ISM/OSM yet again

[FUEGO]

Amazing how the yield to maturity is up around 26-27% (per year) for these issues (assuming 3% inflation). If I felt like I could get even close to $7.x a share in a BK, I'd be all over more of this. A $7 payout would only be 28% of par value. Hmmm...

[FIRE'd@51]

Originally Posted by ERD50

Just remember that The Vanguard and Fidelity Junk Bond funds (ahem... "High Yield") are paying >10% right now. 10% is not 18%, but that's a lot of diversification, plus some potential NAV upside as they are both down ~ 30% over the past year.

Let's say you are contemplating a "junk bond" investment. You could use VWEHX as the core and ISM/OSM (or even PFK which has gotten killed with the insurance stocks) as a satellite, that is to say, create the "ERD50 High Yield Portfolio" with 90%-95% in VWEHX (or VWEAX) and 5%-10% in ISM/OSM/PFK as a yield-enhancer/inflation-hedge.

[RustyShackleford]

Originally Posted by FIRE'd@51

Let's say you are contemplating a "junk bond" investment ...

Shouldn't you have put quotes around "investment" too ?

[youbet]

With the minor deflation we've had the past few months, ISM/OSM rates are drifting downward. The 2/15/09 through 3/14/09 period will pay 3.12% at PAR (ISM).

[youbet]

I found this article about what to do if your bond turns to junk on the Schwab site.

What to Do if Your Bonds Turn to "Junk"

This chart is interesting:

Average corporate debt recovery, 1987–2007
Recovery rate (% of par)
Bank loans 82%
Senior secured bonds 66%
Senior unsecured bonds 39%
Senior subordinated 29%
Subordinated 27%
Junior subordinated 16%



I believe ISM would be in the senior unsecured category which Schwab says pays 39% of PAR on average at settlement after default. At ISM's current selling price of about $9, folks are willing to pay about 36% of PAR.

[haha]

Good article. Thanks for posting, Youbet.

Ha

[youbet]

SLM, ISM and OSM all up significantly the past couple of days. I haven't seen any news to justify this. Anyone notice anything?

[FIRE'd@51]

Originally Posted by youbet

SLM, ISM and OSM all up significantly the past couple of days. I haven't seen any news to justify this. Anyone notice anything?

Maybe a lot of investors read your above post about recovery in the case of default.

[terminator]

Originally Posted by youbet

SLM, ISM and OSM all up significantly the past couple of days. I haven't seen any news to justify this. Anyone notice anything?

It's just a macro trend. All exchange traded debt issues have had significant price increases over the last week or two. All of the BBB-rated ETD I was buying from Oct-Dec that had current yields of 15-25% are now trading at 9-11% current yields. I looked at JSM but passed in light of SLM's leverage compared to the others (150B debt w/ 5B shareholder equity).