originally issued as long bonds. Most mature after about 2020. But that is not always true and as time goes on more and more of them move into the intermediate range. Eventually some will even be short bonds.

A few are non callable. But most do have a call date. Yes, it is often 5 yrs or so out. But right now these stocks are priced far below the call price. So if they are called, you may very well get nice capital gains in addition to the nice interest.

The problems people mention with buying bonds is the broad bid ask spread. That makes them not very attractive to individuals who might want to sell their bond some time before maturity. But trust preferred resolve those problems. You can buy and sell at will and prices are published. I think they are a good deal, but you do want to understand the call provisions and anything strange about them just as you would with any bond. Many bonds have (good lawyers and accountants) and funny provisions written into them. Call provisions are the most common ones.

There have been times when nearly all trust preferred issues are priced at a premium over their call price. In those times you have to be careful. But now that is changed. Most are below their call price and many are far below their call price.
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