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No. of Recommendations: 4
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
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