On Feb 5 of this year, I bought five of someone's 5's of '22 at par in an effort to park some cash. However, Fido just informed me the bond is being fully called May 14 of this year at 105.14. That bumps my theoretical YTM to a whopping 23.7%, which sounds good, but really isn't. What might be a more realistic YTM? Let's assume I had been able to park the money until the bond's due date of 10/15/22. My holding-period would have been 1.69 years, right? and coupons rec'd would total $422.50. Now, my gain is $67.50 in coupons and a $257 call prem, for a $324.5 total. So the call imposes an opportunity cost, even if $37.33 is added by parking the money in a CD for the balance of the term at the current rates for such things. The issuer benefited from the call. I didn't.
Sort of a similar situation but with another issuer, 6.5's of 2023. Just today found out that it was called on April 7 - broker had problem with alerts, normally I get same-day notifications about calls - and should get a nice premium out of it come May 7. The company got about the same rate on the new issue. Probably just wanted to bump maturity by 5 years while rates are fairly decent for it although 7% is not that cheap. But that's probably pretty good if you're borderline CCC/B. I understand pricing and securing the new $400 million was a piece of cake, i.e. plenty of interest.Oh and I've held this guy for just three months so a short one also. I may or may not have found a way to use the funds elsewhere already. :)
Stas, Yeah, calls are a killer, especially these days with no place else to park the money. But getting out from under a bottom-tier bond has its upsides, too. (E.g., Fido just told me my Zayo's are being called.)Shopped hard this morning, but found nothing I'd accept the risks on. (I was tempted by a Tunisia Bank bond, but couldn't find financial statements, nor trading info. But it was fun to put my rusty French to work for a while.)Arindam
Spot on - not much out there. Tunisia... interesting, even exotic in a way... but I'll pass. We'll keep looking!Suggestion: Avoid Talen Energy and its wholly-owned subs. I can't get up-to-date financials even after a call with inventor relations.
Stas, A good rule of thumb I try to follow is not to buy the bonds of any company that's not publicly-traded. That way, there's both the bond analysts and the stock analysts tracking the company, plus two markets voting with their dollars. One "exotic" that continues to do well for me is a Jamaica bond I picked up years ago. But by and large, very few foreign sovereigns come onto the market. So betting on them is better done through a fund. (IMHO, 'natch.)Arindam
Not a bad rule of thumb! I've been successful in several instances of finding what seemed like favorably priced issues of privately held (PEG, family, etc) companies that were fairly easy for me to analyze. They may have been favorably priced... just because their shares were not public! But some issuers must just want to steer clear of individual investor involvement, esp. a tiny fish like me. Oh well!
Stas, It's not small investors companies that choose not to go public want to avoid but the reporting burdens imposed by regulators. "Why deal with them?", they ask.
"... even if $37.33 is added by parking the money in a CD for the balance of the term at the current rates for such things."But what if instead you buy someoneelse's 5's of '22 and hold between now and 10/15/22 and collect $150?
Best Of |
Favorites & Replies |
Start a New Board |
My Fool |