Short term bonds- buying opportunity.

[Shafer239]

Any input on my brother-in-law's idea........buy and hold (until maturity) short term bonds. At present DEEP discounts can obtain yields signifcantly over the coupon (some are 18% plus, not necessarily these). Really only one question needs to be answered...."will the company be in business to pay at maturity?". Buy enough bonds to spread the risk.

CLEAR CHANNEL COMMUN NOTES 4.500% 01/15/2010 MAKE WHOLE
USFREIGHTWAYS CORP GTD NT 8.500% 04/15/2010 MAKE WHOLE
BWAY CORP SR SB NT 10.00000% 10/15/2010
DOLE FOOD INC SR NT 8.87500% 03/15/2011
SLM CORP BONDS 5.450% 04/25/2011 ISIN #US78442FDY16 SEDOL #B12W431
VITRO S A B DE C V SR NT 8.62500% 02/01/2012
ARVINMERITOR INC NT 8.750% 03/01/2012 MAKE WHOLE
STONE CONTAINER CORP SR NT 8.37500% 07/01/2012
UNITED REFNG CO SR NT 10.50000% 08/15/2012
DENNYS HLDGS INC SR NT 10.00000% 10/01/2012
UNISYS CORP SR NT 8.00000% 10/15/2012
DELUXE CORP SR NT 5.000% 12/15/2012 MAKE WHOLE
CASCADES INC SR NT 7.250% 02/15/2013 MAKE WHOLE
SMITHFIELD FOODS INC SR NT 7.75000% 05/15/2013
ROYAL CARIBBEAN CRUISES LTD 7.00000% 06/15/2013 SR NT ISIN #US780153AQ51
ALLTEL CORP DEB 7.00000% 03/15/2016

[Culture]

Obviously, the market has spoken and believes that there is a risk that these bonds will default, with the risk commensurate with the discount. However, I also think is is pretty clear that the general market has driven down many equities and bonds below their fair value. The problem is identifying which ones are which. If you have enough knowledge of the bond market, I suspect you can make some money here. I do not.

[Gone4Good]

The credit markets are not properly pricing risk right now and I do think there are ridiculous bargains to be had. Very solid companies are issuing bonds at 9%+.

Having said that, the fact that very solid companies need to pay 9% for new money means that less solid companies can face a liquidity crisis. You need to do your homework, but if you do, the risk adjusted returns in some bonds is pretty remarkable.

[LOL!]

Hmmm, why do the homework, when you can let someone else do it for you? Why not buy a short-term bond fund?

[Gone4Good]

Quote:

Originally Posted by LOL! Hmmm, why do the homework, when you can let someone else do it for you? Why not buy a short-term bond fund?

That would be my advice.

[Shafer239]

LOL, I asked that same question and got this answer.... You would still have to do the homework on the funds. For instance the PIMCO Total Return Fund is 61% invested in mortgages. The bulk of the mortgages are FNMA and FHLMC which is how the fund got its high credit rating. But, this credit rating is a very inaccurate representation of the quality of the assets in the portfolio. I also got this response from an x-bond trader..."there are numerous disadvantage associated with “Bond FUNDS”. I will need to explain these disadvantages in a sit-down meeting due to the complexity"

Culture...You are right on the money! The guy he is using to pick these bonds is salivating about this once in a lifetime opportunity, as he describes it. I don't have the knowledge but this guy seems to know all the ins and outs. Of course stay away from banking and financials in this market.

[LOL!]

Hmmm, a couple of blow-off reasons. Not real reasons to avoid a short-term bond fund. When I lived on Long Island, there were always tons of ads on the radio why you needed to go into Lehmann Brothers and get them to select the right bonds for you.

[Shafer239]

Quote:

Originally Posted by . . . Yrs to Go That would be my advice.

Yes, wise advise but also some individual opportunities deserve a look, for instance...

432848AR0 HILTON HOTELS CORP CR SENS 7.20000% 12/15/2009 CashShares: +10,000.000 Price: $85.284 Amount: -$8,810.40 Interest: $282.00
Is this somewhere near 20% yield?

[FIREd]

I will let the good folks at the Wellington Management Company (VG Wellesley and VG Wellington) do their homework and pick the bargains for me... Look at the yield on those 2 funds!

[Shafer239]

Quote:

Originally Posted by FIREdreamer I will let the good folks at the Wellington Management Company (VG Wellesley and VG Wellington) do their homework and pick the bargains for me... Look at the yield on those 2 funds!

Sorry i am not familiar with those. Are these the Vanguard funds?
1-year 5-year 10-year
Wellesley Income VWINXBalanced–14.65%–14.24%3.29%4.78%9.93%07/01/1970Wellington VWELXBalanced–26.10%–25.03%3.68%4.63%7.97%07/01/1929

[Gone4Good]

Quote:

Originally Posted by Shafer239 Yes, wise advise but also some individual opportunities deserve a look, for instance... 432848AR0 HILTON HOTELS CORP CR SENS 7.20000% 12/15/2009 CashShares: +10,000.000 Price: $85.284 Amount: -$8,810.40 Interest: $282.00 Is this somewhere near 20% yield?

I don't know the credit story of Hilton any more than I know the inner workings of a Titan rocket . . . but even in this market, a 20% 1 year yield screams risk. It may be a great opportunity, but proceed with caution.

[FIREd]

Quote:

Sorry i am not familiar with those. Are these the Vanguard funds? 1-year 5-year 10-year Wellesley Income VWINXBalanced–14.65%–14.24%3.29%4.78%9.93%07/01/1970Wellington VWELXBalanced–26.10%–25.03%3.68%4.63%7.97%07/01/1929

Yes they are. Wellington has about 35% in intermediate term, high quality corporate bonds and 65% in large value stocks. Wellesley has about 65% in intermediate term, high quality corporate bonds and 35% in large value stocks. Wellington's yield is currently north of 4.4% and Wellesley's is right under 6%.

[2B]

This might be a good place to update the forum on my experience with closed end preferreds. I bought them during the 1st Qtr. I have 9 different funds and 1 preferred stock. At the time of purchase the yield based on dividends was just above 11%. I had about 5% of my portfolio in them.

As of Friday, my funds were down an average of 45% which isn't bad compared to the rest of the market. Some funds were down over 70% in the worst of times but they are now spread out between -25% and -60%. What's interesting is the one preferred stock I have is down less than 2%. The cumulative yield at this point is over 18%. That's a guess. I didn't run the numbers.

Three funds have reduced their dividend. Two had suspended the dividend for a month. One is on the first month of delay. The other one paid the one month of dividend deferred and resumed normal dividends within a month.

All of the funds are "deleveraging" out of auction rate securities which was cited as the reason for the lower payouts of the funds that cut. I expect some other funds to also cut dividends as they complete their version of deleveraging.

Overall, I am still getting about the income stream promised. The cuts have so far been relatively modest. Based on my original purchase price I'm still getting an approximate return over 10%. Most of the funds were selling with 20+% discount to NAV the last time I checked.

When you stretch for yield you always assume greater risk.

[Dreamweaver]

The risk of bond funds is that they buy and sell before maturity, so you are subject to fluctuations in price. This could be good (ala Firedreamer's great funds) or it could be bad. Plenty of bond funds have made very poor returns.

Buying an individual bond, you know you're return right off the bat and you're really only looking at default risk.

If you are really worried about default, given any thought to muni bonds? My sense is that they are really undervalued right now, but to maximize the benefit you should be investing taxable money, as the interest on munis are exempt from taxes.

As for the above corporate bonds, your guess is as good as mine. Plenty of corporations have gone bankrupt (or been bailed out) this year that many (even the people who evaluate corporations everyday) thought were outstanding not so long ago.