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The distribution, like I would call Charlie - not quite normal. :)

I guess we should expect more of a bimodal distribution because things change. As you point out prices change for delta on rates (both base rate and spread) and credit quality, so for a bond to remain at par things would have to either remain the same or rates and quality moved with some correlation. I don't see things remaining the same!!

With only 21% above "par" - curious the percentage of those are callable?

As you mention we can't tell the future but sometimes have indicators that bias us one way or another. (right or wrong another post) In some markets/rate conditions - trading book with rising rates or if you believe in mean reverting spreads - perhaps a premium may not be a bad thing. And you are right - it all depends on the problems you want to buy and the risk reward.

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


So a judicious amount of each has to be bought.


The two at times may be mutually exclusive! Clearly, understand I am not saying never pay a premium - but only pay a premium if you are ok with buying the problems that come with that end of the price spectrum at that time!! Just as I am not saying don't ever buy at a discount.- on the point of someone imposing a "never buy at a premium" for you and me - we agree. If it works for them GREAT! Does it work in all cases (for all other investors). No!

But just like some one should not say for all investors "Never Buy at a Premium" We should not say all portfolios/investors must buy "both premium and discount" That may under certain circumstances negate a proper balance between risk and reward some investors seek!

d(not normal)/dT
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