No. of Recommendations: 2

I'm not sure what to make of this, or how to judge the risks.

The pessimist would assume the worst is most likely true. This approach certainly has more tail covering ability.

Charlie would tell you to listen to what the market is saying. With a premium price and YTM of 5.176% it seems the market is pricing this as quality. One could theorize, as you already have, that at least in the near term these bonds are in essence insured by the US Treasury and the market is pricing them assuming this to be true.

I would suggest doing the eyebleeding reading and some number crunching to see which you agree with.

I would take a list like this and look for all the disparities, ratings difference and yield oddities and probably toss the rest. Then I would look for the cheaper disparities and try and figure out if I agree with the markets cheap price or disagree.

For instance why is Southtrust yielding 6.182 when both agencies are pretty much in agreement.

As for how many rungs things get dropped, I'm of the mind there are too many rungs to begin with, what is the significant difference between A1 and A2? As a private investor buying in small increments does this nuanced difference really mean anything. For our purposes we probably need a scale like A B C and F, A-B-C being all potentially investment worthy on a descending scale while almost completely ignoring the published ratings. F = run away.

I would brake it down like this:

A = Above average return/low risk
B = reasonable return/low risk or above average return/moderate risk
C = above average return/high risk or reasonable return/moderate risk
(note: there is no low return/low risk if this is your bond choice buy a CD and avoid the all the trouble)

Using the above methodology we use published ratings as a screening tool and as one analytical metric among many. This means we could find BBB+ companies that are A's on the above scale and AA companies that are B's and A's that are C's.

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