No. of Recommendations: 2
There are as many ways of doing bond-investing as there are bond investors. So what follows is merely one investor’s choices.

Let’s make the counter-factual assumption that all bonds are issued at par. If interest-rates rise (or fall) subsequent to the issue of a bond, the market re-prices the bond, now asking a premium to par or offering a discount. Most investors eschew bonds trading at a premium. Their game; their rules, and I have no problem with that. What I do find unacceptable is their attempt to impose this choice on others by advocating: “Never buy a bond at a premium.”

As much as any bond-investor, I dislike paying premiums. But I often find myself having to do so, because that’s the bond that should be bought, all other things being equal. The list below describes my current bond positions but excludes zeros, as well as anything being tendered or in Chapter 11.

21% were bought at Premium to Par
8% were bought at Par (+/- 1%)
71% were bought at a Discount to Par

My thinking is this. Bonds are offered at a discount to par for two reasons. Interest-rates have risen since issuance, or credit-quality has fallen. When it is not obvious that the former explains prices, then the latter must be assumed. Thus, a blind advocacy of “never buying at a premium” tends to get one involved with credit-risk. To the extent that I bought at discount, I was buying problems (of one sort or another). To the extent that I was paying a premium, I was also buying problems (of one sort or another). To the extent that I was merely paying par, I was still buying problems (of one sort or another). So, the question becomes:

What kinds of problems am I willing to take on, for what kinds of possible rewards?

And that’s why these holdings have an Average Current Yield of 7.5% and an Average YTM of 9.4% and an AVERAGE PRICE OF 87.219. However, I also think it would have been total insanity to have built the portfolio any other way. A proper balance between risk and reward has to be achieved, and the prices paid merely reflect that. The "good stuff" is high-priced (all other things being equal). The "bad stuff" is low-priced (OTTBE). But is impossible to predict how things will actually turn out. So a judicious amount of each has to be bought.

FWIW, this is a more detailed break-down.

Price Holdings Percentage
124-131 0 0%
117-123 1 0%
111-116 3 1%
106-110 11 5%
102-105 28 14%
99-101 17 8%
95-98 22 11%
90-94 23 11%
84-89 29 14%
77-83 26 13%
69-76 17 8%
60-68 14 7%
50-59 8 4%
39-49 4 2%
27-38 2 1%
14-26 0 0%
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