9% Bonds

[kowski]

Curious, what ever became of the 9% Bonds GM was offering a year ago?  There was much talk in the magazines about there Junk status.  Did anybody here buy in and are they still paying?

 

[wabmester]

They are still rated as junk. Interest is still being paid. They went from par to about a 10% discount (which brought the yield up to about 10%), and now they are back to par.

It's rarely a good idea to buy individual junk bonds. Just buy a junk bond fund, and you diversify away the default risk.

 

[haha]

It's rarely a good idea to buy individual junk bonds.   Just buy a junk bond fund, and you diversify away the default risk.

Not exactly, IMO. You diversify away the wipe-out risk. The high default rates of the class "junk bonds" stays with you and will tend to reduce your yield below the average weighted coupon yield, due to random defaults.

Ha

 

[wabmester]

Not exactly, IMO. You diversify away the wipe-out risk. The high default rates of the class "junk bonds" stays with you and will tend to reduce your yield below the average weighted coupon yield, due to random defaults.

Right, but would any sane person take on default (wipe-out) risk for the difference between a yield of 9% and 8%?

 

[brewer12345]

Right, but would any sane person take on default (wipe-out) risk for the difference between a yield of 9% and 8%?

Easy. What if you were confident in your analysis that junk bond X trading at 80 points on the dollar would not default and was, in fact, worth par? No brainer in that case.

 

[haha]

Right, but would any sane person take on default (wipe-out) risk for the difference between a yield of 9% and 8%?

No.