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Old 08-31-2007, 06:42 AM   #1
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Junk

I should have said it before, but since someone asked on anothre thread: I believe the prospective risk adjusted returns offered by junk bonds and loans is VERY attractive right now. Something like the VG junk fund or whatever your preferred vehicle is should be above average dor the forseeable future.
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Old 08-31-2007, 07:42 AM   #2
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Thanks Brewer, I may look into this. VG is home base for me and I still feel like I'm holding more cash in MM Prime than needed right now. The VG fund is VWEHX.......correct?
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Old 08-31-2007, 07:51 AM   #3
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That's the one. But please do your own DD and be careful/don't go overboard. I think the junk market is attractively priced for the risk it contains, but a serious recession would change that assessment in a hurry.
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Old 08-31-2007, 07:58 AM   #4
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Gotcha.....will look into it in depth. Anything going into it will very likely be a small %.
Thanks again
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Old 08-31-2007, 08:06 AM   #5
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The vanguard fund is paying 8.17%. I think there might be some more downside in Sept and Oct - good times to buy.
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Old 09-04-2007, 12:15 PM   #6
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Originally Posted by brewer12345 View Post
I think the junk market is attractively priced for the risk it contains, but a serious recession would change that assessment in a hurry.
With ISM/OSM getting down close to $17, the real yield is
stratospheric. Kinda scary though. I didn't get out when
most of you did, so guess I'll just hang on tight now ...
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Old 09-04-2007, 02:29 PM   #7
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Originally Posted by brewer12345 View Post
That's the one. But please do your own DD and be careful/don't go overboard. I think the junk market is attractively priced for the risk it contains, but a serious recession would change that assessment in a hurry.
A while back, you were saying to avoid them (they were at two-year highs). VWEHX (the vanguard 'junk' fund) is now about 5.5% below those recent highs.

I've been looking (and holding) VWEHX as part of a long term holding, rather than trade in-out. So, if you are thinking that a 5.5% swing takes it from 'avoid' to 'attractive' (and assuming you are correct ), I think I'm comfortable holding long term for that 7.5% dividend I've been getting. I keep assuming that a swing like 5-6% will average out over time.

Doesn't mean I'll be right, but so far I have not put together enough info to get me to sell. Sure, it would have been sweet to sell at the highs and get back in at the lows, but I don't trust my ability to hit those close enough.

-ERD50
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Old 09-04-2007, 03:03 PM   #8
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Quote:
Originally Posted by JohnEyles View Post
With ISM/OSM getting down close to $17, the real yield is
stratospheric. Kinda scary though. I didn't get out when
most of you did, so guess I'll just hang on tight now ...
I've put sell orders above the market for a while and it keeps going lower.
Latest news I read is that the Congress and White house are close to an agreement that would cut the subsidy to Sallie Mae of certain student loans by 50-55 biases points. The good news for us bond holders is the legislation passes, the J.C. Flower group will likely withdraw its bid.

Certainly with SLM trading below 50 and the buyout at $60 that is the betting on the street. (For any of you arbitrage folks out there I saw that annualize return on SLM is now a mere %183 assuming a 10/15 close lol).

It seems to me that most like scenario is that the legislation passes and the take over goes south. This would put us bond holders in pretty much the same situation we were at the beginning of summer, except for two important factors. The premium for credit risk is much higher than it was a few month ago, and the rumors of lower government subsidies would be a fact. Any of you smart bond types want to hazard a guess on what SLM credit rating would be in that situation.

The nightmare scenario is the legislation passes and the take over proceeds. I am guessing that interest rates on the debt J.C. Flower has to issue would be a heck of lot higher than when the originally proposed the deal. Again any numbers from smart bond folks would be appreciated.
At which point are SLM/OSM "bonds" become pretty much pure junk with a low double digit return.
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Old 11-19-2007, 01:39 AM   #9
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The spread for junk is widening again. I think it's too early to buy. But if the economy goes into the dumps, the spread should get even wider, and that may be a good time to buy.

Good article by our hero Bill Bernstein:

Credit Risk
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Old 11-19-2007, 02:46 AM   #10
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Good article by our hero Bill Bernstein:
Credit Risk
I can't get enough of this guy's humor: For a believer in efficient markets, these conclusions are profoundly disturbing, but not unprofitable.

Ha
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